China fired back at the Trump administration on Saturday with new rules that would punish global companies for complying with Washington’s tightening restrictions on doing business with Chinese companies.
China’s Ministry of Commerce said that the rules, which went into effect immediately, were intended to counter foreign laws that “unjustly prohibit or restrict” people or companies in China from doing normal business. It said its measures were necessary to safeguard China’s national sovereignty and security and to protect the rights of Chinese citizens and entities.
Although Chinese officials did not mention any specific country, the new rules could potentially put global companies in the middle of the economic battles being waged between Washington and Beijing. They could also send a signal to the incoming administration of President-elect Joe Biden, who must ultimately decide whether to preserve Trump-era restrictions against Chinese businesses, relax them or rethink them entirely.
As President Donald Trump’s trade war against Chinese companies intensified, the Trump administration prohibited the sale of American technology to Huawei, the Chinese telecommunications giant, and other firms. It also issued rules that punish companies for their ties to the Chinese military and for their involvement in Beijing’s surveillance and suppression of mostly Muslim ethnic minorities in China’s far northwestern region of Xinjiang.
The new rules released Saturday would allow Chinese officials and companies to strike back at those who comply with the U.S. limits. The Chinese measures allow government officials to issue orders saying that companies do not have to comply with certain foreign restrictions.
Chinese companies that incur losses because of another party’s compliance with those laws can sue for damages in Chinese courts, according to the Commerce Ministry’s notice. Such a case would be likely to result in a victory for a Chinese plaintiff, since China’s courts are ultimately answerable to the Communist Party.
“This basically puts many big companies between a rock and a hard place, because they either have to decide to comply with U.S. sanctions or with the Chinese rules,” said Henry Gao, a law professor from Singapore Management University who specializes in international trade. “And either way, they are going to lose one of their biggest markets.”
It is unclear whether global companies would end up being punished in China for complying with U.S. sanctions. Under the rules issued on Saturday, companies could seek a waiver from the Commerce Ministry in order to comply with U.S. restrictions. They also require Chinese officials to set up an interagency body to determine which foreign laws fall under its scope.
In addition, much of the language of the order released on Saturday was vague, giving the Chinese government and companies wiggle room for compliance. Still, the threat could prompt big American companies with business in China to press Biden to relax the restrictions against Chinese companies. Biden has not said whether he intends to press forward with Trump’s punishing measures, which have contributed to the most toxic relationship between China and the United States in decades.
“China wants to deter the new administration from behaving like Trump,” Gao said.
Under Trump, Chinese businesses found their access to the U.S. market increasingly limited. The administration has prohibited companies around the world from using American software or machines to make chips designed by Huawei. It has imposed sanctions and blacklisted Chinese companies over the systematic human rights abuses against Uighurs and other Muslim ethnic minorities in Xinjiang.
Earlier in the week, the New York Stock Exchange, under pressure from the Trump administration and members of Congress, removed China’s three major state-run telecommunications companies from the exchange to comply with an executive order aimed at stopping American investment in companies linked 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 roundup in Hong Kong of dozens of pro-democracy figures. It is not clear to what degree the new rules might apply to restrictions related to Hong Kong, the Chinese city that is governed by its own set of laws but where Beijing has taken an increasingly strong hand.
China has responded to U.S. tariffs and sanctions with its own moves, but its actions have not been one for one. The United States buys much more from China than it sells to China, so Beijing has fewer options for taxing American goods.
It also relies heavily on American products, including chips and software, and its economy depends in part on factories that make goods on behalf of big American companies like Apple and General Motors.
Beijing has said little about its pledge in 2019 to create an “unreliable entities list” of foreign companies and people that could lead to further business restrictions.