China’s growing assertiveness in the use of economic sanctions: where are we heading?

China’s growing assertiveness in the use of economic sanctions: where are we heading?

The US-China trade war, tightening of US export controls, and economic sanctions against Chinese technology companies instigated major revisions of Chinese laws and regulations that emulate Western tools used to implement economic sanctions. These recent amendments represent a major shift in the role assigned to economic restrictions by China. In particular, I argue that China is more willing than before to use economic restrictions as a geopolitical tool.

China and unilateral economic sanctions: a twisted relationship

The recent shift towards a new geo-economic global order characterised by the “securitisation of economic policy and economisation of strategic policy”[1] and the ‘weaponization’ of export restrictions by the United States[2] paved the way for a new Chinese approach towards the use of economic sanctions. Before this, the United States and the European Union have been considered to be global sanctions standard-setters and now China has also stepped up its game.

Until recently, China’s use of economic coercion was of a limited nature. A decade ago, the tide has slowly begun to shift: commentators took note of an increasing Chinese ‘assertiveness’ in deploying not only economic inducements but also unilateral economic sanctions for geopolitical objectives (see here). Reflecting upon China’s more assertive use of diverse instruments of economic statecraft, Professor James Reilly observed in 2013 that: “China today is using economic statecraft more frequently, more assertively, and in more diverse fashion than ever before.”[3] Some commentators associate this shift with Xi Jinping’s leadership: “Xi has added economic sanctions to China’s diplomatic toolbox.”[4] At the same time, even those who acknowledge China’s growing use of economic coercion agree that till very recently the country mostly did so informally by “using the cover of customary trade measures”.[5] In other words, China “weaponized tariffs, restricted exports, discouraged its citizens from tourism, instigated public boycotts, and shut down foreign companies.”[6]

Describing the past examples of China’s economic coercion, Angela Poh reaches the following conclusions regarding the inherent features of Chinese economic sanctions. Coercive measures that were employed share discernable similarities: first, no public announcements of intended sanctions were made and second, sanctions frequently targeted specific sectors, thus avoiding affecting overall patterns of trade and investment between China and a target state.[7]

Notwithstanding these developments, China opposes the use of unilateral economic sanctions by supporting UNGA Resolutions condemning the use of such measures and publicly expresses its opposition to their use.

Recent changes in China’s laws and regulations

Trade and tech wars between the United States and China instigated major revisions of China’s laws and regulations. In September 2020, China adopted a regulation on the Unreliable Entities List. Thereunder, restrictive measures can be introduced against entities, organizations, and individuals of a foreign country that are responsible for “suspending normal transactions with an enterprise, other organization, or individual of China or applying discriminatory measures against an enterprise, other organization, or individual of China, which violates normal market transaction principles and causes serious damage to the legitimate rights and interests of the enterprise, other organization, or individual of China.”[8]According to Article 10 of the relevant regulation, blacklisted entities, organizations, and individuals are subject to import and export restrictions, restrictions on investments in China, travel bans, visa bans as well as fines and “other necessary measures”.[9] On February 16, 2023, China used its Unreliable Entities List for the first time and added two US companies – Lockheed Martin and Raytheon – to the list administered by China’s Ministry of Commerce.

Furthermore, the recently enacted Export Control Law (ECL) is also of importance. This law was adopted in response to a similar US legislative move. In particular, the US Export Controls Act of 2018 introduced major changes to US export control regulations by expanding the scope of technologies subject to export controls to include a new category called “emerging and foundational technologies”.[10] In response to this, Article 48 of the Chinese ECL stipulates rules authorizing reciprocal measures to be taken in response to export controls implemented by other states. In this regard, commentators have already noted that: “This law [ECL] helps China to align its export control practices with those of the United States, giving it legal grounds to apply similar tactics in their growing technology war.”[11]

In June 2021, China passed the Anti-foreign Sanctions Law. This law empowers competent Chinese authorities to sanction persons and organizations that are directly or indirectly involved in the formulation, decision-making or implementation of discriminatory restrictive measures directed against China. According to Articles 4 and 5 of the law, these sanctions may also be extended to spouses and immediate family members of the sanctioned persons and to the managers of the listed organizations.

Are we heading towards China’s growing use of economic restrictions as a geopolitical tool?

Since the recent changes to its laws, China has been using targeted economic sanctions as retaliatory measures (e.g., in response to the EU, UK, US and Canadian sanctions targeting persons responsible for human rights violations in the Xinjiang Uyghur Autonomous Region) or as restrictive measures penalizing any support for Taiwan and its pro-independence politicians. In April 2023, Taiwan President Tsai Ing-wen’s visit to the United States triggered a new wave of Chinese sanctions against individuals and entities involved in it: Hudson Institute, the Ronald Reagan Presidential Library and Museum and their leaders have been targeted. The announced measures have been taken in accordance with Articles 4, 5, 6 and 15 of the Anti-Foreign Sanctions Law and include asset freezes of private property, visa and travel bans and a complete prohibition on any activity between the sanctioned persons and Chinese individuals and entities.

As the United States pursues the balancing of its economic and national security interests and the EU announced its vision of economic security as an open strategic economy, China has been also following these developments and responding to them. In particular, US efforts to hinder China’s ability to access and develop cutting-edge semiconductors instigated a wave of China’s export restrictions and controls on critical minerals. In July this year, China’s Ministry of Commerce and the General Administration of Customs announced restrictions on the export of gallium, germanium and certain related chemical compounds.[12] China is the global producer of both metals that are crucial for producing a wide range of products that include “semiconductor wafers, integrated circuits, light-emitting diodes, electric vehicles, solar cells, fiber-optic cables, and other electronic components.”[13]

In October 2023, following the US expansion of the restrictions on artificial intelligence chips and semiconductor manufacturing equipment, China decided to hit back with the new export restrictions on graphite, which is essential for electric vehicle battery manufacturing.[14] Analysts described this move as China’s desire to leverage “its dominance of the global critical minerals and raw materials supply chain” as a response to the anti-China policies of other states.[15]

November started with a new twist: a new obligation to report rare earth exports, as of now only for statistical purposes, but it can be expected that this information will be used for designing future coercive efforts.

In conclusion, China’s growing assertiveness in deploying economic sanctions marks a notable departure from its traditional foreign policy stance. This strategic shift underscores the nation’s recognition of economic leverage as a potent tool in shaping international dynamics. The implications of this shift extend beyond economic realms, signalling a nuanced and recalibrated approach by China in pursuit of its geopolitical objectives. The dynamics surrounding China’s use of economic sanctions might shape the future landscape of international relations.

[4] Gary Clyde Hufbauer and Euijin Jung, China plays the sanctions game, anticipating a bad US habit, PIIE, December 14, 2020, https://www.piie.com/blogs/china-economic-watch/china-plays-sanctions-game-anticipating-bad-us-habit

[5] Ibid.

[6] Ibid.

[7] Poh, A. (2021). Sanctions with Chinese Characteristics: Rhetoric and Restraint in China’s Diplomacy. Amsterdam, Amsterdam University Press.

[8] MOFCOM. (2020). Order No. 4 of 2020 on Provisions on the Unreliable Entity List. https://perma.cc/B7JS-E4PY

[9] Ibid.

[10] John S. McCain National Defense Authorization Act for Fiscal Year 2019, Pub. L. No. 115–232 (2018).

[11] Zhu, H. (2020). ‘Navigating China’s New Export Control Law’. TradeExperettes blog.

[12] Sean Stein, Ashwin Kaja, Alexander Wang, Wanyu Zhang and Tina Zhang, China Slaps Export Restrictions on Two Critical Metals, Global Policy Watch, July 6, 2023, https://www.globalpolicywatch.com/2023/07/china-slaps-export-restrictions-on-two-critical-metals/

[13] Ibid.

[14] Emily Benson and Thibault Denamiel, China’s New Graphite Restrictions, Center for Strategic and International Studies, October 23, 2023, https://www.csis.org/analysis/chinas-new-graphite-restrictions

[15] Ibid.