China is preparing new legal tools for striking back against economic pressure from abroad, raising risks for foreign businesses operating in the world’s second-largest economy.
Senior lawmakers in Beijing reviewed a bill this week that would empower state prosecutors to file civil suits against foreign organizations and individuals who allegedly damage China’s interests, state media said.
The proposed law on “procuratorial public-interest litigation” would add to an array of legal mechanisms that China has created in recent years to counter foreign sanctions and other forms of what Beijing considers coercion, particularly from the U.S.
The latest draft of the law, which went through its second reading at a legislative session concluding Friday, includes a new provision stating that prosecutors “may initiate public-interest litigation against unlawful acts committed by foreign organizations or individuals that infringe on” China’s national and public interests, according to state media.
Most bills are passed after a third reading, which for this proposed law could take place by the end of this year, legal experts say.
Beijing hasn’t specified what acts would be subject to such public-interest litigation or what interests the law would protect. The provision, if approved, would buttress existing Chinese law that already allows Chinese companies and individuals to file civil suits against foreign parties to seek compensation for losses caused by foreign sanctions.
Defendants in civil lawsuits may be ordered to pay compensation and damages, and can face criminal penalties if they fail to comply. In China, citizens and foreign nationals involved in civil litigation—typically commercial disputes—may also be barred from leaving the country, a practice known as “exit bans.”
Public-interest lawsuits can result in court injunctions and compensation that damage companies’ revenue, operations and reputation, consulting firm Trivium China wrote in a client note. “In other words, it adds another layer of risks for companies to navigate.”
China’s legislature solicited public feedback on an earlier draft of the bill late last year. Trivium said the law, once passed, will add “another spanner to Beijing’s growing counter-sanctions legal tool kit.”
The American Chamber of Commerce in China, which represents more than 800 mainly U.S. companies in the country, said its members “will be closely watching how the law is implemented in practice.”
“For businesses operating in China, transparency, predictability, due process, and consistent application of the law are important factors in maintaining confidence and supporting continued investment,” James Zimmerman, chairman of AmCham China, said in a statement.
Chinese officials have called for more robust legal tools for fending off what they describe as foreign coercion, particularly Western governments’ use of economic and diplomatic sanctions to pressure Beijing on issues including human rights, trade and technological competition.
In recent weeks, the official newspaper of China’s top prosecutorial agency has published essays advocating the use of civil suits to combat outside interference and “long-arm jurisdiction” that impacts Chinese parties.
When foreign measures cause harm to China’s interests, such as “threats to the security of key industrial and supply chains or the blockade of important technologies, procuratorial agencies can explore initiating public-interest litigation to demand cessation of such infringements and compensation for losses,” one of the essays said.
China has in recent years been beefing up its legal tools for resisting pressure from the U.S. and other Western governments, which have imposed economic sanctions and other measures that targeted Beijing’s industrial policies, treatment of Muslim minorities in Xinjiang and restrictions on civil liberties in Hong Kong.
In 2021, Beijing adopted an “antiforeign sanctions law” that prescribed mechanisms for retaliating against foreign sanctions and mitigating their impact on Chinese entities and individuals. Countermeasures include visa denials and expulsion for foreign nationals, seizure of their assets in China and restrictions on their ability to transact with Chinese counterparts. It also allowed Chinese entities and individuals to file lawsuits in Chinese courts to seek compensation for damage caused by foreign sanctions.
More recently, Beijing announced new regulations this year mandating punitive actions against foreign groups and individuals who threaten China’s access to vital resources or who drop Chinese suppliers in response to political pressure, as well as foreign parties who assert “unjustified extraterritorial jurisdiction” over Chinese entities and people.
Penalties include restrictions on doing business and investing in China, as well as traveling to or from the country. Chinese entities targeted by foreign sanctions can also seek compensation through Chinese courts.
Write to Chun Han Wong at chunhan.wong@wsj.com
