How to navigate China’s anti-sanctions laws amidst the sanctions against Russia
The sweeping sanctions implemented against Russia give renewed relevance to the Chinese countermeasures to foreign companies with operations in China or doing business with Chinese counterparties. Companies should tread carefully to avoid falling foul of Chinese legislation.
Over the past few years, China has enacted a suite of laws and regulations aimed at protecting the interests of Chinese individuals and organisations, particularly from the effect of restrictions in non-Chinese legislation. The latest law within this framework is the “Countering Foreign Sanctions Law” (often referred to as the “Anti-Sanctions Law”) which came into force on 10 June 2021.
The Anti-Sanctions Law builds upon other recent regulations, such as the “Rules on Counteracting Unjustified Extra-Territorial Application of Foreign Legislation and Other Measures” (the “Rules”) issued on 9 January 2021. The Rules apply to situations where the extra-territorial application of non-Chinese legislation hinders Chinese individuals and organisations in their dealings with a person or organisation from a third state. The Anti-Sanctions Law targets restrictive measures against Chinese entities more broadly and expands the toolkit available to Chinese authorities to implement countermeasures.
The Anti-Sanctions Law – an overview
While purported to be a defensive measure – similar in some ways to regulations such as the EU Blocking Statutes – the Anti-Sanctions Law goes beyond a mere blocking statute prohibiting compliance with certain foreign sanctions. Rather, the Anti-Sanctions Law introduces two principal protective measures by granting the relevant government department the authority to:
- establish and conduct countermeasures corresponding to the discriminatory restrictive measures; and
- issue a counter list of individuals or organisations, and certain related parties such as an individual’s spouse or a company’s senior managers, involved in the implementation of such measures (the “Counter List”).
Measures, including prohibition of entry and exit, confiscation and freezing of assets in China, and prohibition of transactions and other activities by the listed individual or organisation, may also be implemented against anyone put on the Counter List.
In addition to the countermeasures that may be implemented by governmental authorities, the Anti-Sanctions Law gives Chinese individuals and organisations a legal basis for action against any organisation or individual that assists in the implementation of discriminatory restrictive measures against them. The available remedy is to request an order to stop the infringement and claim compensation for any losses. Chinese law does not normally contain a right for indirect and/or consequential loss, meaning the wording in the Anti-Sanction Law indicates that it encompasses a wider scope than other Chinese laws.
In the context of sanctions against Russia and Russian entities, the application of the Anti-Sanctions Law in situations where sanctions against Russia have an indirect effect on Chinese individuals and organisations, is not yet settled law. Currently, China has only implemented the Counter List on July 2021, December 2021, and February 2022, and only related to measures by the US against China. However, it should be noted that the Anti-Sanctions Law is broadly worded and that we have yet to see any relevant enforcement or judicial interpretation under it. We therefore recommend to keep a close eye on the Chinese government’s further enforcement or judicial interpretation of the Anti-Sanctions Law. Compliance should always remain a priority.
New and existing contracts
In many jurisdictions, including China, Norway, and England, a contractual basis is needed to terminate the contract or suspend performance due to sanctions. Absent a sufficiently robust sanctions clause, termination may, therefore, be a breach of contract that gives the counterparty a right to claim damages.
Notwithstanding the position under the relevant governing law, a party exercising a right under a sanctions clause that has been negotiated and agreed to by the parties is also less likely to be considered as implementing discriminatory restrictive measure under the Anti-Sanctions Law – although it can still be considered to breach the law. Therefore, it is usually prudent to include sanctions clauses where relevant in new contracts.
Other relevant Chinese regulations
While it is less likely that a breach of contract due to sanctions compliance would constitute a breach of Chinese administrative or criminal law, companies operating in China should be aware that other types of regulations may be relevant.
For new projects, the Chinese Anti-Monopoly Law may come into play if the foreign company abiding by sanctions is regarded as an operator holding a dominant market position. Refusing to transact with relevant counterparties without justified reasons may be regarded as abusing a dominant market position. Notably, what is considered a justified reason under the Anti-Monopoly Law is subject to the discretion of the relevant local authority.
Needless to say, if the Chinese government does not support such sanctions, abiding by them might not constitute a justified reason. A company abusing its dominant market position, may be ordered to cease its illegal activities, have any illegal earnings confiscated, and/or be fined between 1% to 10% of the previous year’s sales revenue.
Best course of action
It is worth keeping in mind that, although performance of a contract may currently be illegal under applicable sanctions, even a sanctioned party is not stripped of their legal rights under a contract. For example, a sanctioned party may still bring a claim for wrongful termination even years from now, leaving companies exposed to legal liabilities if the sanctions are lifted.
Importantly, not all sanctions will require suspension of performance either. Debt prohibitions, for example, may in certain cases be handled through renegotiation of payment terms instead. Companies should therefore carefully review existing contracts and applicable sanctions before deciding on the best course of action.
|Legal Basis||Enforcement date|
|Foreign trade law||1 July 1994|
|Export control law||1 December 2020|
|Foreign investment law||1 January 2021|
|Anti-foreign sanctions law||10 June 2021|
|Data security law||19 June 2021|
|Ministry of Commerce ("MOFCOM") Order no. 4: Provision on the unreliable entity list||19 September 2020|