China Expands Anti-Sanctions Toolkit, Raising Risks for Foreign Firms

China is bolstering its defenses against international sanctions and export controls, a move that places multinational companies operating within its borders in a precarious position. Beijing has enacted two new regulations since March, expanding its capacity to retaliate against foreign entities perceived as threatening its supply chain security or imposing sanctions with "improper extraterritorial jurisdiction."

A third law, currently in draft form, would empower Chinese prosecutors to pursue legal cases against foreign organizations and individuals whose actions are deemed to harm China's national or social public interests. This initiative is part of a broader effort to strengthen China's public interest litigation framework.

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Some companies have expressed some concern that these measures could affect ordinary commercial transactions, particularly where companies face potentially conflicting legal obligations.

These developments have raised concerns among international businesses. James Hsiao, a Hong Kong partner at White & Case, noted that companies are worried about navigating conflicting regulations. "Some companies have expressed some concern that these measures could affect ordinary commercial transactions, particularly where companies face potentially conflicting legal obligations," Hsiao told Al Jazeera. He explained that a company might be compelled by U.S. or EU sanctions to restrict dealings with a counterparty, while simultaneously facing risks under Chinese countermeasures for taking such action.

Firms risk facing significant penalties, including fines, visa cancellations, asset freezes, and restrictions on imports or exports, if they implement measures deemed to have "improper extraterritorial jurisdiction" under State Council Decree No. 835. Similarly, State Council Decree No. 834 penalizes companies that "disrupt, undermine or discriminate against China’s industrial or supply chains." These evolving regulations are expected to complicate compliance efforts for businesses and increase scrutiny of their decisions, particularly when those decisions could be perceived as implementing foreign restrictive measures.

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In a ‘rule by law’ system like China’s, regulations are a form of signalling and won’t necessarily be applied uniformly.