SVA Update – The Implications of Escalating US-China Sanctions to Business

The passage of a “blocking statute” by China’s National People’s Congress (“NPC”) on 10 June 2021 highlighted how sanctions not only impact international businesses, but are also expediting a process of economic decoupling with the US, with much wider implications. Businesses need to take account of these shifts.

The blocking statute

The NPC adopted its “blocking statute” on 10 June 2021, and so formalised the Chinese government’s ability to take “countermeasures” against foreign sanctions, through the denial of visas, the seizure of property, restrictions on activity within China, and “other necessary measures”. The law did not make clear how or when it might be used.

This law has built on prior measures aimed at protecting its interests, including new export controls, the Chinese Ministry of Commerce’s “unreliable entity” list announced in September 2021, and its Order No 1 of January 2021, which required businesses to report instances of foreign legislation affecting operations.

US measures

These actions came in response to a growing thicket of US restrictions, ranging well beyond traditional sanctions, to include: trade tariffs, aimed at rebalancing the deficit; limitations on technology exports; blackballing of major companies for ties to the People’s Liberation Army (“PLA”), affecting China Mobile and China Unicom; and measures aimed at limiting oil exports to Iran or North Korea.

Moreover, the US has also implemented “thematic” restrictions. One set focuses on the situation in Xinjiang, with sanctions listings of those involved in regional administration, and limits on trade in cotton from the region. Another set looks to Hong Kong; Washington has removed Hong Kong’s previous preferential trading status, and sanctioned officials, including the Chief Executive Carrie Lam Cheng Yuet-ngor.

The quandary for business

In passing this new law, Beijing has made clear that it will push back against US sanctions – but, in doing so, is presenting additional dilemmas to business, in Hong Kong and elsewhere.

For instance, in January 2021 the New York Stock Exchange announced plans to delist China Mobile, China Telecom and China Unicom. The Boston-based fund manager State Street sought to remove these companies from the Hong Kong Tracker Fund (“TraHK”), a fund under its control, but had to reverse course owing to the ire of the Hong Kong Government. Examples of other companies endeavouring to “square the circle” will surely follow.

A looming risk, now, is that the US Treasury must monitor whether to sanction a foreign financial institution (“FFI”) for dealing with those curtailing Hong Kong’s autonomy, perhaps leading to: prohibitions on loans from US financial institutions; limitations on foreign exchange transactions; bans for property transactions; and restrictions on dealing in debt or equities.

Doing so would amount to expulsion from the US financial system. The sanctioning of a major financial institution would thus affect not only the Hong Kong market, but could even provoke financial instability in China. The US would also have to carefully weigh potential “blowback” to its own financial system.

For now, the US has not hinted at its doing so, but Beijing is taking no chances – hence its new law. Hong Kong’s government also seems likely to adopt its own “blocking statute”, at Beijing’s behest, and as a means to protect against financial instability.

Looking ahead

Nor are the risks likely to prove short in duration. After all, such restrictions are hard to scale back, particularly when tied to specific policy goals. Moreover, these measures are a symptom of the deteriorating Sino-American relationship, and hence seem sure to become more burdensome as tensions spike in the Taiwan Strait, say, or the East and South China Seas.

An increase in sanctions will also accelerate a process of decoupling of the US and Chinese economies, with global implications, given that Chinese companies operate freely in Europe, Africa, and the Middle East, and that the US would enforce sanctions globally.

Sanctions may force companies to scale back an investment, unravel a joint venture, or find alternative suppliers, all at short notice; and the risk of regulatory action is especially high if operating in sensitive areas, such as aviation, shipping, technology and munitions manufacture.

Implications for business

China’s blocking statute thus highlights how sanctions risks are intensifying, posing acute challenges to businesses in Hong Kong, as well as more widely. Companies must act to protect their interests, by:

  • Monitoring for new measures and ensuring compliance. Moreover, compliance efforts must take a strategic, global view of sanctions, and not focus simply on jurisdictional issues – particularly as some of China’s new laws are loosely drafted.
  • Planning and preparing for the implementation of a mirror “blocking statute” in Hong Kong. Companies should assess the implications for their operations.
  • Taking account of how the deterioration in relations between the US and China could result in new sanctions, such as the listing of a foreign financial institution in Hong Kong.
  • Ensuring that internal due diligence processes examine sanctions, including by taking account of the political and regulatory risks faced by (or deriving from) key counterparties.
  • Considering whether to restructure operations, so as to create firebreaks between different business lines. Booking Taiwan business through Hong Kong, for instance, may not make sense going forward.
  • Implementing measures aimed at ensuring operational continuity, perhaps by basing key elements such as communications or IT in several jurisdictions, so as to ensure redundancy.
  • Ensuring that staff understand the need to eschew political statements, which could result in their company being targetted by activists or regulators.

SVA ( is a specialist risk mitigation, corporate intelligence and risk consulting company. The firm serves financial institutions, private equity funds, corporations, high net-worth individuals and insurance companies and underwriters around the world.

SVA has a dedicated crisis management team which, for our retained clients, stands ready to assist companies during crisis situations. Retained clients pay an annual fee for a 24-hour response capability.

We stand ready to support companies faced with these challenges. Our consultants are available to assist, advise and execute as necessary.