China Delays Anti-Sanctions Law for Hong Kong

Beijing delayed plans for a new law that could bar banks and companies in Hong Kong from complying with sanctions on China’s people, reflecting caution about a measure that has sent a wave of concern through the city’s business community.

China’s legislature had planned to implement new laws in Hong Kong and Macau mirroring the antiforeign sanctions law that was passed on the mainland in June in response to a series of restrictive measures imposed by the U.S. and Europe. But in an unexpected move, the Standing Committee of the National People’s Congress decided not to press ahead for now while it studies the issue, Tam Yiu-chung, a Hong Kong delegate to the panel, said Friday.

The delay is a reprieve for companies that had feared the Catch-22 of violating Chinese law by upholding sanctions or violating U.S. law by not doing so.

Beijing was concerned the legislation could further shake business and investor confidence, which has already plummeted amid China’s regulatory crackdown on the technology sector and others, people familiar with the discussions said. Hong Kong’s Hang Seng Index is down 8.75% this year.

China is still eager to implement the law in the city, but is likely to revise some of its terms to avoid scaring away international capital, one of the people said.

“I believe this will make the antiforeign sanctions law even more effective,” Mr. Tam said of the extra time for deliberations.

Hong Kong and Macau have their own mini-constitutions and legislatures, but the Standing Committee is able to introduce laws directly and has been doing so more frequently, including a national security law and legislative election overhaul in Hong Kong that have been criticized as antidemocratic. Those actions and others have triggered some of the sanctions.

“As the highest state organ, the National People’s Congress and its Standing Committee make decisions on Hong Kong matters based on the interests of the city,” the Hong Kong government said Friday without addressing the anti-sanctions law’s delay. “The HKSAR Government fully supports and executes any such decisions.”

Multinational companies are actively weighing the risks of the law in both China and Hong Kong, and watching whether mere compliance with foreign sanctions could be considered a violation of the new law—a worst-case scenario in which large financial institutions could be punished for complying with U.S. or U.K. laws, said Benjamin Kostrzewa, an international trade lawyer at Hogan Lovells.

Alternatively, the law could focus more narrowly on the foreign government officials involved in developing sanctions against Chinese people, which would have a lesser impact on the day-to-day business of multinational companies, he said.

The law could have far-reaching effects if it applies to supply-chain issues—particularly those related to the sensitive region of Xinjiang, where cotton and other industries have faced allegations of forced labor, Mr. Kostrzewa said.

The mainland law mandates that Beijing respond with countermeasures against the entities or people involved in imposing foreign sanctions. Those countermeasures include denying or revoking visas, seizing and freezing assets within China, blocking transactions or cooperation with Chinese entities, along with “other necessary measures” that aren’t specified. The law also allows Chinese companies to file lawsuits in Chinese courts against foreign business partners who cut ties to comply with foreign sanctions.

Hong Kong officials have suggested the anti-sanctions measure—unlike the national security law, which Beijing drafted in secret and imposed on Hong Kong last year—could be handed off to the city’s legislature to be drafted and enacted locally.

Carrie Lam, Hong Kong’s chief executive, said in a news conference last week that she supported implementing the law through local legislation and that she had submitted suggestions to the central government.

Hong Kong Chief Executive Carrie Lam said that she supported implementing the law through local legislation.

A local version of the law would allow lawyers to better craft compliance based on how courts have interpreted provisions in the past under the city’s common-law system, Mr. Kostrzewa said.

Nicholas Turner, a lawyer at Steptoe & Johnson LLP who specializes in economic sanctions, said companies are more accustomed to dealing with established local regulators such as the Hong Kong Monetary Authority than the city’s new national security apparatus.

Over the past year, the U.S. and European Union have imposed sanctions on an ever-expanding list of businesses and individuals in China whom they accuse of unfair industrial practices, carrying out forced assimilation against ethnic minorities in the remote region of Xinjiang, and suppressing civil liberties in Hong Kong. Beijing has denied the allegations and has retaliated with sanctions of its own.

Author: Elaine Yu, WSJ

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