China expands legal arsenal, forcing Western firms into sanctions compliance dilemma

Beginning in 2020, China has steadily expanded a legal toolkit—including the Export Control Law, Unreliable Entity List, Anti-Foreign Sanctions Law, Blocking Rules, Counter-Extraterritorial Regulation and Supply Chain Security Provisions—to counteract U.S. and EU sanctions and assert jurisdiction beyond its borders. The Anti-Foreign Sanctions Law grants Chinese parties a private right to sue foreign firms that refuse contracts on sanction grounds, demonstrated in cases before the Nanjing and Shanghai Maritime Courts.

Blocking Rules, modeled on the EU statute, were first applied in May to stop five petrochemical firms from obeying U.S. sanctions on Iranian oil. The Counter-Extraterritorial Regulation enables Beijing to deem foreign investigations, such as the EU probe of Nuctech, as improper extraterritorial actions and take “necessary measures.” Recent litigation by HY Energy Group against Citigroup and JPMorgan illustrates the growing risk of Chinese lawsuits over sanctions de-risking.

Together, these measures create a dilemma for multinationals, which now face potential penalties in both Western and Chinese jurisdictions for any sanction-related decision. Companies can no longer rely solely on contract clauses or over-compliance with Western rules without exposing themselves to Chinese legal actions.