China’s new Sanctions Laws and the end of ‘Long-Arm Jurisdiction’

China’s new Sanctions Laws and the end of ‘Long-Arm Jurisdiction’

- Geopolitical Risk - Intelligence

12-08-2021


In late July, China imposed a series of sanctions targeting US government officials, including US Commerce Secretary, Wilbur Ross. The sanctions served as a retaliatory measure after the US imposed similar measures on Chinese politicians in response to the restrictions on civil liberties in Hong Kong and underscore the increasingly tense relationship between the two nations.

The sanctions are the first imposed by the Chinese government under its new Anti-Foreign Sanctions law. The law, introduced on 10 June, gives the government far-ranging powers to impose punitive measures on individuals and organisations deemed to be supportive of sanctions imposed on China by other countries.

While the law had been months in the making, state media only disclosed the existence of a draft on 7 June, saying the bill was ready for its second reading and final passage this week by the standing committee of the National People’s Congress. The law was passed via an expedited process, skipping public consultation and requiring lawmakers to review the bill twice, instead of the usual three times.

This lack of transparency, unusual even for the CCP, and the speed with which the bill was passed caught Western governments off guard. Western observers have also raised concerns that rushing new legislation without an opportunity for public comment will likely jeopardise foreign investor confidence in China’s legal system as well.

Why now?

The law is the culmination of Xi Jinping’s recent demands to strengthen China’s legal framework for safeguarding its sovereignty, security and interests in dealings with foreign parties. Numerous Western observers have commented that the law is likely a response to growing US and EU pressure over trade, technology,  and China’s actions in Hong Kong and Xinjiang.

The US and its allies have increasingly sanctioned Chinese officials over China’s treatment of its Muslim Uyghur minority in Xinjiang and crackdown on pro-democracy activities in Hong Kong. Washington has also targeted Chinese companies, such as Huawei and ZTE, for violating US sanctions on Iran or North Korea.

State-owned media and government sources have claimed that the bill is a legitimate response to sanctions imposed by Western countries over China’s actions in Tibet, Hong Kong and Xinjiang. Hong Kong’s CCP-backed leader Carrie Lam said in a statement on 08 June that the new law would give Western governments “a taste of their own medicine.”

This attitude is mirrored in the new bill’s wording, article three of which states that:

“The People’s Republic of China opposes hegemonism and power politics and opposes any country’s interference in China’s internal affairs under any pretext and in any way.”

Government-backed media outlets also stated that the law will provide a comprehensive legal basis for “blocking illegal foreign sanctions and preventing Chinese individuals and entities from suffering the damage resulting from such illegal sanctions.”

What powers does the bill provide?

Under the new legislation, a “relevant department” of the Chinese government can place individuals or entities on an “anti-sanctions” list if they are deemed to be involved in making or implementing “discriminatory measures” (sanctions) against Chinese citizens or organisations.

Chinese authorities can use the following punitive measures on entities in breach of the new law:

  • Refuse visas, ban entry, invalidate visas and deport foreigners.
  • Seize or freeze movable, immovable and other types of property.
  • Prohibit transactions with domestic organizations or individuals.
  • Allow Chinese nationals and companies to file lawsuits seeking compensation against. individuals and firms who implement “discriminatory restrictive measures”.
  • Take “other necessary measures”.

These powers allow the central government free reign to pursue organisations and entities if the government perceives them as engaging in economically harmful activities.

Who can be targeted?

There are currently no indications around what types of individuals or organisations will be targeted by the legislation; however, the broad definitions of the law and its focus on countering existing hegemony suggest that companies currently complying with sanctions put in place by Western governments will likely be targeted by the anti-sanctions law.

In addition, Article Five of the bill lists the following additional targets for measures:

  • The spouses and immediate family members of individuals included in the counter-sanction list;
  • Senior managers or actual controllers of organizations included in the counter-sanction list;
  • Organizations where individuals included in the counter-sanction list serve as senior management personnel;
  • Organizations that are actually controlled by or participated in the establishment and operation of individuals and organizations included in the counter-control list.

The new law presents “potentially irreconcilable compliance problems for foreign companies with respect to a conflict of law between foreign jurisdictions and China,” AmCham China Chairman Greg Gilligan said.

How PGI can help

Opaque markets are particularly difficult to navigate and being able to translate what the internal politics, stakeholders and legislative changes of a country mean to operations on the ground can be cumbersome and potentially costly. PGI are market leaders at understanding difficult states and using our unrivalled knowledge to support businesses to proactively mitigate risks.

If you are concerned about your operations in China or Hong Kong—as well as any other market—our team of experts provide tailored assessments of how ongoing and future legislation is likely to impact your capacity to continue business. Contact us via: intel@pgitl.com or +44 (0)845 600 4403

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