PRC Legal Update: Anti-foreign Sanctions Law

The Chinese Ministry of Commerce released Measures for Counteracting the Unjustified Extraterritorial Application of Foreign Laws and Other Measures (the “Blocking Statute”) on 9 January 2021 and the Provisions on the Unreliable Entity List on September 19, 2020.

However, both rules are administrative regulations ranking in the low-medium end of the hierarchy of laws. With this background, the Standing Committee of the National People’s Congress promulgated the Anti-foreign Sanctions Law (the “Law”) on 10 June 2021, as a high level piece of legislation in this area, which takes a significant step forward in upgrading China’s current legislation landscape to counter sanctions and export control imposed by foreign countries. The Law came into effect on the enactment date.

The basic scope of the law is to eliminate the effect of international sanctions imposed on China or Chinese government officials or businesses. Sanctions is a complicated legal discipline and the new Chinese law will sometimes leave foreign businesses caught between a rock and a hard place since they will be forced to chose whether to breach domestic or international sanctions or Chinese law.

The Law codifies sixteen provisions in total. Most of the provisions of the Law are highly relevant to and consistent with the Blocking Statute, and to some extent, the Blocking Statute may serve as a supplementary to certain provisions of the Law.

 

Targets

The following targets will be subject to the countermeasures under the Law: (i) violation of international law and the basic norms of international relations, (ii) use of various excuses or relies on its domestic laws to contain or suppress China, (iii) adoption discriminatory restrictive measures against Chinese citizens or organizations, or (iv) interference in China’s internal affairs.

Although the Law does not clearly explain whether the aforesaid four factors should be all met to trigger the countermeasures, the prevailing view is that triggering any of the four factors will lead to the violation of the Law.

 

Countermeasures

The first three countermeasures are widely adopted all over the world, which are also used by Chinese government in practice, including (i) refusal of visa issuance, (ii) freezing assets and (iii) prohibiting or restricting from engaging into transaction or cooperation with entities in China.

Other than the above, a catch-all item of “other necessary measures” is designed to provide the PRC authorities with sole discretion to apply the legislation to any new actions launched in the future.

 

Targeted Persons

The State Council and its relevant departments have the right to include the individual and entities into the countermeasure list. In addition, the following persons or entities may also be included and subject to the countermeasures: (i) spouses and immediate family members of such individuals; (ii) senior managers or actual controllers of such entities; (iii) entities where such individuals serve as senior managers; and (iv) entities that are controlled by or established or operated by such individuals or entities.

Furthermore, all the individuals and entities should not implement discriminatory restrictive measures taken by foreign countries against Chinese citizens and entities, or provide assistance to such actions; otherwise, it will be investigated for legal liabilities.

 

Impact on Enterprises Doing Business in China

The Law increases the risk for companies doing business in China or with Chinese entities or individuals, especially those subject to conflicting legal obligations.

In particular, as foreign invested companies in China are captured by the Law, they may be caught in a dilemma that they may be sued in China for complying with the sanctions of the country where their shareholder is established. Hence, those foreign invested companies may end up with conflicting legal obligations and where the choice is to either breach the foreign sanctions or the PRC laws.

However, the Law is only a start-up stage for China to establish a full and complicated legislation system of extraterritorial jurisdiction. The provisions thereof remain broad, general, fundamental, and ambiguous, and give rise to various specific application and implementation issues which are in urgent need of detailed guidance and clearance going forward. It is not clear yet how often and how broad China will implement the Law in practice, and how strict. We will continue to closely monitor the implementation of the Law and future regulations.

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If you have any questions or comment on this topic or any other matters related to foreign companies doing business in China or Chinese investments in Europe, please do not hesitate to contact Magnusson’s China Group.

Our China Group team has almost two decades of experience advising Chinese companies who conduct business in the Baltic Sea Region and local clients who conduct business in China.

We have Chinese qualified lawyers in our group as well as Mandarin speakers in most of our offices. Our lawyers are able to offer a comprehensive range of services in Mandarin and the local languages and have considerable experience of helping Chinese businesses who are looking to set up operations in the Baltic Sea Region.

Moreover, we are also there to support and advise local businesses looking to take advantage of the many opportunities that China offers. Our services include M&A and investments, dispute resolution, employment law, foreign investment screening, regulatory advice, e-trade and personal data and commercial contracts.

 

Nikolaj Juhl Hansen

Partner

+45 27 74 05 07

nikolaj.juhl.hansen@magnussonlaw.com

 

Natalie Pu

Counsel

+46 72 442 68 80

natalie.pu@magnussonlaw.com

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