China has introduced new regulations that enhance its retaliation capabilities against the sanctions policies of Washington and Brussels. The move puts global companies at risk of being caught between conflicting rules from the US, EU and China.
Two State Council decrees that entered into force in March and April broaden Beijing's retaliation tools against foreign sanctions. Decree No. 834 stipulates penalties for companies that 'disrupt, undermine or discriminate against' China's industrial or supply chains. Decree No. 835 imposes fines, visa cancellations, asset freezes and trade restrictions on firms that apply measures under 'inappropriate extraterritorial jurisdiction'.
Growing Risks for Foreign Companies
Experts note that the new regulations significantly increase regulatory complexity for multinational companies. James Hsiao, a Hong Kong partner at international law firm White & Case, said companies are concerned about complying with conflicting rules. Hsiao stated that a company might have to restrict relations with a counterparty due to US or EU rules, while also having to assess whether that action would pose 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. Smith commented, 'In a system like China's that is 'rule of law', regulations are a kind of signaling tool and will not necessarily be uniformly enforced.'
Beijing's Retaliation Strategy
Even Pay, a director at Beijing-based consultancy Trivium China, highlighted the shift in China's approach. Pay said, 'Before 2020, Beijing had no established sanctions lists or blocking statutes, meaning the only retaliation measures at hand were strongly worded statements and various trade disruptions.' He noted that counter-sanction measures allow for a much more direct tit-for-tat response, which Beijing prefers.
China has already started using its new tools. In May, Beijing invoked its 2021 'blocking statute' for the first time to prohibit compliance with US sanctions targeting Chinese 'teapot' oil refineries that had faced US sanctions for purchasing Iranian oil.
US and EU Targets
China's moves are a response to increasing pressure from the US and the European Union. The US has tried to block China's access to advanced technologies and restricted American companies from doing business with entities linked to the Chinese military. The EU, meanwhile, has imposed sanctions on Chinese entities, accusing them of human rights abuses in Xinjiang and of supporting Russia's war in Ukraine.
China is also responding to such EU investigations. That same May, China's Ministry of Justice invoked Decree No. 835 to determine that the EU investigation into Nuctech, a Chinese security equipment company with subsidiaries in Europe, fell under 'inappropriate extraterritorial jurisdiction'. A ministry spokesman announced that in line with this ruling, no entity or individual may assist the EU investigation.
China's Ministry of Commerce previously stated that anti-sanctions 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.'
