Chinese firms may be able to hit back at foreign partners under new anti-sanctions law

·4-min read

Tensions between China and the US may worsen with Beijing expected to pass a new law on Thursday that experts say will enable Chinese companies subject to Western sanctions to retaliate against foreign business partners in mainland courts.

The anti-sanctions law – aimed at providing a legal basis to counter foreign sanctions – is expected to be passed by China’s top legislative body, the National People’s Congress Standing Committee, at its closing session on Thursday.

It comes after the US Senate on Tuesday approved sweeping legislation intended to boost the country’s ability to compete with China and other measures including banning American officials from attending the 2022 Beijing Winter Olympics over human rights concerns.

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In recent years, Chinese companies have been targeted by Washington for alleged military connections or human rights abuses. Telecoms giant Huawei Technologies was accused of violating US sanctions on Iran. The US and some of its allies have also imposed sanctions on mainland Chinese and Hong Kong officials over alleged human rights abuses in Xinjiang and their alleged roles in curtailing political freedoms in Hong Kong.

The new legislation comes after a “blocking statute” was issued by the commerce ministry in January. Details of the new law have not been released, but legal experts say it is expected to allow Chinese companies hit by sanctions to claim compensation in mainland courts from foreign entities deemed to have aided and abetted those sanctions.

In the Huawei case, its chief financial officer, Meng Wanzhou, is fighting extradition from Canada to the US, where she is accused of bank fraud for misleading HSBC about Huawei’s relationship with a company operating in Iran, putting HSBC at risk of fines and penalties for breaking US sanctions on Tehran.

Chinese state media criticised HSBC for playing a “malicious” role in Meng’s arrest in Canada, as the US Justice Department had reportedly obtained documents from the bank as part of its investigation into whether Huawei breached sanctions against Iran that resulted in the Chinese executive’s arrest.

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HSBC has said it was not involved in the Justice Department’s decision to investigate Huawei and that it had no “malice” against the company.

Wu Junfei, deputy director of Hong Kong’s Tianda Institute think tank, said if the law had been enacted earlier, “HSBC would probably have had to think twice before making any Huawei-related decisions, as now Huawei will be able to take legal action against it in mainland China”.

Wu said the legislation would allow Chinese firms like Huawei to seek protection and redress through the legal system. “Not just companies – in theory, individual officials who are subject to foreign sanctions will also be able to seek compensation via legal means,” Wu said. “It’s a step forward.”

Both Huawei and HSBC declined to comment when contacted on Wednesday.

Meng Wanzhou is accused of misleading HSBC about Huawei’s relationship with a company operating in Iran. Photo: Sam Tsang
Meng Wanzhou is accused of misleading HSBC about Huawei’s relationship with a company operating in Iran. Photo: Sam Tsang

Chen Zhu, a Hong Kong-based partner at international law firm Morrison & Foerster, said companies outside China were paying close attention to the new legislation.

“We’ve been working with clients – particularly companies from ‘third countries’ outside China and the US – to evaluate the risks the new law poses to their operations in China as well as their dealings with Chinese counterparts all over the world,” Chen said.

“For now, many companies are still taking a wait-and-see approach, but that could change soon as foreign sanctions led by the US expand to more companies and more sectors.”

Chen said the new law – if consistent with the commerce ministry’s blocking statute – “would not have a retroactive effect”, meaning a Chinese entity would be unlikely to be able to claim for economic damages resulting from another entity’s past compliance with foreign sanctions.

“It’s important to note that there would not be an automatic, blanket prohibition against all compliance with foreign sanctions in China. An innovative feature of the new law [if it’s in line with the January rules] is that Chinese authorities will be issuing orders to block foreign sanctions on a case-by-case basis,” Chen said.

“This gives the Chinese authorities great flexibility to decide, at any time, which particular Chinese individuals, companies or sectors will be protected, and which particular foreign sanctions will be blocked.”

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