China's anti-sanctions law begins cross-border landing: When companies face US sanctions and Chinese justice at the same time

China's anti-sanctions and anti-long-arm jurisdiction legal system, established in recent years, is entering into the daily compliance of courts and enterprises from legislative documents.The Financial Times on September 11 that China has expanded its supply chain investigation, overseas jurisdiction and overseas investment management through State Council decrees No. 834 and No. 835 and No. 837; at the same time, the Shanghai Maritime Court has joined forces to clearly apply the Anti-Sanctions Law in cross-border transport disputes, ordering a overseas carrier to bear contractual liability for compliance with U.S. restrictions.

This means that multinationals are faced with two sets of legal obligations that may conflict directly: compliance with U.S. sanctions, export controls or supply chain review can trigger civil liability, countermeasures or investigations in China; and, in turn, continued trading in compliance with Chinese laws may increase compliance risks in the U.S. or other jurisdictions.

The case of the Shanghai Maritime Court turned the “conflict of law” into an enforceable judgment.

A typical case released by the Supreme People’s Court this year shows that a Hong Kong company has commissioned a Singapore carrier to ship electronics from Shanghai to Panama. The carrier is restricted by the United States because of the goods-related Chinese enterprises and refuses to continue to fulfil and send the goods back to Shanghai. The Shanghai Maritime Court considers that foreign unilateral restrictions cannot be a natural reason for refusing to fulfill the contract and orders the carrier to compensate for the loss and interest of the goods under the Anti-Foreign Sanctions Act.

Several international laws point out that the most important part of this ruling is that the court recognized the Anti-Foreign Sanctions Law as a compulsory applicable rule, even if the contract parties are foreign subjects and the contract chooses foreign law, it cannot, of course, exclude the role of China's Anti-Sanctions Law. For international shipping, banking, insurance and supply chain companies, this greatly increases the difficulty of "simultaneous compliance".

* Decrees No. 834 and No. 835 of the State Council extend the risk from the courts to administrative supervision.

Article 834 establishes an investigation and countermechanism around the security of the industrial supply chain, allowing measures against foreign actors suspected of compromising the security of China's industrial chain, and restricts unauthorized supply chain investigation activities. Article 835 targets foreign "inappropriate overseas jurisdiction", empowering Chinese authorities to identify relevant measures and issue orders that cannot be enforced.

Beijing’s policy logic is clear: China believes that the U.S. and other countries use sanctions, entity lists and overseas enforcement to affect Chinese companies, and therefore need to establish their own blocking and countermeasures. The U.S. interpreted some of the sanctions and supply chain investigations as national security, human rights and export control enforcement laws. Both systems have overseas effects, resulting in multinational companies trapped between mutually exclusive legal requirements.

The core of this legal competition is not “who has the longest arm”, but who will bear the cost of the conflict.

Large multinationals can set up double-compliance teams, adjust suppliers, divide or resolve disputes through arbitration and litigation; small and medium-sized enterprises, shipping companies and supply chain service providers often don’t have the same resources.When a company is punished in China for complying with U.S. sanctions or in the U.S. for complying with China’s anti-sanctions requirements, legal risks are directly translated into trade costs.

In order to reduce risks, companies may reduce the depth of audits on China’s supply chain, avoid transactions with sanctioned entities, or further isolate China’s business from other markets. Policy makers want to protect their own companies by law, but the actual results may drive global supply chain segregation.

Beyond the Red Wall, more concern is about how China’s legal power goes beyond its borders.

In the past, China’s overseas influence has often focused on capital investment, diplomatic pressure, or network of warfare; now law has become an important tool. As long as transactions, assets, supply chains or parties have sufficient ties with China, Chinese courts and administrative agencies may require foreign actors to abide by China’s anti-sanctions rules. At the same time, China also expands regulation of overseas investment and data and supply chain activities of its enterprises, allowing the state power to “go out” alongside the enterprises.

The difference is that the system in China is still new, the number of court cases and administrative enforcement laws is limited, and the boundaries of rules are still forming. Therefore, what really need to observe is not how hard the legal text is, but which cases will be selectively enforced, which industries are focused on regulation, and to what extent Chinese courts will recognize foreign laws and contracts.

*Procedure transparency will determine the international credibility of this system.

Any country has the right to enact laws to counter foreign sanctions, but when rules have overseas effects, procedural transparency, applicable standards and judicial predictability become especially important. Companies need to know what constitutes “assistance to foreign discrimination restriction measures”, what kind of supply chain investigations will be found to be illegal, whether administrative authorities provide a defence before taking a countermeasure, and how the courts deal with legal conflicts that are truly impossible to enforce simultaneously.

For multinationals, the most realistic question is no longer whether to choose side, but how to prove that they do not violate either side between two increasingly compulsory legal systems. The US-China competition has thus entered a deeper stage: the trade war is not only on tariffs and chips, but also on court rulings, compliance rules and legal jurisdiction.