Hold your horses and take a breath.
Subject to certain assumptions surrounding the Law on Foreign Relations of the People’s Republic of China, effective from 1 July, the new law establishes two key points: uphold international law and safeguard national interests by the rule of law.
The Law on Foreign Relations (‘LFR’) is a comprehensive framework for the legal basis for China’s diplomatic policies. Though LFR is the first form of legislation on foreign relations, previous laws and regulations have been enacted as countermeasures to foreign sanctions on China companies and individuals, such as the Anti-Foreign Sanctions Law and the Rules on Counteracting Unjustified Extraterritorial Application of Foreign Legislation. For the business world, the LFR provides insight into the overarching direction of China’s foreign policy and its national interests. The LFR is not as terrifying as portrayed by certain media but integrates existing China’s diplomatic policies into one legislation.
LFR applies to ‘the People’s Republic of China conduct of diplomatic relations with other countries, its exchanges and cooperation with them in the economic, cultural and other areas, and its relations with the United Nations and other international organisations.’
Upholding International Law
In an increasingly polarised world, LFR pushes for multilateralism by acknowledging and upholding the United Nations at the core of international order and law. It articulates the general principles, goals, and missions of China’s diplomatic policies as follows:
- fostering mutually beneficial partnerships and openness;
- based on Marxism-Leninism, Mao Zedong Thought, Deng Xiaoping’s Theory, the Important Thinking of Three Represents the Scientific Outlook on Development and Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era;
- upholding international order underpinned by the United Nations.
Though the emphasis, as noted in Article 19, is on the ‘global’ governance system and inclusion rather than a specific geographic bloc of ideology and governance.
(Article 19) The People’s Republic of China upholds the international system with the United Nations at its core, the international order underpinned by international law, and the fundamental norms governing international relations based on the purposes and principles of the Charter of the United Nations.The People’s Republic of China stays true to the vision of global governance featuring extensive consultation and joint contribution for shared benefits. It participates in developing international rules, promotes democracy in international relations, and works for economic globalisation that is more open, inclusive, balanced, and beneficial.
(Strengthening) National Security
In the previous years, China has increased national security by enacting a collection of legislation such as:
- The Cyber Security Law of the People’s Republic of China, effective from 1 June 2017
- The Export Control Law of the People’s Republic of China, effective from 1 December 2020
- Rules on Counteracting Unjustified Extraterritorial Application of Foreign Legislation and Other Measures, effective from 9 January 2021
- The Anti-Foreign Sanctions Law of the People’s Republic of China, effective from 10 June 2021
- Data Security Law of the People’s Republic of China, effective from 1 September 2021
Therefore, LFR provisions such as Article 33 ‘China has the right to take corresponding countermeasures and restrictive measures against acts that violate international law and basic norms of international relations and endanger the sovereignty, security, and development interests of the People’s Republic of China.’ is a reiteration of existing legislation.
Equally, Article 38 reiterates compliance obligations for foreign individuals and entities and confirms protection for lawfully operated entities.
(Article 38) The FRL commits to protecting the lawful rights and interests of foreign-owned enterprises operating in China and confirms that China has the authority to administer the admission/residence of foreign individuals and the activities of foreign entities within its territory.
Again, these are not new obligations; stricter enforcement of the law and the utilisation of big data have disbanded companies operating in grey areas. Specifically, any violating companies are blacklisted and subject to operating restrictions. Therefore, regular legal health checks are imperative to ensure that operations are fully compliant.
So what does LFR mean for foreign investors in China? Well, regarding foreign policies, it is clear that China is committed to multilateralism. However, it will not avoid adopting countermeasures to foreign sanctions imposed on Chinese companies and individuals. Consequently, it is not a question of whether you are doing business in/ with China but your country’s attitude toward China. For example, foreign companies will likely face geopolitical risks, such as their own government’s policies towards China and China’s countermeasures.
We advise that companies should conduct a political analysis that evaluates potential risk levels.