China expands anti-sanctions toolkit, raising risks for foreign firms

China is expanding its toolkit to counter foreign sanctions and export controls, placing multinational companies in the line of fire as Beijing, Washington and Brussels exchange tit-for-tat punitive measures.

Since March, Beijing has passed two new regulations that expand its ability to retaliate against foreign entities deemed to have threatened its supply chain security or enforced sanctions imposed with “improper extraterritorial jurisdiction”.

A third law, still in draft form, would allow Chinese prosecutors to bring cases against foreign organisations and individuals whose “unlawful acts harm the country’s national interests or social public interest”, according to state media.

The move, part of a broader effort to strengthen China’s public interest litigation law, was announced in June.

James Hsiao, a Hong Kong partner with the multinational law firm White & Case, said that firms are concerned about how to comply with opposing rules and regulations.

“Some companies have expressed some concern that these measures could affect ordinary commercial transactions, particularly where companies face potentially conflicting legal obligations,” Hsiao told Al Jazeera.

“A company may be required under US or EU sanctions rules to restrict dealings with a counterparty, while also needing to consider whether taking that action could create risk under [Chinese] countermeasures,” he said.

Firms could face fines, visa cancellations, asset freezes, investment restrictions and curbs on the import or export of goods from China if they implement measures with “improper extraterritorial jurisdiction” under State Council Decree No. 835, which was passed in April.

Under State Council Decree No. 834, passed in March, companies can face penalties if they “disrupt, undermine or discriminate against China’s industrial or supply chains”.

These changes are likely to complicate firms’ efforts to adhere to Western sanctions and assess supply chain risks, exposing them to “increased scrutiny where business decisions or compliance measures could be perceived as implementing foreign discriminatory or otherwise restrictive measures”, according to the US multinational law firm Paul Hastings.

Hanscom Smith, a senior fellow at Yale Jackson School of Global Affairs, said the expanded regulations should be seen as a sign of things to come.

“In a ‘rule by law’ system like China’s, regulations are a form of signalling and won’t necessarily be applied uniformly,” Smith told Al Jazeera.

“Regardless, the new measures increase the regulatory complexity for foreign companies doing business in China.”

China’s embassy in Washington and its mission in Brussels did not immediately respond to Al Jazeera’s requests for comment.

The Ministry of Commerce has previously said its anti-sanctions laws safeguard China’s “national sovereignty, security and development interests”, and “protect the legitimate rights and interests of Chinese citizens, legal persons and other organisations.”

 Beijing-based advisory firm Trivium China said in a March research note that foreign companies will be “increasingly caught between an American rock and a Chinese hard place”.

Since introducing its “Unreliable Entities List” in 2020, China has built up its arsenal of measures to counter foreign sanctions and export controls, which Western capitals have imposed in response to claimed national security threats and alleged human rights abuses in places such as Hong Kong and Xinjiang.

The US has sought to block China from accessing advanced technologies, including high-end semiconductors used to power AI, and restricted American companies from doing business with entities linked to the Chinese military.

While less aggressive in its approach to “derisking” from China, the EU has sanctioned Chinese entities for allegedly committing human rights violations in Xinjiang and supporting Russia’s war in Ukraine.

The bloc has also launched numerous probes into Chinese companies for unfair trade practices.

“Before 2020, Beijing didn’t have established sanctions lists or blocking statutes, meaning the only retaliatory measures at their fingertips were harshly worded statements and various trade disruptions,” Even Pay, a director at Trivium China, told Al Jazeera.

“Counter-sanctions measures allow for a much more direct tit-for-tat response, which Beijing prefers.”

In May, Beijing for the first time invoked its 2021 “blocking law” to bar Chinese citizens and companies from complying with US sanctions imposed on Chinese “teapot” oil refineries for buying Iranian oil.

That same month, the Ministry of Justice invoked Decree No. 835 to determine that an EU investigation into Nuctech, a Chinese security equipment company with subsidiaries in Europe, was a case of “improper extraterritorial jurisdiction”.

In line with the decision, no organisation or individual may assist in the EU  probe, a ministry spokesperson said.