China’s parliament rushed through a new law on Thursday intended to counter sanctions imposed by foreign governments on Chinese officials and companies, escalating its continuing legal battles with the US and the EU.
The law was passed in secret by the National People’s Congress standing committee after two readings rather than the usual three, and builds on earlier measures unveiled by China’s commerce ministry in January. The January “blocking statutes” prohibited Chinese companies and individuals from complying with foreign government sanctions that target China.
“These moves signal a further escalation of the legal warfare between China and the US,” said Angela Zhang, director of the Center for Chinese Law at the University of Hong Kong.
Last week President Joe Biden updated Trump administration rules banning Americans from investing in dozens of Chinese companies. Biden is now in the UK for a G7 summit, where he hopes to rally US allies against the challenges posed by China and Russia.
“The fact that the law was pushed out after last week’s [Biden administration] announcement of amendments to the securities trading ban is consistent with China’s recent pattern of making reciprocal sanctions announcements in response to foreign measures,” said Nick Turner, a lawyer at Steptoe & Johnson in Hong Kong.
The Trump administration had also threatened to impose sanctions on companies providing financial services to Chinese officials it said were responsible for Beijing’s crackdowns on Hong Kong’s pro-democracy movement and Muslim Uyghurs in China’s northwestern Xinjiang region. Afterwards Carrie Lam, Hong Kong’s chief executive, complained banks in the territory would not deal with her, leaving her stuck with “piles of cash” at her government residence.
According to a draft of the new law, which was released only after its passage, Beijing can target individuals and organisations involved in implementing foreign sanctions with countermeasures including asset seizures, potentially putting foreign investors’ China operations in a difficult position.
“If [the commerce ministry] issues a prohibition order under this law, then it would be illegal in China for a subsidiary of a US bank or any company to comply with US sanctions,” Turner said.
Beijing has not yet targeted any foreign investors under the commerce ministry countermeasures announced in January. It has also not designated any multinational companies as “unreliable entities” — something it first threatened to do two years ago if they did anything that undermined China’s national interests, such as selling military equipment to Taiwan.
“These regulatory tools were adopted with the primary purpose to deter the US government rather than actually penalise foreign companies,” Zhang said. “It would be costly for China to adopt these countermeasures as they . . . would lead to more decoupling [from the US], which is not in China’s interest.”