Intellasia East Asia News – Could business be caught in the crossfire of China’s ‘legal battle with the West’?

Businesses in China could get caught in the crossfire as the national legislature presses ahead with a bill meant to bolster countermeasures against Western sanctions, according to analysts.

The draft anti-foreign sanctions legislation is a response to action by the United States and other countries over Beijing’s political crackdown in Hong Kong and its treatment of ethnic minority groups in Xinjiang. It is expected to pass on Thursday at the closing session of the National People’s Congress (NPC) Standing Committee.

Details of the legislation have not been made public but analysts said that while it might not do much to deter Western governments from sanctioning China over human rights concerns, it would provide a legal basis for Chinese countersanctions.

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This would compel Chinese companies to not comply with foreign sanctions and it would pressure foreign firms with businesses in China to avoid links to entities targeted by Chinese sanctions, analysts said.

Huang Feng, a law professor at Beijing Normal University, said that in recent years firms in China had been caught between complying with Western sanctions and abiding by Chinese rules and regulations.

“This new law will free these companies from Western sanctions as it will provide them with a clear legal justification so that when they apply for an exemption from the US government, they can clearly state that they need to comply with the Chinese law,” Huang said.

“Currently, we lack the legal basis when we announce countermeasures against Western sanctions. Those are just empty words when they are not backed by law.”

Adam Ni, director of the Canberra-based China Policy Centre, said that while the law was largely symbolic, it would create disincentives for anyone involved in implementing sanctions.

Ni said these parties, including import and export companies, financiers and other intermediaries, such as technology companies, would now find themselves in “a tough spot”.

“If you don’t carry out these sanctions, then potentially you are in trouble with the US,” he said. “But if you do, potentially you’ll come under pressure from Beijing. Each company would have to weigh up their own costs and benefits.

“Both in the rhetorical landscape as well as material incentive, it is becoming difficult for these companies because they get caught in the crossfire.”

The proposed law comes after the US, the European Union, Britain and Canada sanctioned Chinese officials over their policies in Xinjiang, leading to Chinese countersanctions.

In response to the introduction of the national security law and other developments in Hong Kong, the US targeted various individuals and entities, including Wang Chen, vice-chair of the NPC’s Standing Committee.

It also sanctioned Hong Kong Chief Executive Carrie Lam Cheng Yuet-ngor, 10 other Hong Kong government officials and 14 NPC vice-chairmen.

Washington also banned imports of cotton and tomatoes from Xinjiang because of concerns about forced labour, and imposed visa restrictions against Communist Party Politburo member Chen Quanguo.

Beijing has aggressively defended its policies in Hong Kong and Xinjiang as being internal matters, and has responded in kind with sanctions against US officials, including former US Secretary of State Mike Pompeo and US companies such as Lockheed Martin and Boeing.

Amid the turmoil, China also sanctioned European lawmakers, scholars and entities, and the European Parliament froze a landmark investment deal with China.

Shi Yinhong, a professor of international relations at Renmin University, said the threat of Chinese countersanctions could make certain governments have “second thoughts” about taking action against China.

But Shi said foreign businesses in China also needed to be clear about any potential involvement with foreign sanctions.

“Business activities are very complex and the industrial chain is very complex and if they have taken part in foreign sanctions to any degree, they cannot rule out the fact that they may face some repercussions,” he said.

China has used various tools to respond to pressure from foreign sanctions in the past. In January, the Ministry of Commerce issued a “blocking statute” requiring Chinese companies to report any foreign restrictions on economic or trade activities. The statute also enabled the ministry to issue prohibition orders against compliance.

Henry Gao, an associate professor of law at Singapore Management University, said the law would “greatly add teeth” to China’s previous legislation because two measures the Chinese government’s unreliable entity list for foreign businesses last September and its blocking statute were both “departmental rules which are much lower in the legislative hierarchy”.

“Adding this law demonstrates the importance China attaches to the issue and signals to the West, especially the US, that China is very serious,” Gao said.

“It will be used mainly as a defence to ensure that China will be able to retaliate tit-for-tat against the US.”

Gao said that while it was not yet clear how foreign firms would be affected, China might be “quite cautious in its application, at least initially”.

A Beijing-based scholar who declined to be named because he was not authorised to give interviews, said there would “not be a great deterrence or blocking effect” against Western sanctions on China, but that it was “part of China’s legal battle with the West”.

“It is meant to show a determination not to fear coercion and at the same time to provide a legal foundation for countersanctions,” he said. “The greatest impact will be for Chinese companies… as the law stipulates that sanctioned Chinese companies cannot carry out those sanctions, and can receive relief for losses they incur.”


Category: China

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