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China introduces new measures to safeguard Chinese companies from US sanctions

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China’s State Council has adopted new rules to protect companies from foreign sanctions. They could be prohibited from complying with the requirements of foreign governments if the Chinese authorities consider the restrictions to be illegal.

Chinese citizens, legal entities and other organizations are now required to inform the State Council within 30 days if they find foreign restrictive or prohibitive measures interfering with economic or commercial activities.

The State Council committee should review the restrictions and may consider them an “inappropriate extraterritorial application” of foreign laws. In determining the legality of sanctions, the State Council should consider whether restrictions violate international law and affect China’s sovereignty, security and interests. In this case, the authorities may prohibit the recognition, enforcement and enforcement of such sanctions.

In addition, the State Council can temporarily lift this ban, upon request, and thus allow its companies to comply with the requirement of the foreign government.

If an entity conforms to the sanctions on its own without authorization and under the ban, Chinese citizens and entities can ask for compensation through the courts, and the authorities can issue a warning or a fine.

If a company suffers losses for ignoring foreign sanctions under the ban, the state can support the organization, according to the document.

The new requirements, especially in terms of compensation, potentially expose foreign investors to serious liabilities in one of its biggest markets, the Financial Times wrote.

The new rules could leave “foreign, especially US, companies in China in a real bind” if strictly enforced, believes Bert Hofman, director of the East Asia Institute in Singapore, quoted by FT.

According to the sources, China is primarily trying to counter the US sanctions, which were initiated by President Donald Trump.

The Trump Administration has repeatedly used the threat of sanctions in an effort to deny Huawei and other major Chinese companies access to key technologies, as a result of which Huawei smartphones were deprived of Google services, including Google Play.

It also banned “any business” with Chinese companies ByteDance and Tencent, which own the TikTok service and the WeChat messenger. It has also threatened to impose sanctions on banks that provide financial services to certain Hong Kong and Chinese officials whom it holds responsible for the crackdown on civil liberties and democracy activists in the territory.

The new decree establishes the Chinese government’s right to retaliate against sanctions, but does not specify of what kind. Moreover, the new rules do not apply to the measures and restrictions provided for in the international treaties and agreements that China has already signed.

“The [new rules] and unreliable entities list are more bark than bite,” believes Angela Zhang, director of the China Law Center at the University of Hong Kong adding that “China is acutely aware of the costs of imposing these countermeasures, which also explains why it has taken it so long to introduce these sanctions rules.”

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