Two collections of regulations released by the State Council in recent weeks have stoked concern among multinationals and business executives operating in China that they could be targeted for retaliation simply for making routine business decisions, such as reshoring supply chains, or attempting to comply with sanctions or export controls imposed by the U.S. or other overseas governments.
On March 31, China’s State Council released the new regulations regarding industrial and supply-chain security, followed by the April 7 publication of new restrictions regarding sanctions, export controls, and data disclosure requirements by overseas governments. (For more detail, see China Law Translate’s full-text translation of the 18-article “State Council Provisions on Industrial and Supply Chain Security” and the 20-article “PRC Regulations on Countering Improper Extraterritorial Jurisdiction by Foreign States.”)
Bloomberg News provided more detail on new regulatory measures, their potential penalties, and how these might be meted out:
The latest measures build on China’s existing legal tools to retaliate against external threats such as sanctions. They’ve also sparked concerns that doing business in or with the world’s second-largest economy could become riskier for multinational firms.
[…] One set of regulations, which took effect at the end of March, is focused on protecting sectors critical to China’s national and economic security, while also reinforcing its central role in global supply chains. Government agencies have been empowered to launch probes and retaliate if a country, region or international company adopts measures deemed discriminatory against China and a threat to supply chain security.
Another set of rules, rolled out in early April, is designed to counter what the government calls “improper extraterritorial jurisdiction by foreign countries.” The idea is that other nations are enforcing measures such as sanctions, export controls and data disclosure requirements beyond their own borders, potentially hindering Chinese companies.
In both cases, penalties can be applied not just to organizations but to individuals as well. Punishments include restrictions on imports, exports and investment in China, fines, asset seizures, visa cancellations and curbs on people’s ability to leave the country. [Source]
Reporting for the Wall Street Journal, Chun Han Wong and Yang Jie explained how the regulations could place American and other Western companies operating in China in an awkward position—obliged to comply with U.S. trade restrictions on China, yet also exposed to pressure, punishment, or even expulsion by the Chinese government:
The Chinese regulations feature vague provisions that make it hard for foreign businesses to judge what would trigger Beijing’s reaction—which may be part of the point. The lack of specificity leaves “open the possibility that several legitimate commercial decisions could be interpreted” as threatening Chinese supply chains, the European Union Chamber of Commerce in China said.
The rules require Chinese companies and research institutions to step up security protocols governing key technologies and data. And they hinted at a tighter leash on foreigners who analyze Chinese business, saying officials should police misconduct involving “information-gathering activities related to industrial and supply chains” in China.
On Monday, Beijing published another set of regulations against those who assert “unjustified extraterritorial jurisdiction” over Chinese entities and people.
Under these 20-point rules, offending foreign organizations and individuals would be added to a “malicious entity list” and face penalties including entry bans, expulsion and asset seizures. These rules also applied broad definitions on the kind of actions that would trigger punishment. [Source]
A piece from AFP highlighted reactions from business groups such as the American Chamber of Commerce (AmCham) in China and the European Union Chamber of Commerce in China (EUCCC):
The regulations, released on April 7, allow Chinese authorities to take measures against foreign companies or individuals that "harm China’s industrial and supply chain security".
The rules appeared aimed at stopping companies from removing China from their supply chains, AmCham China’s president Michael Hart said on Thursday.
[…] The European Union Chamber of Commerce in China (EUCCC) criticised the provisions as "unclear and vague" earlier this month, saying their implementation "increases the risk of doing business in or with China".
[…] "The threat that individual employees could be punished through exit bans is concerning," the EUCCC added. [Source]
CDT editors have observed that discussion of the new regulations appears to have been restricted on platforms such as Weibo and Zhihu, with relatively few public comments. Chinese social media users on some overseas websites described the regulations as akin to “barring the door to beat the dog”—that is, entrapping foreign companies and investors in order to coerce them into certain desired behaviors. Others warned that the new rules could well prove counterproductive by discouraging foreign investment, accelerating capital flight, and “throwing the economy into reverse gear.” Still others noted that the new rafts of regulations, coupled with recent crackdowns on VPN use, made a mockery of the Chinese government’s stated commitments to "expanding high-standard opening-up" and "optimizing the business environment."
Below are some online comments, compiled by CDT editors from Weibo and X, nearly all questioning the wisdom of the State Council’s attempts to exert such stringent control over foreign companies operating within China’s borders. Some commenters made pointed reference to Xi Jinping as “Accelerator-in-Chief,” i.e. a leader who seems dead-set on running China into the ground:
TAOwilltalk: Nobody’s going to dare invest in China now, and they’ll scare off the ones who already did.
huabuguo43: Kidnapper sez: “Thanks for the ransom, bud, but you’re not going anywhere."
BGates69218: Way to send foreign investors running for the hills. And talk about a master accelerationist: apparently the Chinese economy isn’t collapsing fast enough, and he wants to speed things along so we can catch up with North Korea.
Death8964: Every single time, they always manage to pick the worst possible policy. The "Accelerator-in-Chief" title is well-deserved.
200cattieswheat: How is this not a fuckin’ shakedown?
ping47341: Trying to manipulate corporate behavior by destroying market fundamentals is never a winning strategy. All it’ll do is make everyone hold their noses and steer clear of you from now on.
用户6318682028: Complete idiots. They haven’t even figured out who needs who more, and they’re just talking out of their asses.
Vorathen: Hahaha, every investment promotion officer in the country just shit themselves. Who the hell would want to invest now?
poppy208209: They used to say "clear the cage to make room for bigger birds." Turns out they emptied the cage, alright—all the birds flew the coop!
2073egun: In economic terms, it’s a trade barrier. In political terms, it’s a closed-door policy. In terms of bullshit, it’s just a clown show for the bozos at home. [Chinese]
