China has expanded its retaliation tools against foreign sanctions and export controls, leaving multinational companies caught in the middle of mutual punitive measures between Beijing, Washington and Brussels.
Since March, Beijing has enacted two new regulations that expand its authority to retaliate against foreign entities deemed to threaten supply chain security or that impose sanctions under 'inappropriate extraterritorial jurisdiction'.
New Regulations
State Council Decree No. 834, adopted in March, provides for sanctions against companies that 'disrupt, undermine or discriminate against' China's industrial or supply chains. Decree No. 835, adopted in April, imposes sanctions such as fines, visa cancellations, asset freezes, investment restrictions and limits on importing or exporting goods from China on firms that take measures under 'inappropriate extraterritorial jurisdiction'.
A third law, still in draft, would allow Chinese prosecutors to file lawsuits against foreign entities and individuals that 'engage in illegal actions that harm the country's national interests or public welfare.' Announced in June, this step is part of China's effort to strengthen its public interest litigation law.
What Do Experts Say?
James Hsiao, a Hong Kong partner at international law firm White & Case, told Al Jazeera that companies are concerned about how to comply with conflicting rules. 'Some companies have expressed concerns that these measures could affect ordinary commercial transactions, particularly when facing potentially conflicting legal obligations,' Hsiao said.
Hsiao noted that a company might need to restrict dealings with a counterparty under US or EU sanctions rules while also having to assess whether that action poses a risk under China's countermeasures.
Hanscom Smith, a senior fellow at the Yale Jackson School of Global Affairs, said the expanded regulations should be seen as a sign of things to come. 'In a system like China's that is "ruled by law," regulations are a form of signaling and will not necessarily be uniformly enforced,' Smith told Al Jazeera. Smith added that the new measures increase regulatory complexity for foreign companies doing business in China.
Even Pay, director of Beijing-based consultancy Trivium China, told Al Jazeera: 'Before 2020, Beijing had no established sanctions lists or blocking statutes, meaning that the only retaliatory measures it had were strongly worded statements and various trade disruptions.' Pay said the counter-sanction measures allow for a much more direct tit-for-tat response, which Beijing prefers. In a research note published in March, Trivium China said foreign companies would be caught 'between a rock (the US) and a hard place (China).'
Pressure from the US and EU
While the US has tried to block China's access to advanced technologies, including high-end semiconductors used in artificial intelligence, it has restricted American companies from doing business with entities linked to the Chinese military. The EU has sanctioned Chinese entities over human rights abuses in Xinjiang and support for Russia's war in Ukraine. The bloc has also launched numerous investigations into Chinese companies over unfair trade practices.
Initial Steps from Beijing
In May, Beijing invoked its 2021 'blocking statute' for the first time to prohibit compliance with US sanctions on Chinese 'teapot' oil refineries that were targeted for purchasing Iranian oil. The same month, the Ministry of Justice invoked Decree No. 835 to determine that an EU investigation into Nuctech, a Chinese security equipment company with subsidiaries in Europe, falls under 'inappropriate extraterritorial jurisdiction.' A ministry spokesperson said that according to this ruling, no entity or individual may assist the EU investigation.
China's embassy in Washington and its mission in Brussels did not immediately respond to Al Jazeera's requests for comment. The Ministry of Commerce has previously stated that the anti-sanction laws protect China's 'national sovereignty, security and development interests' and safeguard the 'legitimate rights and interests of Chinese citizens, legal persons and other organizations.'
