© Bloomberg

China has implemented new rules designed to shield its companies from “unjustified” sanctions, as it seeks to counter a flurry of punitive measures issued by US President Donald Trump over recent years.

The regulations, unveiled by the commerce ministry at the weekend, prohibit Chinese companies and individuals from complying with punitive measures mandated by foreign governments and take effect immediately.

Companies complying with sanctions deemed illegal by the commerce department could also be sued for compensation in Chinese courts, potentially exposing foreign investors to significant liabilities in one of their biggest markets.

The Trump administration has used the threat of sanctions repeatedly in an effort to deny Huawei and other leading Chinese companies access to key technologies. It has also threatened penalties against banks that provide financial services to certain Chinese and Hong Kong officials it deems responsible for the ongoing crackdown on civil liberties and democracy activists in the territory.

In November Hong Kong’s chief executive, Carrie Lam, complained that she had “piles of cash” at home because local banks would not allow her to maintain accounts with them.

More recently, the Trump administration has ordered financial institutions and investors to cut ties with dozens of Chinese firms that it says are closely linked with China’s military. Last week the New York Stock Exchange said it was proceeding with plans to delist China’s three largest telecommunication companies to comply with the order.

According to the new regulations, Chinese companies and individuals can appeal to the commerce department if they have been targeted by unjust foreign sanctions. If the commerce ministry agrees, the Chinese government may offer them support and also take unspecified counter-measures.

Bert Hofman, director of the East Asian Institute in Singapore, said the new rules could leave “foreign, especially US, companies in China in a real bind” if implemented strictly.

Beijing has long complained about Washington’s use of what it terms “long-arm jurisdiction” to target Chinese companies.

In 2019 the commerce ministry said it would enact new rules allowing it to designate foreign companies as “unreliable entities” if they did anything that undermined China’s national interests, such as selling military equipment to the self-governed island of Taiwan, which Beijing claims as its sovereign territory.

The unreliable entities rules were intended to help Beijing counter the Trump administration’s ability to punish Chinese companies by placing them on various blacklists.

The commerce ministry, however, has yet to follow up on its threat and is wary of punishing large multinationals that have large investments and workforces in China.

“The [new rules] and unreliable entities list are more bark than bite,” said Angela Zhang, director of the Center for Chinese Law at the University of Hong Kong. “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.”

Chinese officials are bracing themselves for a possible flurry of punitive measures from Washington in the final days of Mr Trump’s administration.

On Saturday Mike Pompeo, Secretary of State, announced that the administration was rescinding rules that restrict US officials’ interactions with their counterparts in Taiwan.

Mr Trump’s ambassador to the United Nations, Kelly Craft, will also arrive in Taiwan on January 13 for three-day visit. Tsai Ing-wen, Taiwan’s president, said her arrival would be “an important milestone in [the] US-Tawan partnership”.

Get alerts on US-China relations when a new story is published

Copyright The Financial Times Limited 2021. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article