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Politics

China anti-sanctions law to put squeeze on foreign companies

Legislation applies in Hong Kong, further threatening city's 'separate status'

The Chinese and Hong Kong flags: The new anti-sanctions law is applicable in the financial hub.     © Getty Images

HONG KONG -- China has cranked up pressure on multinational companies by passing a law that will punish those that comply with foreign sanctions against Beijing, as ties with the U.S. deteriorate.

The "anti-foreign sanctions law" passed on Thursday empowers Chinese authorities to claim damages or seize assets from companies that are deemed to be aiding the enforcement of such penalties. It will be applicable in the financial center of Hong Kong -- a move the American Chamber of Commerce in China warns will further erode the city's autonomy.

The new law impairs the "separate status" Hong Kong and neighboring Macao enjoyed in international trade, said Greg Gilligan, the chamber's chairman.

The national security legislation imposed on Hong Kong last year has already eroded trust in the city's common law system, which long underpinned its appeal as a financial hub. Many businesses are wary of Beijing's more assertive role in Hong Kong affairs, and feel forced to walk a fine line to comply with the laws of China and other countries, including the U.S.

Now, organizations or individuals involved in implementing discriminatory measures against Chinese citizens or entities can be placed on an anti-sanctions list by a Chinese government department, according to the law. This can extend to senior managers and associates, including family members.

Those on the list may be denied entry into China or be expelled from the country. Their assets within China may be seized or frozen, and they could be barred from doing business on Chinese soil.

"This new law presents potentially irreconcilable compliance problems for foreign companies with respect to a conflict of law between foreign jurisdictions and China, and we hope the [U.S. and China] do not force our companies to only choose one side or the other," Gilligan said.

Mini vandePol, head of law firm Baker McKenzie's Asia-Pacific compliance and investigations group in Hong Kong, had a similar reading of the legislation.

"The law now provides a basis for damages claims against multinational and Chinese companies who are seen as aiders and abettors if they comply with foreign sanctions to discriminate against China and its national interests," she said.

The law's passage is the latest salvo from China as it seeks to retaliate against Western sanctions imposed for alleged human rights abuses in Xinjiang and the erosion of Hong Kong's autonomy. It is the most wide-ranging legal tool yet from Beijing to fight back, lending weight to previous measures, such as a January move by the Ministry of Commerce to allow Chinese courts to punish global corporations for complying with foreign actions.

The law comes just a week after U.S. President Joe Biden's administration slapped an investment ban on 59 companies including telecom majors Huawei Technologies and China Mobile for aiding the Chinese military.

Last year, about 45 Chinese officials were sanctioned by the U.S., including 15 members of the National People's Congress. The European Union, Canada, and the U.K. have also imposed sanctions on Chinese officials for what they consider oppression against the Uyghurs of Xinjiang.

China has countered the U.S. with sanctions of its own, but these have had very little impact given the role of America and the dollar in the world economy.

With the passage of the law, China has sent a "clear political message," said Nicholas Turner, a lawyer at Steptoe & Johnson in Hong Kong, adding that "it would be reasonable to expect an uptick in regulatory action."

"The new law is a clear step in the direction of elaborating China's sanctions and counter-sanctions toolkit."

Additional reporting by Nikki Sun.

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