By Tom Fowdy
As reported in the South China Morning Post (SCMP), a Chinese court in Shanghai earlier this year fined a Singaporean firm after it refused to deliver a shipment for a Hong Kong company, citing its inclusion on a United States blacklist. The court ruled that the firm owed $739,000 USD to the affected party, citing China's new "Anti-foreign sanctions law," which was implemented in 2024.
The law, and the subsequent ruling, are designed to legally protect Chinese firms from the impact of unilateral overseas sanctions, and thus subsequently hold foreign parties fiscally liable for losses if they comply with them. The law adds a new dimension of legal and regulatory risk amidst doing business between China and the United States, with the former now increasingly taking the position that US unilateral sanctions are in effect "illegitimate", as noted when China's own government earlier this year requested that US sanctions on Iranian oil be explicitly ignored.
Since the end of the Second World War, the United States has held extraordinary global economic leverage through the implementation of the dollar as the global reserve currency. Through dollar dominance, the US has effective sovereign influence over global financial and commodity markets. Global banks are led in USD, and key goods such as oil are traded in it. As a result, the US has obtained an unparalleled ability to impose sanctions on its adversaries unilaterally, simply by utilising US dollar exclusion as a weapon. Why? Because if you are banned from US dollar transactions, banks and firms around the world expose themselves to political risk by doing business with you, and therefore your means of transactions become extremely limited.
It is through this that the US has been able to cripple the economies of targeted countries, such as Iran, Assad-era Syria, or North Korea, simply by-passing laws or designations which exclude them from banking and shipping systems by extension. However, with a country like China it is less easy, precisely because they have so much economic and commercial clout that the economic damage and risk posed by doing so is huge, especially given how many US dollars China holds itself. This makes broad sanctions untenable. As a result, the US usually seeks other means to target China, such as through tariffs, export and import blacklists.
However, precisely because China has leverage to enforce its will, it has also increasingly learnt that it can utilise "law" in the same way as the United States does, by simply making the implementation of American sanctions illegal. While one obviously can avoid China's Anti-foreign sanctions law by not doing business with it, that is easier said than done when China itself is the world's second-largest economy and deeply integrated into global business and commerce.
For example, let's say you are a massive importer and exporter of goods from China, which you then make into finished goods to sell to America. One day, the United States declares that a Chinese product you use is "made with forced labour" and bans it from US markets, so subsequently terminate the product with your Chinese partner, citing sanctions. What happens? Your Chinese partner can subsequently sue you for losses on the basis that you complied with foreign sanctions, immediately undercutting any assets or income source you have in the country itself. While some Western businesses can hedge against this strategically, for smaller enterprises, and especially those regionally integrated with China, this creates very serious risk. It also shows, for those who are not seeking to "choose" between the US and China, that ambiguity is also becoming increasingly untenable because neither side in question is allowing it. The US pushes countries to sign one-sided agreements aimed at undercutting Beijing, and China is now increasingly doing the same thing. While the US uses this method offensively, we might say China uses it "defensively" for now.
What Beijing is ultimately learning, of which the US has long mastered, is that "law" can be an instrument for political will to be codified, formalised and enforced as a set of rules. There is a big difference between shouting "we are angry at a country" and lashing out rhetorically through symbolic sanctions or temporary measures, as China did in the past, or setting out a set of conditions into a legislative document that then can be repeatedly enforced by the courts, such as "You complied with US sanctions which caused a loss of X, therefore you are liable for it." Law is the instrumentalization of power, so to speak, and in the case of the US and China, the instrumentalization of geopolitics too.
The views do not necessarily reflect those of DotDotNews.
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