Foreign companies doing business in China will soon find their operating environment littered with economic roadblocks because of a series of new “anti-foreign sanctions” rules that China’s legislature rushed to pass on June 10.
The new rules were introduced as countermeasures against foreign nations enacting sanctions on Beijing. This development may put foreign organizations and individuals enforcing their home countries’ sanctions against China in a tough position going forward.
The new law expands the Chinese regime’s toolkit to fight back against sanctions and can be used in conjunction with the existing Unreliable Entities List of companies it created last year.
The measures are extensive and give the Chinese Communist Party (CCP) broad powers to sanction organizations and individuals complying with sanctions against China. So, what exactly can it do? The CCP could deny visas for, deport, and restrict travel for affected entities, seize properties they have within China, block business or personal transactions, put pressure on the target’s family members and associates, and any “other necessary measures” deemed appropriate by the regime.
Basically, the law allows the CCP to do anything it wants under the pretense of combating “discriminatory” foreign sanctions.
The CCP rushed the legislation—it gave hints that this was coming merely days prior—during the 29th session of the 13th National People’s Congress, without the usual period of public consultation.
Beijing has been increasingly dismayed by recent escalating pressure from the United States and its allies. The international community has stepped up criticism of the CCP’s human rights abuses against Uyghur minorities and Falun Gong practitioners and its suppression of political freedoms in Hong Kong.
Several actions were taken during the past few years, including Canada’s house arrest of Huawei CFO Meng Wanzhou, international retailers’ boycott of Xinjiang-harvested cotton, U.S. sanctions and trade restrictions affecting Chinese state-linked companies, and the EU putting on ice its trade and investment pact with Beijing, all of which were viewed by the CCP as measures to “contain and suppress” a rising China.
Foreign Companies to Be Marginalized
The CCP’s new retaliatory sanctions law’s broad language makes it unprecedented in scope compared to historical sanctions enacted by other countries. As a result, foreign companies could easily find themselves with a target on their backs. Beijing could retaliate against companies or individuals complying with legal sanctions from their home countries.
AmCham China Chairman Greg Gilligan summarizes it well.
“This new law presents potentially irreconcilable compliance problems for foreign companies,” he told Bloomberg News in an interview.
For example, imagine an international bank complying with President Joe Biden’s updated executive order to affirm the Trump administration policy of restricting the purchase of stock in certain Chinese companies with military links by refusing to buy those companies’ stock in its Asia emerging markets fund.
In this scenario, the CCP could punish the bank by forcing Chinese companies to cancel all their business with the bank. Beijing could go as far as seizing property or assets owned by the bank in China. If the bank is one of the major U.S. investment banks such as JPMorgan, which recently took full ownership of its China subsidiary, the CCP could seize its Chinese business entirely.
Take fast-fashion retailer H&M as another example. H&M earlier this year was caught in a firestorm in China for its earlier statements condemning forced labor in China’s Xinjiang region. With the new law, the CCP can go much further than inciting social media users to boycott H&M in China. The CCP can outright shut down H&M’s stores in China or permanently ban it from operating in the country.
While these are hyperbolic examples and I don’t expect the CCP to resort to such measures casually, these measures are now available to the CCP under the new law.
For foreign investors and investors in multinational corporations with a presence in China, this law is a compliance nightmare and severely increases operational risk in China. Corporate CEOs could be facing a dilemma with few viable solutions.
China’s Foreign Ministry spokesman Wang Wenbin on June 11 told reporters in Beijing, in one of the most obtuse statements of the week, that the Anti-Foreign Sanctions Law is a net positive for foreign investment in China.
“China will only open its door wider to the world and remain committed to fostering a better business environment for foreign companies,” Wang said.
Ironically, if the law is carried out, China will automatically be forcing foreign companies to decouple from China.
Fan Yu is an expert in finance and economics and has contributed analyses on China’s economy since 2015.
Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.