China’s Anti-Foreign Sanctions Law: The Knowns and Unknowns

China’s Anti-Foreign Sanctions Law (the “Law”), which was enacted and became effective on June 10, 2021, authorizes the Chinese government to develop an “anti-sanctions list” and to impose countermeasures on listed persons involved in “discriminatory restrictive measures.”  It also creates a private right of action for Chinese citizens and organizations to sue in a Chinese court. The anti-sanctions list and related countermeasures resemble some of the measures that have already been taken by the Chinese Ministry of Foreign Affairs (“MOFA”), which has announced sanctions against dozens of organizations and individuals in the U.S. and other countries in connection with issues relating to Xinjiang, Hong Kong, and Taiwan.  Some of those previous sanctions have included denial of entry into China, a prohibition against conducting business with China, and in some cases also freezing of assets.  In addition, the Chinese Ministry of Commerce (“MOFCOM”) announced an “Unreliable Entity List” regime in May 2019 (see our previous blog post on this here), which similarly targets foreign entities, e.g., for taking “discriminatory measures” against Chinese individuals or organizations.  However, unlike the MOFA sanctions, MOFCOM has not yet taken any actions under the Unreliable Entity List regime.  Most recently, MOFCOM promulgated Rules on Counteracting Unjustified Extraterritorial Application of Foreign Legislation and Other Measures (the “MOFCOM Blocking Rules”), released in January 2021 (see our client advisory on the MOFCOM Blocking Rules here). Those ministry-level measures had certain limitations, and the enactment of the Law has been a priority of Chinese legislators in order to provide a clearer statutory basis for administrative measures that will ultimately enhance the country’s anti-sanctions “toolkit.” The Anti-Sanctions List and Related Countermeasures The Law authorizes the Chinese government to create an “anti-sanctions list,” and to designate on this list individuals and organizations that directly or indirectly participate in the formulation, determination, or implementation of “discriminatory restrictive measures.”   While there are still questions surrounding what specific acts are targeted, generally they include actions (a) by a foreign country, in violation of international law and “the basic norms of international relations,” (b) “using various pretexts or its own laws to contain or suppress China,” (c) to “take discriminatory restrictive measures against Chinese citizens or organizations,” and “interfere in China’s internal affairs.” This broad definition leaves considerable discretion to the Chinese government to target foreign sanctions that it finds to be contrary to China’s interests.  MOFCOM’s Unreliable Entity List provisions use a similar term—“discriminatory measures,” and MOFCOM’s Blocking Rules use the term “unjustified extraterritorial application” of foreign legislation and other measures.  The Law’s focus on restrictive measures that are viewed as being in violation of international law or “basic norms of international relations” similarly indicates an intent to target “extraterritorial” foreign sanctions. The countermeasures that may be imposed on persons designated on this “anti-sanctions list” may include the following:

1. denial of entry into China or deportation from China;
2. freezing of assets located in China;
3. prohibition against doing business with individuals and organizations located in China; and
4. an undefined set of “any other necessary measures.”

In addition to the listed persons themselves, these countermeasures may also be imposed against:

1. listed individuals’ spouses and immediate family members;
2. listed organizations’ senior management or actual controllers;
3. other organizations for which a listed individual serves as part of senior management; and
4. organizations that are effectively controlled by, or in whose establishment or operation a listed individual or organization participates.

Designations on the anti-sanctions list and the imposition of countermeasures are excluded from judicial challenges in a Chinese court. Individuals and organizations within China are required to comply with the countermeasures imposed under the Law (however, this requirement does not apply to Hong Kong/Macau unless or until the Law is added to Annex III of the Basic Law of the Hong Kong/Macau Special Administrative Region). The Private Right of Action In addition to providing for listing and countermeasures, the Law grants a private right of action against any organization or individual that implements, or assists with the implementation of, a foreign country’s discriminatory restrictive measures, as defined above.  The Law allows Chinese parties to sue in a Chinese court for injunctive relief and damages in such cases. This provision resembles Article 9 of the MOFCOM Blocking Rules, which allows Chinese citizens or organizations to sue “a person” for damages if the person has violated a MOFCOM prohibition order against an unjustified extraterritorial application of foreign law. But it is not clear how this Article 12 of the Law will be implemented, including whether it will be implemented through the MOFCOM Blocking Rules or in a similar way that would require a prior MOFCOM prohibition order or an administrative action to find “discriminatory restrictive measures,” though a plain reading of the Law suggests that, unlike Article 9 of the MOFCOM Blocking Rules, the private right of action granted by the Law is not conditioned on a prior administrative action.  If that is the case, it may be left for courts to determine what “discriminatory restrictive measures” are within the scope of the Law, and when a party’s implementation of such measures becomes actionable in a Chinese court. There are additional questions about the jurisdiction of Chinese courts to hear claims under the Law in the context of international business transactions when arbitration is agreed upon as the exclusive dispute resolution mechanism under the relevant contract.  China’s Supreme People’s Court has longstanding guidance stating that, if a dispute resolution clause provides for arbitration of all disputes arising out of or in connection with the contract, and one party sues under that contract, Chinese courts do not have jurisdiction over such claims.  In such a situation, there is a question about whether a Chinese court would hear related claims for relief under the Law.  We would expect some clarifications/mechanism that may allow Chinese courts to hear such claims at some point.  Notably, the MOFCOM Blocking Rules appear to allow claims in Chinese court following the exercise of a contractual arbitration provision if an arbitration award unfavorable to a Chinese person is issued pursuant to a foreign law that has been blocked by a MOFCOM prohibition order. “So, What Now?” The immediate impact of the Law on the international business community is likely limited, as it largely reflects pre-existing Chinese policies, which have generally been implemented with caution to date. For the general steps that potentially affected parties may consider as part of their compliance strategies, please see our client advisory on the MOFCOM Blocking Rules here.