On the road to becoming a big sanctioning power, China is making steady progress. If imitation is the most sincere compliment, American policymakers should regard it as praise.
Beijing has learned lessons as relations with the Trump administration have broken down and China has been hit harder and more by Washington sanctions instruments.
Few experts and the media have noticed that China has quietly shaken off its historical dislike for restrictive measures and begun to build a toolbox similar to that of U.S. sanctions. As a result, China is now more willing and capable of weaponizing its economy to win foreign policy and stop external forces from hitting its company.
Therefore, during and beyond the Biden administration, Beijing will increasingly become a force against Washington’s sanctions hegemony and become a benchmarker in global business.
China is a latecomer to sanctions and was unwilling to participate in such games before. This is not only for ideological reasons, but also related to the fact that China has been targeted from time to time. There are also some practical considerations. The power of sanctions comes from the ability to effectively prevent entry into a popular economy or use of an international currency, which has only slowly begun to accumulate after China’s accession to the WTO.
Therefore, China’s punitive action begins with informal measures. Since 2010, China has punished other governments for violating its own interests by economic retaliation at least nine times, including suspending imports, preventing exports or tourism, or taking regulatory actions against foreign companies operating in China.
And the ruthless suppression of the Trump administration has prompted Beijing to supplement this “sanction with Chinese characteristics” in a more formal way and ability.
In the past two years alone, the U.S. Department of Commerce’s export control list has increased by more than 400 Chinese individuals and entities. In this case, Beijing began to develop counterattack tools. In 2020, China promulgated an export control law on national security grounds, and also published a list of “unreliable entities”.
This list seems to be directly inspired by the list of relevant entities of the U.S. Department of Commerce. Being included in the list will affect the business of foreign enterprises in China. A new regulation issued in early January this year allows the Chinese authorities to punish multinational companies that comply with foreign sanctions.
If Chinese citizens or companies suffer economic damage due to other enterprises’ compliance with foreign laws, they can also sue in Chinese courts for compensation. In fact, according to these rules, if multinational enterprises comply with U.S. sanctions (requirements), they will be in legal trouble in China.
So Biden is now facing a Beijing with a sanctions toolbox. With this, China can challenge the traditional role of the United States as the number one standard-setter for global business and weaken the dominant position of the United States in the global financial system.
Beijing’s rise as an opponent of U.S. sanctions is still ongoing, but some conclusions can be reached so far.
First of all, Beijing’s framework focuses on preventing entry into China’s economy and obtaining technology exports. Considering the size of China’s consumer market and its dominant position in 5G patents, such a threat cannot be underestimated, but it also implies that China’s financial strength is still relatively limited. Secondly, Beijing is establishing a sanctions deterrent that is still unwilling to use.
China’s export control law has extraterritorial effect. If an individual or entity abroad is deemed to endanger China’s national security, the Chinese government can hold him accountable. But the new scale related to punishing multinational companies is vague and open-ended – both are characteristics of deterrence.
At this stage, such tools only send a message to the Biden administration that restrictive measures against Chinese star enterprises are a red line in Beijing. If this line is crossed, the economic interests of the United States in China may be hit.
Therefore, the United States and China may form a mutual economic deterrent.
The two sides will still use restrictive measures, but they will tacitly, so as to form a more stable economic diplomacy, at least in the short term.