China broadens legal tools against foreign sanctions
New Chinese rules raise compliance risks for multinationals caught between Beijing, Washington and Brussels.
By Daniel Okafor · Business Editor
4 min read
China has added new legal weapons to answer foreign sanctions and export controls, increasing the risks for multinational companies that must comply with competing rules. Al Jazeera reported that the measures come as Beijing, Washington and Brussels continue to trade penalties over national security, technology, human rights and trade disputes.
Since March, China has approved two regulations that give authorities more room to act against foreign entities accused of threatening Chinese supply chains or applying sanctions that Beijing views as improper outside their home jurisdiction, according to Al Jazeera. A third proposal, still in draft form, would let Chinese prosecutors pursue foreign organisations and individuals whose unlawful conduct harms China’s national interests or public interest, state media said.
Foreign firms face conflicting duties
James Hsiao, a Hong Kong partner at White & Case, told Al Jazeera that companies are worried about how to meet legal obligations that may point in opposite directions. A business may have to limit contact with a sanctioned party under US or EU rules while weighing whether that same decision could trigger Chinese countermeasures, Hsiao said.
One measure, State Council Decree No. 835, was adopted in April. Al Jazeera reported that it can expose firms to penalties including fines, visa cancellations, asset freezes, limits on investment and restrictions on imports or exports from China if they carry out measures Beijing deems to have improper extraterritorial reach.
Another regulation, State Council Decree No. 834, was passed in March. Under that rule, companies can be penalised if they disrupt, damage or discriminate against China’s industrial or supply chains, according to Al Jazeera.
Paul Hastings, a US multinational law firm, said the changes are likely to make sanctions compliance and supply-chain assessments harder for foreign businesses. The firm said companies may draw greater scrutiny when commercial decisions or compliance steps appear to carry out foreign discriminatory or restrictive measures.
Beijing builds a counter-sanctions system
Hanscom Smith, a senior fellow at Yale Jackson School of Global Affairs, told Al Jazeera that the expanded rules should be read as a signal of future policy. In China’s legal system, regulations may serve as political signals and may not be enforced evenly, Smith said, adding that the rules add complexity for foreign companies operating in the country.
China’s embassy in Washington and its mission in Brussels did not immediately respond to Al Jazeera’s requests for comment. China’s Ministry of Commerce has previously said its anti-sanctions laws protect national sovereignty, security and development interests, as well as the lawful rights of Chinese citizens, legal persons and organisations.
Beijing-based advisory firm Trivium China said in a March research note that foreign companies will increasingly be squeezed between US and Chinese demands. Even Pay, a director at Trivium China, told Al Jazeera that before 2020 Beijing had no established sanctions lists or blocking statutes, leaving it mainly with statements and trade disruptions as responses.
China began expanding its counter-sanctions framework after launching its Unreliable Entities List in 2020, Al Jazeera reported. Western governments have imposed sanctions and export controls on China over claimed security threats and alleged rights abuses in Hong Kong and Xinjiang.
The United States has tried to restrict China’s access to advanced technologies, including high-end chips used in artificial intelligence, and has limited American firms’ dealings with entities linked to China’s military, according to Al Jazeera. The European Union has sanctioned Chinese entities over alleged abuses in Xinjiang and support for Russia’s war in Ukraine, while also opening multiple trade investigations into Chinese companies.
In May, Beijing used its 2021 blocking law for the first time to prevent Chinese citizens and companies from following US sanctions on Chinese independent oil refiners accused of buying Iranian oil, Al Jazeera reported. The same month, China’s Ministry of Justice used Decree No. 835 to classify an EU investigation into Chinese security equipment company Nuctech as improper extraterritorial jurisdiction, and a ministry spokesperson said no organisation or person may assist the EU probe.
This story draws on original reporting from Al Jazeera.