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.
Immense Pressure
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.
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 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.
