China has implemented new regulations expanding its retaliation powers against sanctions by the US and the European Union. This move further complicates compliance for multinational companies caught in the middle of trade tensions between Beijing, Washington and Brussels.
Two State Council decrees that came into force in March and April pave the way for China to retaliate against foreign entities that disrupt its industrial and supply chains or take measures under "inappropriate extraterritorial jurisdiction." Decree No. 835 imposes sanctions on such firms, including fines, visa cancellations, asset freezes and trade restrictions.
Companies Caught Between Conflicting Rules
James Hsiao, a Hong Kong partner at international law firm White & Case, said companies are concerned about how to comply with conflicting US, EU and Chinese rules. "Some companies have expressed concern that these measures could affect ordinary commercial transactions, especially when they face potentially conflicting legal obligations," Hsiao said.
Hanscom Smith, a senior fellow at the Yale Jackson School of Global Affairs, said the expanded regulations are a sign of things to come. "In a 'rule by law' system like China's, regulations are a form of signaling and will not necessarily be applied uniformly," Smith said.
US and EU Sanctions Pressure
China's moves are a response to mounting pressure from the US and the EU. The US has sought to block China's access to advanced technologies and restricted American companies from doing business with entities linked to the Chinese military. The EU has sanctioned Chinese entities for human rights abuses and for supporting Russia's war in Ukraine.
Even Pay, a director at Beijing-based consultancy Trivium China, said, "Before 2020, Beijing had no established sanctions lists or blocking statutes, meaning its only retaliation measures were strongly worded statements and various trade disruptions." Pay said the new counter-sanction measures allow for a much more direct tit-for-tat response.
First Instances of Implementation Seen
China has begun using its new powers. In May, it invoked its 2021 "blocking statute" for the first time to prohibit compliance with US sanctions on Chinese oil refiners that were sanctioned for purchasing Iranian oil.
That same month, China's Ministry of Justice ruled that an EU investigation into Chinese security equipment company Nuctech, which has subsidiaries in Europe, fell under "inappropriate extraterritorial jurisdiction." A ministry spokesperson said that no entity or individual may assist the EU investigation in accordance with this ruling.
China's Ministry of Commerce has previously stated that anti-sanction laws protect the country's "national sovereignty, security and development interests" and safeguard the "legitimate rights and interests of Chinese citizens, legal persons and other organizations."
