Will Beijing’s new ‘umbrella law’ deepen uncertainty for foreign companies in China?

The new Foreign Relations Law is Beijing’s latest legal weapon against sanctions, foreign interventions, and further consolidates party’s control
But the legislation could mean external interactions based on political, not legal considerations, expert says

National People's Congress (NPC)

Shi Jiangtaoin Hong KongandVanessa Caiin Shanghai

Published: 6:00am, 29 Jun 2023

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Beijing adopted new legislation overseeing the country’s foreign policy on Wednesday, its latest effort to expand a “legal toolbox” to counter sanctions and other perceived hostile Western actions amid concerns about its impact on foreign business operations in China.

With a particular focus on national security and countering alleged US-led “long arm” jurisdiction, the all-encompassing Foreign Relations Law is expected to help Beijing use domestic law to retaliate against sanctions and deter future provocations, according to observers.

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But experts have also voiced concerns that the new law, aimed at further consolidating the Communist Party’s control over the country’s external interactions, could stiffen Beijing’s Cold War-style confrontation with Washington and make it harder for foreign companies to operate in China.

The law was adopted by the Standing Committee of the National People’s Congress, the country’s top legislature, according to Xinhua, after a draft had been released in December.

It came as Beijing has stepped up efforts in recent years to “strengthen legislation in the field of foreign affairs” and “use rule of law to carry out international struggle”, as President Xi Jinping put it in 2021, amid China’s deteriorating ties with the United States and its allies.

Over the past three years, Beijing has introduced a series of regulations aimed at countering US sanctions, including the Anti-Foreign Sanctions Law in 2021, which followed US efforts to use its domestic laws to curb China through trade war and export controls since 2016.

According to Wang Jiangyu, a professor at the School of Law at City University of Hong Kong, unlike the anti-sanctions law, the Foreign Relations Law will serve as “an umbrella law … that governs China’s conduct of foreign relations in every respect”.

“It very much indicates that China is in the process of trying to legalise the conduct of diplomacy and foreign relations … On the other hand, it also reflects the will of [President Xi Jinping] to strengthen national security,” he said.

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Wang said the new law was designed, in part, to be “a tool for ‘the struggle against external challenges’”.

“Many provisions in the Foreign Relations Law are actually for the purpose of counteracting against foreign sanctions, the ‘long arm’ jurisdiction and the foreign interference in Chinese domestic affairs,” he said.

The new law stipulates that China’s diplomacy must be conducted under the guidance of Xi’s political ideology, known as Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era and in accordance with the Chinese Constitution.

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The statute seeks to sum up the country’s existing foreign policy doctrines, reiterating that China would adhere to principles such as non-aggression and non-interference in each other’s internal affairs, and would oppose hegemony and power politics.

The law states that China “upholds world peace and security and promotes common global development. It advocates the settlement of international disputes by peaceful means and opposes the use or threat of use of force in international relations”.

In addition to strengthening rules governing foreign-related areas, the law stipulates that the state should also “fulfil in good faith its obligations” under international treaties and agreements that China took part in “in accordance with the constitution and laws”.

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“Treaties and agreements concluded or entered into by the state shall not be in conflict with the constitution,” it says.

It also states that countermeasures will be taken if the nation’s sovereignty, security and development interests are undermined by acts that have violated international laws and international relations norms.

“It makes very clear the supremacy of the Chinese constitution, so it’s not possible that international law is put above the Chinese constitution, [which] very much overrides everything. So this is the first time it’s very explicitly clarified,” Wang said.

The new law is broader and more comprehensive than the anti-sanctions law, which focused solely on sanctions and legalised retaliatory measures such as visa denials and freezing an individual’s assets, according to Henry Gao, professor of law at Singapore Management University.

“The foreign relations law is part of China’s drive to beef up the legal ‘toolbox’ for dealing with challenges and preventing risks concerning anti-sanctions, anti-interference, and anti-long-arm jurisdiction issues,” he said.

George Magnus, a research associate at Oxford University’s China Centre, expressed concerns that the law could be perceived outside China as part of the country’s aggressive diplomacy, further widening the trust deficit between Beijing and the US-led West.

Gao shared those concerns and said the law would make it harder for foreign business operations in China, citing the concentration of the party’s power in the name of national security.

It would “add further to the uncertainty of China’s business environment as the party could take actions based on political rather than legal considerations”, he said.

The new law covers a wide range of issues, such as global governance, security, judicial cooperation, and the protection of Chinese citizens overseas.

“The state shall establish a system and working mechanism for the protection of overseas interests,” Article 37 of the new law states.

Chinese officials and state media have talked for years about setting up a framework that integrates political, economic, diplomatic and military measures to protect China’s overseas interests, including its citizens, entities and assets, its energy resources, and the security of strategic passageways.

Additional reporting by Kandy Wong