China Toughens Stance on Sanctions Enforcement with New Laws
Beijing has introduced a significant overhaul of its export control regulations and sanctions enforcement mechanisms to safeguard its national interests and security.
Export Control Law
The Export Control Law, which came into effect in December 2020, has introduced stricter controls on the export of:
- Dual-use goods
- Military items
- Nuclear items
- Technologies that pose a risk to national security
The law also established an Unreliable Entities List, targeting foreign companies that threaten China’s sovereignty, security, or development interests. The list currently includes Lockheed Martin Corporation and Raytheon Missiles & Defense, two US-based defense contractors, who have been slapped with fines and restrictions on their operations in China.
Anti-Foreign Sanctions Law
The Anti-Foreign Sanctions Law, enacted in June 2021, allows China to impose countermeasures on individuals and organizations targeted by foreign sanctions. This law has been used to retaliate against several US entities and individuals.
Blocking Statute
In response to growing trade tensions with the United States, China has introduced a Blocking Statute to counteract unjustified extraterritorial application of foreign laws or measures. The statute requires Chinese companies to report any instances where they face restrictions on normal economic activities with foreign entities and empowers the government to issue prohibition orders against foreign laws deemed unjustifiable.
Enforcement Mechanisms
While enforcement mechanisms for these new laws are still being established, China’s approach to sanctions enforcement is likely to become more robust in the coming months. The country has already taken action against several US companies, including Lockheed Martin and Boeing, which have been involved in arms sales to Taiwan.
Cooperation with International Counterparts
While China has traditionally been reluctant to cooperate with international counterparts on sanctions enforcement, there are signs that this may be changing. The country has recently announced plans to increase cooperation with Russia and other nations to counter US-led sanctions regimes.
Blocking Legislation
China’s Blocking Statute is similar in nature to legislation in other jurisdictions, including the EU’s Blocking Statute. It prohibits Chinese companies from complying with foreign laws deemed unjustifiable and allows for civil claims against parties that violate these provisions.
- Compliance will be enforced by local authorities through a reporting obligation and prohibition orders.
- While it remains unclear how exemptions will be granted or publicly reported, the statute’s publication of prohibition orders effectively creates a de facto list of “unjustifiable” foreign laws.
Implications for International Trade and Investment
China’s new sanctions regime is likely to have significant implications for international trade and investment, particularly in the defense and technology sectors. As tensions between China and the United States continue to escalate, it remains to be seen how Beijing will balance its national interests with its economic goals.