China has implemented new regulations to enhance its retaliation capacity against US and EU sanctions, leaving global companies caught between rising trade and political tensions between Beijing, Washington, and Brussels.
Two State Council decrees that came into force in March and April expanded China's authority to impose sanctions on foreign entities. Decree No. 834 provides for penalties against companies that 'disrupt, undermine, or discriminate against' China's industry or supply chains. Decree No. 835 imposes fines, visa cancellations, asset freezes, and trade restrictions on firms applying measures under 'improper extraterritorial jurisdiction'.
Growing Risks for Foreign Companies
Experts say the new regulations have significantly increased regulatory complexity for multinational companies. James Hsiao, a Hong Kong partner at White & Case, said companies are concerned about how to comply with conflicting US, EU, and Chinese rules. Hsiao stressed that a company's restriction of a business relationship under Western sanctions rules could also pose a risk under China's countermeasures.
Even Pay, director of Trivium China, said that before 2020, Beijing lacked established sanctions tools, but now it has gained a much more direct retaliation capability with counter-sanction measures. Pay's firm warned that foreign companies would be squeezed 'between the American rock and the Chinese hard place'.
Response to Western Sanctions
China's moves are a response to growing pressure from the US and the EU. The US continues to block China's access to advanced technology and restrict American companies from doing business with entities linked to the Chinese military. The EU, meanwhile, has sanctioned Chinese entities accusing them of human rights violations in Xinjiang and support for Russia's war in Ukraine. The bloc has also launched numerous investigations against Chinese companies for unfair trade practices.
Practical Implementation Begins
Beijing has begun using its new powers. In May, it invoked for the first time a 2021 'blocking statute' to ban compliance with sanctions on Chinese oil refineries that were targeted by the US for purchasing Iranian oil. Also in May, the Ministry of Justice ruled that the EU's investigation into Chinese security equipment company Nuctech, which has subsidiaries in Europe, fell under 'improper extraterritorial jurisdiction.' The ministry announced that, in line with this ruling, no entity or individual could assist the EU investigation.
The Chinese Commerce Ministry had stated that the anti-sanctions laws protect the country's 'national sovereignty, security, and development interests' and safeguard the legitimate rights of Chinese entities.
