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How China joined the sanctions game




If imitation is indeed the most sincere form of flattery, as the Irish poet Oscar Wilde once claimed, then American policymakers need to take firm steps toward turning China into a power of international sanctions as a compliment.

Struck more and more by the Washington sanctions tool as relations with the Trump administration were severed, Beijing has learned from its wounds. Little noticed by experts and the press, China has quietly moved away from its historic hatred of restrictive measures and has begun building a package of sanctions tools that reflects Washington.

The result is a country that is more willing and able to arm its economy for foreign policy victories and prevent foreign aggression against its companies. As a result, Beijing will increasingly provide a counterweight to the superiority of Washington sanctions and emerge as a rival decision maker in global trade during the Biden administration and beyond.

China is a late and hesitant participant in the sanctions game. Long before the rise of punitive diplomacy under Donald Trump and Xi Jinping, Beijing opposed sanctions for ideological reasons and the simple fact that China was often a target of them. The country faced a full US economic embargo after its intervention in the Korean War.

Following the 1989 Tiananmen Square protests, it was subject to economic restrictions and an arms embargo from the United States and Europe. Because of such experiences, China has historically regarded sanctions as instruments of Western imperialism and a violation of sovereignty. During the Cold War, it regularly used its permanent seat on the UN Security Council to oppose sanctions against countries such as North Korea, Zimbabwe, Libya and Iran.

There were also practical considerations in the game. The power of sanctions stems from the ability to reliably deny entry into a sought-after economy or international currency, and China no doubt began to accumulate that kind of leverage after joining the World Trade Organization in 2001.

Therefore, China’s move towards embracing punitive action began with informal measures ensuring credible denial. Since 2010, Beijing has punished other governments with economic retaliation at least nine times for violating its interests, suspending imports in various ways, blocking exports or tourism, or taking regulatory action against foreign firms active in China. .

In 2017, for example, it responded to South Korea deploying a U.S. missile defense system by closing the stores of a South Korean conglomerate on a regulatory basis and instructing Chinese travel agencies to stop booking. of travel to South Korea. Recently, she suspended National Basketball Association broadcasts in 2019 after an NBA team official criticized China Hong Kong policy. In each case, Beijing has publicly attributed the action to a technical regulatory issue or spontaneous acts of patriotism by its citizens.

The ruthless pressure of the Trump administrations pushed Beijing to meet such sanctions with Chinese characteristics with a more formal capability. Shocked by the additions of over 400 Chinese individuals and entities to U.S. trade departments export checklists in just the past two years, including an export ban aimed at isolating its national champion Huawei from Western markets, Beijing began developing the tools to fight again.

During 2020, it passed an export control law that constitutes the country’s first framework for restricting exports of dual-use military and technology goods for reasons of national security. He also uncovered an unreliable list of units to target foreign firms that cut off supplies to Chinese companies for non-commercial reasons. The list appears to be directly inspired by the Commerces Entity List and its inclusion in it could damage a company’s operations in China.

The new rules issued in early January allow Chinese authorities to punish global companies for complying with foreign restrictions. Chinese citizens or firms can also sue for compensation in Chinese courts if they are economically harmed by a company’s compliance with foreign laws. In fact, the rules put multinationals at legal risk in China if caught in line with U.S. sanctions.

With that package of instruments in place, China that U.S. President Joe Biden now faces a new ability to challenge the role of U.S. heritage as the primary standard-setter for global trade and the effort to undermine U.S. dominance. BA in the global financial system. Beijing rises as a sanctions rival for the US remains a work in progress, but it is not too early to draw some conclusions.

First, the Beijing framework focuses on denying entry into China’s economy and its technology exports. This is a significant threat, given the scale of Chinas consumer market and its dominance in 5G patents, but it is also an implicit admission of Chinas still a relatively limited financial power. Even as its economy is projected to become the world’s largest by 2028, the Chinese renminbi still accounts for less than 2 percent of international transactions.

Beijing’s sanctions stance may begin to reflect the dollar’s ​​armament in Washington if the renminbi gains ground as a trading currency and global reserve, but that looks like a much longer-term prospect. Chinas capital controls, which helped stem a domestic financial crisis in 2015, are a stumbling block to international expansion. The decline in Chinese debt in support of its signing The Belt and Roads Initiative, a key tool for promoting the use of the renminbi abroad, is another. Such credit has fallen by more than $ 70 billion since 2016.

Second, Beijing is building a deterrent capability that it probably prefers not to use. Its export control law is outside the territory of the field, allowing Beijing to hold individuals or entities outside China accountable if it is deemed to endanger China’s national security. Its new rules for punishing global companies are vague and overt, both indicative features of prevention. And Beijing’s new list, dangerous for the loss of market access it implies, remains currently unused. At this stage, these tools simply convey to the Biden administration that restrictive measures targeting China’s economic stars such as the Alibaba investment ban considered during Trump’s last days are a red line for Beijing. If they cross paths, US economic interests in China can expect a turnaround.

As a result, some form of mutual economic prevention is likely to take place between the two countries. Both sides will still use restrictive measures, but within limits implicitly and comprehensibly set by both sides, resulting in more sustainable economic diplomacy for at least the short term. Bidens’ emphasis on anti-corruption and human rights makes targeted sanctions against Chinese officials involved in abuses in Xinjiang and Hong Kong a virtual security.

The trade will consistently target Chinese novices supporting Beijing’s internal oversight capabilities, and the Pentagon will continue to name and embarrass Chinese military companies. In response, Beijing will ban visas for carefully elected members of the U.S. political class and make U.S. firms selling weapons or dual-use items in Taiwan the first additions to its blacklist. But tech-savvy Chinas firms need to remain relatively undamaged, which means that the Chinese operations of US companies like Nike, Starbucks, Tesla and Qualcomm need to be secure.

More broadly, the Biden administration can be expected to replace threats of economic secession with an ideological challenge to authoritarianism in China and the use of state capitalism. In an extreme theoretical scenario, US-China duel sanctions could force third countries and companies to choose between following their respective rules of finance and trade and, by extension, between the US and Chinese economies.

In practice, when suppressed, most countries seem to be inclined to give up or play both powers against each other. Trumps’ global Huawei campaign was a costly political failure, with only three of the 61 U.S. lobbying countries so far agreeing to sever ties with the company.

As such, Biden is more likely to spend his precious political capital on building European and Asian alliances to put pressure on the political legitimacy of the Chinese Communist Parties, control Chinese aggression against Taiwan, and restore credibility. values ​​and liberal institutions run by the US

Withdrawal from secession is just as good, because punitive diplomacy only goes that far. After all, intertwined economic interests give Washington its best intentions in changing some of Beijing’s behavior. But the United States will also have to make changes under Biden and beyond. It should expect China to seek influence compared to its position in the world economy.

He also needs clearer red lines to determine which of Chinas’s power violates key national interests and thus are truly sanctionable offenses. The alternative is strategic confusion and more mutual economic aggression directed at increasingly sensitive targets, without any clear intent.

Andrew Rennemo is a member of Chatham House. 2021, The Diplomat

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