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Tuesday, August 03, 2021

Explained: How China plans to prevent further US sanctions on its companies

The move by China comes just before the implementation of an executive order signed by President Donald Trump in November last year that prohibits US investments in Chinese firms allegedly owned or controlled by the Chinese military.

By: Explained Desk | New Delhi |
Updated: January 12, 2021 9:24:29 am
Donald Trump with Xi Jinping in 2017. (Bloomberg Photo: Qilai Shen, File)

As the US continues to blacklist dozens of Chinese companies it believes are a threat to its national security, Beijing responded on Saturday by announcing new rules to protect its firms from “unjustified” US sanctions.

The move by China comes just before the implementation of an executive order signed by President Donald Trump in November last year that prohibits US investments in Chinese firms allegedly owned or controlled by the Chinese military. The order comes into force on January 11.

US tirade against Chinese firms

As US-China relations have continued to sour over the past year, a host of Chinese companies have faced Washington’s wrath.

On Monday, three large Chinese telecom companies — China Mobile, China Telecom and China Unicom Hong Kong — which allegedly have ties with the Chinese military, will be delisted by the New York Stock Exchange (NYSE). Last week, Trump signed an executive order banning eight Chinese apps, including Alipay.

Over the past few months, the US has targeted several Chinese tech giants, including TikTok and Huawei. China’s largest chipmaker Semiconductor Manufacturing International Corporation (SMIC) and drone manufacturer DJI were blacklisted, with American firms being barred from selling products to these companies on national security grounds.

According to a South China Morning Post report, the Trump administration is now believed to be contemplating prohibiting Americans from investing in Alibaba and Tencent, China’s two most valued publicly listed companies in the US.

Also in Explained |The new technology cold war

How China plans to respond

On Saturday, China’s Ministry of Commerce said it was introducing new rules on “counteracting unjustified extra-territorial application” of foreign laws.

Under the rules, which came into effect immediately, Chinese authorities would be able to issue orders declaring that individuals or companies in the country do not need to comply with foreign restrictions. Chinese entities can now sue for compensation if their interests are harmed as a result of foreign sanctions that “improperly prohibit or restrict” them, and Chinese courts would be able to punish global companies abiding by such foreign laws.

The rules do not mention the US directly, but are understood to be a pushback against sanctions and restrictions on trade imposed by Washington. It is unclear, however, whether the rules are only meant against sanctions aimed at China specifically, or against other US adversaries such as Russia and Iran, but which end up affecting Chinese companies.

Nicholas Turner, a Hong Kong-based lawyer told Bloomberg, “The new order will be enforceable in China primarily through court actions brought by parties who believe they’ve been damaged by someone else’s compliance with a foreign sanction.”

“Companies with significant business interests in China may need to tread carefully to avoid being subject to claims by counterparties in China under prohibition orders issued pursuant to this new framework,” Turner said.

Experts believe that the new rules are intended to protect Chinese companies from any more sanctions that the Trump administration could impose in the period before president-elect Joe Biden takes office on January 20. The rules are expected to put multinational companies in a double bind, as they would have to choose between complying with two conflicting compliance regimes.

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