Tit for tat: Beijing builds legal arsenal against Western sanctions and jurisdiction

Last week, US Treasury Secretary Scott Bessent sent letters to two Chinese banks to warn them of the risk of “secondary sanctions” if they were found to support transactions tied to Iran. In response, China introduced two major regulations within a week, targeting supply chain security and the misuse of extraterritorial jurisdiction, aimed at strengthening its legal toolkit to counter sanctions and long-arm jurisdiction.

Academics interviewed said Beijing is now proactively deploying “comprehensive and systematic, defensive and counter-offensive” legal instruments, rather than passively responding to isolated foreign measures that harm China’s national security and corporate interests. 

China has now entered a new normal of legal competition with the US and Europe. With Chinese and US leaders possibly meeting in May, academics believe that China’s move is aimed at securing greater bargaining chips for negotiations.

Xinhua reported on 7 and 13 April that Premier Li Qiang had signed State Council Orders No. 834 and No. 835, promulgating the State Council Provisions on Industrial and Supply Chain Security and the Regulations on Countering Improper Extraterritorial Jurisdiction by Foreign States respectively, with immediate effect.

China’s rapid issuance of two administrative regulations within a week — both aimed at countering external interference — has drawn attention from European and American companies and media. Order No. 834 contains 18 articles, while Order No. 835 comprises 20 articles. Both stipulate that China has the authority to restrict exit from the country for organisations or individuals who violate the provisions, or who refuse to comply with or attempt to circumvent the measures set out in the documents.

On 18 April, Yuyuantantian (《玉渊谭天》), a new media account under China Central Television, published a lengthy article on the two new administrative regulations. The article emphasised that China is “shifting from point-based defence to systematic institutionalised operations”, as the new rules complement earlier measures such as the Law on Countering Foreign Sanctions and the Provisions on the Unreliable Entity List. This would form “a complete toolkit spanning legislation, enforcement and the judiciary”.

The article cited examples of improper foreign conduct, including Bessent’s warning, foreign courts bypassing international treaties to demand that Chinese companies hand over sensitive data located within China, and the recent high-profile CK Hutchison ports transaction case.

It added that the nature of the contest is changing. Chinese enterprises are not only at risk of getting hit directly, but also of being affected by “blood splatter” when other parties fight. In other words, the impact of international conflicts, regional instability and third-country sanctions spreads through various intermediary channels.

The article noted that one of the most forceful mechanisms in Order No. 835 is the “prohibition order”. Where improper extraterritorial measures imposed by a foreign country are officially announced, China may prohibit domestic entities from complying with those measures. If a relevant party breaches such a prohibition order, China may bar or restrict it from participating in government procurement or related import and export activities, prohibit or restrict cross-border transfers of data and personal information, prohibit or restrict its entry to or exit from the country, and impose fines, among other penalties.

An article published on 14 April by a trade and economics scholar on “Capital News (长安街知事)”, a WeChat account affiliated with Beijing Daily, stated that Order No. 834 is precisely targeted at the threefold pressures currently facing China’s industrial and supply chains, i.e. tariffs and technological blockades; disruptions to energy and logistics corridors caused by geopolitical conflicts; and structural challenges arising from the restructuring of global supply chains, with some countries promoting the “de-Sinicisation” of supply chains under the guise of “de-risking”.

The China Chamber of Commerce to the EU said in a statement published on 17 March that China’s latest policy “combination punch” has triggered in Europe a level of “strategic anxiety far beyond ordinary trade frictions”. The core assessment in Brussels is that China is shifting from a “passive participant” in global supply chains to an “active rule-shaper”, forming a tit-for-tat standoff with the EU’s economic defence instruments in recent years, such as the Foreign Subsidies Regulation and the Anti-Coercion Instrument.

European businesses are concerned that multinational companies operating in China may be forced into a “choose one of two” deadlock: simultaneously complying with EU regulations while facing restrictions under China’s new rules.

The article added that the intensive legislative push by China, the US and Europe in the field of supply chains reflects an irreversible trend: supply chain security has risen from a matter of corporate risk management to one of strategic competition at the national level.

Lye Liang Fook, an associate senior fellow at the ISEAS–Yusof Ishak Institute, told Lianhe Zaobao that beyond supply chain security, the use of legal tools by China, the US and Europe to protect their economic interests and national security has become the new normal, and further new regulations cannot be ruled out.

He said, “In his first term, US President Donald Trump already used Section 301 to constrain China. China’s two new regulations send a clear signal to the US: if you use legal provisions to harm my interests, I will respond with regulations of my own and fight to the end.”

Lye said that, because China’s new regulations are drafted in broad terms, it is currently unclear whether they apply to third countries. For instance, if a third country acts in coordination with Washington to crack down on Chinese companies engaging in “origin washing” in that third country in order to avoid high US tariffs, would China also counter such actions under the new rules?

This article was first published in Lianhe Zaobao as “中国补强“反长臂管辖”法规 学者分析中美法治化博弈新常态”.

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