China responded to the Trump administration on Saturday with new rules that would punish global companies for complying with Washington’s increasing restrictions on doing business with Chinese companies.
China’s Ministry of Commerce said the rules, which went into effect immediately, were intended to counter foreign laws that “unfairly restrict or restrict” people or companies in China from doing normal business. He said his measures are necessary to safeguard China’s national sovereignty and security and to protect the rights of Chinese citizens and entities.
Although Chinese officials have not mentioned a specific country, the new rules could put global companies in the middle of economic battles between Washington and Beijing. They could also send a signal to the next administration of President-elect Joseph R. Biden Jr., who must decide whether to preserve the Trump era restrictions against Chinese companies, relax them or rethink them entirely.
As President Trump’s trade war against the Chinese intensified, the Trump administration banned the sale of American technology to Huawei, the Chinese telecommunications giant, and other companies. It has also issued rules that punish companies for their ties to the Chinese military and for their involvement in Beijing’s surveillance and crackdown on ethnic Muslim minorities in the Xinjiang region in the far northwest of China.
The new rules released on Saturday will allow Chinese authorities and companies to counteract those who comply with U.S. limits. Chinese measures allow government officials to issue orders saying companies do not have to comply with certain foreign restrictions.
Chinese companies that incur losses due to compliance with other parts of these laws can file a lawsuit for damages in the Chinese courts, according to a note from the Ministry of Commerce. Such a case would likely result in the victory of a Chinese claimant, as China’s courts ultimately answer to the Communist Party.
“This basically puts a lot of big companies between a rock and a tough position, because they have to decide to comply with U.S. sanctions or Chinese rules,” said Henry Gao, a law professor at Singapore Management University specializing in international trade. “And anyway, they are going to lose one of their biggest markets.”
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It is unclear whether global companies would end up being punished in China for complying with U.S. sanctions. According to the rules issued on Saturday, companies can seek a waiver from the Ministry of Commerce to comply with American restrictions. They also require Chinese authorities to create an interagency body to determine which foreign laws fall within its scope.
In addition, much of the order’s language released on Saturday was vague, giving the Chinese government and companies room to comply. Still, the threat could lead large American companies with businesses in China to pressure Biden to relax restrictions against Chinese companies. Biden did not say whether he intends to pursue Trump’s punitive measures, which have contributed to the most toxic relationship between China and the United States in decades.
“China wants to prevent the new government from behaving like Trump,” said Professor Gao.
Under Trump’s command, Chinese companies have seen their access to the American market increasingly limited. The government has banned companies around the world from using American software or machines to make chips designed by Huawei. It imposed sanctions and blacklisted Chinese companies because of systematic human rights abuses against Uighurs and other Muslim ethnic minorities in Xinjiang.
Earlier this week, the New York Stock Exchange, under pressure from the Trump administration and members of Congress, withdrew from the exchange the three largest state-owned telecommunications companies in China to comply with an executive order aimed at preventing American investment in related companies. to the Chinese military.
The new rules come just days after Secretary of State Mike Pompeo threatened additional sanctions against people or entities involved in the recent raid in Hong Kong of dozens of pro-democracy figures. It is unclear to what extent the new rules can be applied to restrictions related to Hong Kong, the Chinese city that is governed by its own set of laws, but where Beijing has exerted an increasingly stronger influence.
China responded to American tariffs and sanctions with its own moves, but its actions were not one by one. The United States buys much more from China than it sells to China, so Beijing has fewer options for taxing American products.
It also relies heavily on American products, including chips and software, and its economy depends in part on factories that make products for large American companies like Apple and General Motors.
Beijing said little about its promise in 2019 to create a “list of untrusted entities” of foreign companies and people that could lead to further restrictions on business.