China fired back at the Trump administration on Saturday with new rules that would punish global companies for complying with Washington’s stricter restrictions on doing business with Chinese companies.
The Chinese Ministry of Commerce said the rules, which came into effect immediately, were intended to counter foreign laws that ‘illegally prohibit or restrict’ people or companies in China from doing normal business. He said his measures were necessary to protect China’s national sovereignty and security and to protect the rights of Chinese citizens and entities.
Although Chinese officials have not named any specific country, the new rules could put global companies at the center of economic battles between Washington and Beijing. They could also send a signal to the incoming government of Elected President Joseph R. Biden Jr., who will eventually have to decide whether the Trump era should retain restrictions on Chinese businesses, relax them or reconsider them altogether.
As President Trump intensified his trade war against Chinese, the Trump administration banned the sale of US technology to Huawei, the Chinese telecommunications giant and other enterprises. It has also issued rules punishing companies for their ties to the Chinese military and for their involvement in Beijing’s surveillance and repression of mostly Muslim ethnic minorities in Xinjiang, the northwestern region of China.
The new rules, announced Saturday, will allow Chinese officials and companies to strike back at those who meet U.S. limits. The Chinese measures allow government officials to issue orders that say companies do not have to comply with certain foreign restrictions.
According to the Ministry of Commerce notice, Chinese companies that suffer damages due to another party’s compliance with the laws can sue for Chinese damages. Such a case is likely to result in a victory for a Chinese plaintiff, as China’s courts are ultimately responsible for the Communist Party.
“It basically puts a lot of big companies between a rock and a hard place, because they either have to decide to comply with US sanctions or the Chinese rules,” said Henry Gao, a law professor at Singapore Management University, who specializes in international trade, said. “And whatever it is, they’re going to lose one of their biggest markets.”
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It is unclear whether global companies will eventually be punished in China for complying with US sanctions. Under the rules issued Saturday, companies could ask the Department of Commerce for a waiver to comply with U.S. restrictions. They also demand that Chinese officials set up an intermediary body to determine which foreign laws fall under the scope.
In addition, much of the language of the order announced Saturday was vague, giving the Chinese government and companies room to comply. However, the threat could prompt large US companies with business in China to Praying to loosen the restrictions against Chinese companies. Mr. Biden has not said whether he intends to continue with Trump’s sanctions, which have contributed to the most toxic relationship between China and the United States in decades.
“China wants to stop the new government from behaving like Trump,” Professor Gao said.
Under Mr. Trump has found Chinese businesses increasingly restricting their access to the U.S. market. The administration has banned companies around the world from using US software or machines to design chips designed by Huawei. It has imposed sanctions and blacklisted Chinese companies for systematically violating human rights 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, removed China’s three major state-owned telecommunications companies from the stock exchange to comply with an executive order aimed at US investment in companies which is linked to the Chinese army.
The new rules come days after Secretary of State Mike Pompeo threatened additional sanctions against people or entities involved in the recent merger of dozens of pro-democracy figures. It is not clear to what extent the new rules could apply to restrictions related to Hong Kong, the Chinese city governed by its own set of laws, but where Beijing has taken an increasingly stronger hand.
China has responded to US tariffs and sanctions with its own motives, but its actions have not been one-on-one. The United States buys far more from China than it sells to China, so Beijing has fewer options to tax U.S. goods.
It also relies heavily on U.S. products, including chips and software, and its economy depends in part on factories that manufacture goods on behalf of major U.S. companies such as Apple and General Motors.
Beijing has said little about its promise to compile an “unreliable list of entities” of foreign companies and individuals in 2019 that could lead to further business restrictions.