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Learn About China’s Law On Punishing Foreign Companies

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In the face of intense US pressure on its companies, China has passed a new law to counter foreign sanctions, a provision that could put multinational groups in the face of dangerous geopolitical dilemmas between Beijing and the West.

This new legal arsenal approved by the Chinese parliament, on Thursday, comes a week after the administration of US President Joe Biden expanded the blacklist of Chinese companies that Americans are prohibited from investing in, in the name of national security.

China has condemned the move and promised to take measures to “defend” its companies.

Why this law?

The text, which is located in 16 articles, entered into force immediately after its issuance, Thursday. It aims to “protect” any Chinese individual or organization in case a country “uses various pretexts or laws” to take “discriminatory” measures against them, but no country is explicitly named in the text.

But Beijing has long complained about the extraterritorial application of US law through sanctions and trade restrictions.

The text makes clear that the new law now legitimizes restitution procedures that can be “suspended, modified or cancelled”.

What does the law stipulate?

Among the retaliatory measures contained in the text is the ban on granting visas and entry into Chinese territory to individuals subject to the provisions of the law, as well as to their families.

The text allows the “property of persons or companies applying sanctions against China to be “stamped with red wax, confiscated and frozen”.

The law also provides for the possibility of resorting to unspecified “other measures”.

Because of the law’s vague wording, “it could affect a large number of people and businesses,” Angela Chang, an expert in Chinese law at the University of Hong Kong, told AFP.

For his part, Julian Koo, a law professor at Hofstra University in the United States, considered it “a bit of madness,” warning that “academics, experts, their families and think tanks could be punished for supporting sanctions against China.”

What are the consequences?

Zhang suggested that the impact of the law would be “devastating” for multinational groups caught in the competition between Beijing and the West, while expressing her belief that Beijing would not use these sanctions “unless necessary” but “immediately”.

She pointed out that this “could increase anxiety” in foreign business circles and would be “costly” for Beijing in terms of investments.

And she believed that foreign companies may be tempted to move their production outside China, thus accelerating a separation that “contradicts the interests” of Beijing, which is keen to preserve job opportunities.

But this new law will inevitably pose a “real dilemma” for foreign companies in China, says Julian Koo, referring to the difficult choice they will have to make: comply with US sanctions or risk Chinese retaliation, and vice versa.

Angela Chang said some companies could suddenly go so far as to “pressure their governments” to lift sanctions on China.

What are the reactions?

The European Chamber of Commerce in China expressed its regret that foreign companies had to “work in a new legislative minefield”, explaining that it was “shocked” by this law.

As for the American Chamber of Commerce, it said it hopes that its companies will not have to “choose one party over the other.”

Chinese diplomatic spokesman Wang Wenbin told reporters that the law “on the contrary” provides a “stable and predictable” legal and business environment.

Is it really something new?

In the midst of escalating differences with Washington in the final weeks of Donald Trump’s term, Beijing announced in January rules for responding to “unjustified” decisions against China.

These highly opaque measures have opened up the possibility of “retaliation” for Chinese individuals and entities targeted by foreign sanctions, as well as the initiation of prosecutions in China.

More generally, Chinese nationalists constantly target foreign companies that they do not hesitate to denounce on social media when something goes wrong.

In March, the Swedish ready-to-wear giant H&M and several foreign brands sparked outrage and calls for a boycott for its stance on human rights. It pledged, last year, to stop buying cotton from Xinjiang on suspicion of producing it as part of “forced labor” in the Muslim-majority region in northwest China.

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