One year after the US-China semiconductor war began and less than two months after the G7 countries decided to de-risk from China in response to concerns about China’s human rights record, its aggressive trade practices, and its military expansion, Beijing adopted a new foreign relations law on July 1 allowing for the punishment of any group or person who engages in “acts that are detrimental to China’s national interests.” The law is broad and vague, which gives the Chinese government a lot of leeway in interpreting it. This could make it difficult for foreign investors and businesses to know what is considered “detrimental to China’s national interests” and could lead to arbitrary enforcement.
The National People’s Congress Standing Committee (NPCSC)’s Legal Affairs Commission stressed that the passage of the law was not aimed at setting up long-arm jurisdiction; China has already implemented the Unreliable Entity List in 2020 and the Anti-Foreign Sanctions Law and the Rules on Counteracting Unjustified Extra-territorial Application of Foreign Legislation in 2021.
The newly passed Foreign Relations Law can be considered an enhanced version of the Anti-Foreign-Sanctions Law, which was passed by the NPCSC on June 10, 2021. On April 26, 2023, Beijing also amended its Anti-Espionage Law by expanding the coverage of spying charges from stealing “state secrets” to the theft of “all data and items related to national security.” With the creation of the Foreign Relations Law, China made plain its hostility to all forms of hegemony and political power play, as well as isolationism, protectionist policy, and predatory conduct and defined its counteraction and deterrent measures. The new law sounds less like legislation and more like a political statement to the world that China is becoming more assertive on the global stage and less willing to tolerate criticism from foreign governments.
The Foreign Relations Law is aimed at issuing a warning to Western countries that promote “decoupling” from China and disrupting international order, while the vagueness of the law’s language may fuel China-based foreign firms’ concerns about deteriorating Sino–United States relations. For instance, according to Article 8 of the Foreign Relations Law, “any organization or individual who commits acts that are detrimental to China’s national interests” will be penalized. This law could be used as a pretext for China to justify its actions against foreign companies and individuals that are critical of the Chinese government or the policies adopted by them.
Article 32 says that the State shall take law enforcement, judicial, or other measures in accordance with the law to safeguard its sovereignty, national security, and development interests and protect the lawful rights and interests of Chinese citizens and organizations. This could give the Chinese government broad powers to regulate and control foreign investment and activities in China. Further, Article 33 says China has the right to take counteractive or restrictive measures against acts that endanger its sovereignty, national security, and development interests in violation of international law or fundamental norms governing international relations. Here, the law does not specify what kind of measures the Chinese government can take or what the consequences will be for those who are found to have committed a crime. The law has the potential to be used as a tool of coercion by China against other countries. China could use the law to pressure other countries to change their policies or to comply with Chinese demands. For example, China could threaten to take action against a foreign company that is investing in a country that China considers to be a “hostile” country.
The law could also be seen as a challenge to the international legal order which gives China the right to take unilateral action against foreign countries that it believes are impairing its political and economic interests. This could lead to conflict with international law, which generally requires countries to resolve disputes through peaceful means. Moreover, the law’s vague language and broad scope give the Chinese government wide latitude to punish foreign investors and businesses, which could have a chilling effect on investment and trade. This could make it difficult for foreign investors and businesses to know what is considered “detrimental to China’s national interests.” Could this include anything from criticizing the Chinese government to complying with US sanctions? The law does not provide any clear guidance, which leaves foreign investors and businesses in a state of absolute uncertainty. The law is likely to be challenged in court, as it is unclear whether it is compatible with international law. However, the Chinese government has a history of ignoring international law when it suits its interests, so it is possible that the law will be enforced regardless of any legal challenges.
The law can be construed as a response to the growing economic rivalry between the United States and China, an attempt by China to assert its sovereignty and independence on the global stage. This legislation specifies guidelines for introducing measures to combat and impose restrictions against foreign nations, people, or organizations, as well as the goal, conditions, and policy direction of ensuring the implementation of Chinese law in international relations. It is no secret that ties between the United States and China have deteriorated in recent years as a result of US complaints over Chinese trade and currency policies. The legislation lays out the aim, circumstances, and policy direction for guaranteeing the application of Chinese law in international relations. It also includes recommendations for introducing measures to oppose and impose limitations against foreign countries, individuals, or organizations. While China aspires to surpass the United States as the largest economy in the world, it will need to become a technical giant to maintain its supremacy. At the same time, it is unable to relinquish control over being the hub of world industry. In the upcoming months, Beijing could expect more firecrackers as the economic conflict between the world’s two largest economies heats up.
Surjit Raiguru is a third year law student pursuing BA-LLB [H] from Symbiosis Law School, Pune, India. His areas of research focus on the convergence of human rights law, cyber law, and the changing landscape of legal issues related to gender equality.
Suggested citation: Surjit Raiguru, China Cracks Down on Foreign Investors with New Law, JURIST – Student Commentary, July 14, 2023, https://www.jurist.org/commentary/2023/07/surjit-raiguru-china-foreign-investors-law/.
This article was prepared for publication by Hayley Behal, JURIST Commentary Managing Editor. Please direct any questions or comments to her at commentary@jurist.org
