China Expands Its Sanctions Deterrence Arsenal

BEIJING’S FAST-TRACKING of an Anti-Foreign Sanctions Law suggests it feels an increasing need for urgency in creating mechanisms for retaliating against Western sanctions on China.

With US President Joe Biden using this weekend’s G7 summit to again urge Western countries to co-operate to counter China’s growing influence, the urgency is, if anything, more pressing.

The National People’s Congress Standing Committee passed the law on June 10 without the formality of the third reading that would usually be required. Nor were drafts circulated to relevant parties for consultation, as is typically the case. The contents of the final law are not yet public. That ambiguity alone will have a chilling effect on multinational companies. 

The fast-tracking follows the expansion last week by the Biden administration of the US blacklist of Chinese companies off-limits to US investors as part of Washington’s attempts to deny China capital and technology.

The Anti-Foreign Sanctions Law adds to a growing arsenal of trade-related laws and regulations China has adopted, but not yet used, in its confrontations with the sanctions-happy United States and, latterly, the EU. These include the Unreliable Entity List, Export Control Law and Rules on Unjustified Foreign Measures.

While these new trade weapons are at this point being used primarily for deterrence, they will create (an intended) uncertainty for multinationals with China subsidiaries. Custom and practice suggest that their use will be politically driven but neither transparent nor consistent. 

Collectively they ratchet up the pressure on multinationals to choose between the penalties from their home countries for violating sanctions against China and the penalties China can now impose on them for complying.

This, in turn, Beijing hopes will create domestic pressure that will influence Washington and Brussel’s cost-benefit calculations when it comes to considering new sanctions on Chinese firms.

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Filed under China-E.U., China-U.S., Trade

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