China Hits Back Against Sanctions With New Law

June 17, 2021 3 minute read

On June 10, China passed widely anticipated legislation, dubbed the Anti-Foreign Sanctions law, to counter-sanctions imposed by the US and the EU. Effective immediately, it provides a legal framework for Beijing to more forcefully respond to foreign sanctions.

Under the new law, those deemed to be directly or indirectly responsible for devising, implementing, or assisting the implementation of sanctions imposed by foreign countries or otherwise interfering in China’s affairs could face sanctions. In addition, it opens the door for Chinese citizens and organizations to sue in Chinese courts those who enforce foreign sanctions. Finally, the law prohibits companies and individuals from complying with sanctions it believes to be unjust.

Designated individuals and entities — as well as their immediate family and close affiliates — could be banned from entering the country, have their assets or property seized, or be blocked from conducting business with Chinese companies.

It’s clear China views the move as a necessary measure and a means of retaliation against the perceived threat of future sanctions against Chinese companies. Indeed, the legislation is positioned as a defensive step, one that empowers the Chinese government to hit back when “a foreign country violates international law and basic norms of international relations; uses every kind of excuse or the basis of its own laws to contain and suppress China; adopts discriminatory restrictive measures against Chinese citizens and organizations; and interferes in China’s internal affairs.”

That position isn’t unfounded either. Over the past few years, the tensions between the West — specifically the US — and China have escalated over Beijing’s actions in Xinjiang and Hong Kong, with the two countries trading tit-for-tat sanctions. The US, often with the EU’s support, has sanctioned several Chinese officials and entities over alleged human rights abuses, and China has imposed counter-sanctions in response, including against European academics and politicians, US officials, and companies such as Raytheon and Lockheed Martin. Indeed, in many ways, this new legislation isn’t new at all. It simply formalizes actions already taken, provides a legal basis for future actions, and clarifies who can be sanctioned and how. 

Even so, the law has companies on edge, as it’s unclear how selective China will be when wielding this authority. For many, it may seem an impossible situation: complying with US and EU sanctions means they run the risk of being sued or shut out of China’s lucrative domestic market. The prospect of losing access to the dollar and the rest of the global financial system will likely sway most companies to still side with the US and other Western nations. But they may also start to exert pressure and sway US officials to soften their stance on sanctions. Regardless, financial institutions will need to pay even closer attention to the shifting tides of sanctions as China starts to put this new tool to use.