Ministry of Commerce says new rules on ‘unjustified extraterritorial application of foreign legislation’ take effect immediately.
Order comes after the United States this week threatened new sanctions on Hong Kong and mainland China.
China on Saturday issued a new order to prohibit firms from complying with foreign laws banning transactions with Chinese companies and individuals, effective immediately.
The so-called Rules on Counteracting Unjustified Extraterritorial Application of Foreign Legislation and Other Measures apply to circumstances that “improperly prohibit or restrict” Chinese individuals, companies, and institutions from conducting normal economic, trade, and related activities with parties from the third countries, according to the Ministry of Commerce.
“[The rules were issued] to defend national interests, avoid or mitigate the adverse impact on Chinese enterprises, and maintain the normal international economic and trade order,” the ministry said.
Under the new rules, Chinese individuals or institutions should report to the ministry within 30 days of their business being affected by foreign compliance laws.
The authorities will assess “whether the compliance violates international law and the basic norms of international relations” and the possible impact on “China’s national sovereignty, security and development interests”.
If the conditions are met, the ministry will issue an injunction against recognition, enforcement, and compliance with the foreign laws and measures. The reporting process will be confidential if necessary, according to the rules.
Article 8 of the rules says individuals and entities can apply to the ministry for an exemption from the injunction, and a decision on the application should be made within 30 days.
The Chinese government will also take countermeasures if necessary.
The order is the latest in a string of Chinese efforts to offset the impact of US trade actions, including Beijing’s unreliable entity list released in 2019, a move also partly aimed at raising the cost of compliance with US export controls.
Meanwhile, the United States this week threatened new sanctions on Hong Kong and mainland China over the arrest of more than 50 opposition politicians in a dawn raid.
There has been some speculation that the US could also try to restrict US dollar fundraising access for Chinese firms in Hong Kong in the final days of the Trump administration.
Analysts said the ministry’s new measures would squeeze multinational companies between duelling compliance regimes, with firms wondering whether they should choose sides.
Nick Marro, global trade lead at the Economist Intelligence Unit in Hong Kong, said the rules would be difficult to apply in practice because the US remained a key market for most companies, and the policymakers clearly “know this”.
“But the emergence of the new ministry measures shows that the strategic thinking might be changing, to the point where officials are more comfortable in forcing companies to pick sides,” he said.
Henry Gao, an associate professor of law at Singapore Management University, said the rule requiring Chinese individuals and entities to report to the ministry about any of the foreign impact was “much harsher” than he had anticipated.
Gao said he expected many American companies to be affected as well, because under Article 9 any firms complying with the sanctions on Chinese entities could be sued for compensation in China.
“Companies will be forced to choose,” he said.
Over the past year, Washington has unleashed a swathe of sanctions on mainland Chinese and Hong Kong officials and companies, potentially penalising financial institutions that do business with them. Those targeted include Hong Kong Chief Executive Carrie Lam Cheng Yuet-ngor,
who was sanctioned along with top officials in August for their alleged role in curtailing political freedoms in the city. Last month, the US also sanctioned 14 members of the National People’s Congress , the top Chinese legislature, for their role in drafting the new national security law for the city.
China’s financial sector regulator claimed last week that US sanctions on companies or individuals had no legal grounds in Hong Kong or the mainland.
The US has also blacklisted dozens of other Chinese firms including top chip maker SMIC and drone manufacturer DJI. American firms are restricted from selling products to these companies on national security grounds.
Chinese tech giants Huawei, ByteDance, Alibaba, and Tencent have also been caught in the tech war between the US and China. The US tightened restriction on Huawei’s access to American chips last year, while the Beijing-based ByteDance, the owner of TikTok, failed to meet a US-imposed deadline of December 4 for it to divest its short video platform as its deal with Oracle for partial ownership is still being scrutinised by both sides.
The Trump administration is reported to be considering prohibiting Americans from investing in Alibaba and Tencent, China’s two most valuable publicly listed companies in the US. Alibaba owns the South China Morning Post.
On Monday, the New York Stock Exchange will delist US-traded shares of China Telecom, China Mobile and China Unicom to comply with an executive order signed by President Donald Trump.
The order seeks to bar American companies and individuals from investing in firms that the Trump administration claims have ties to the Chinese military.
By Cissy Zhou, January 9, 2021, published on SCMP