Why businesses may have to ‘pick sides’ if China starts using anti-sanctions law

New legislation could see companies taken to court if they comply with Western sanctions on China

One legal observer says fashion companies that refuse to use Xinjiang cotton or Huawei could be targeted

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One legal observer said the law would force companies in China to ‘pick sides’. Photo: Getty Images

Published: 11:00pm, 12 Jun 2021Updated: 11:00pm, 12 Jun 2021

China will soon start targeting foreign and Chinese businesses under its new law to counter Western sanctions, effectively forcing them to “pick sides”, according to legal observers.

They say the broad scope of the legislation could present foreign businesses in China with a major dilemma, as they may be caught between compliance with foreign sanctions and the new law that prohibits them from enforcing those measures.

Under Article 12 of the law, passed by the National People’s Congress Standing Committee on Thursday, organisations and individuals who enforce or assist foreign sanctions could be taken to court, and forced to “stop the infringement and to pay compensatory losses”.

Lester Ross, a partner at WilmerHale in Beijing, said he feared the new law would compel regulators to “reduce [companies’] discretion to determine with whom they wish to do business”.

“If so, this could have a major impact particularly on financial institutions,” he said.

Businesses that could be at risk include multinational fashion brands that have announced they will not use cotton from Xinjiang – banned by the United States because of concerns about forced labour – or suppliers to the telecoms giant Huawei, which has been hit by US export restrictions.