Beijing avoids Hong Kong showdown by delaying anti-sanctions law

US-China relations updates

Sign up to myFT Daily Digest to be the first to know about US-China relations news.

China’s parliament delayed an expected move on Friday to apply the country’s anti-sanctions law to Hong Kong, postponing a possible showdown with financial institutions that comply with US penalties targeting the territory.

Hong Kong-based executives had feared that the National People’s Congress, China’s rubber-stamp legislature, would impose its law on the territory immediately as it did with tough national security legislation last year.

According to people familiar with the deliberations, the NPC’s standing committee wanted more time to study the impact of applying the anti-sanctions law to Hong Kong. “The anti-sanctions law is a tool but China is still exploring how to use it,” one of the people said. “How Hong Kong should use the tool requires more discussion.”

If the NPC applies the law to Hong Kong at a later date, it could also give the territory time to draft a local version of the legislation.

The NPC rushed through its own version of the bill in a secret process in June, codifying earlier regulations adopted by China’s commerce ministry.

The law gives China’s government the power to punish companies and individuals that comply with sanctions imposed by foreign governments, notably the US. Washington has targeted Chinese and Hong Kong officials it said were responsible for the repression of the territory’s pro-democracy movement.

Some Hong Kong banks have refused to take deposits and other business from officials sanctioned by the US, including Carrie Lam, the territory’s chief executive, who complained last year that she was stuck with “piles of cash” at home as a result of the sanctions.

Albert Chen, a law professor at the University of Hong Kong, said the territory did not typically make big revisions to Chinese laws. “Hong Kong doesn’t really change mainland laws but adapts them,” he said, noting that the territory’s government might revise certain penalties so they were more in line with its common law tradition.

China’s anti-sanctions law, however, gives Beijing broad discretion in penalising parties that comply with foreign sanctions, making it unlikely that it would do so in a way that would harm Hong Kong’s role as the country’s most important financial centre.

The Chinese government has yet to exercise the powers granted to it under either the anti-sanctions law or commerce ministry regulations. Beijing also never followed through on its longstanding threat to designate and penalise certain multinationals for being “unreliable entities”, in part for fear of harming companies that have large workforces and pay substantial tax in China.

Angela Zhang, director of the University of Hong Kong’s Centre for Chinese Law, said that Beijing hoped the threat of countermeasures would at least “incentivise [US companies] to lobby Washington to drop its sanctions on China”.

The administration of President Xi Jinping has been frustrated by US president Joe Biden’s resistance to rescinding or even moderating many of the punitive measures imposed by former president Donald Trump in response to Beijing’s policies related to Hong Kong, Xinjiang and trade.

China’s anti-sanctions law was passed by the NPC just a week after the Biden administration updated Trump-era rules banning US investment in dozens of Chinese companies.

Additional reporting by Xinning Liu in Beijing