China should learn from the United States and Europe and further develop its powers to project Chinese law to cover actions by foreign entities - so-called long-arm jurisdiction - to counter sanctions and protect its companies abroad, a well-known finance professor said on Tuesday.
The comments from Liu Shuwei, director of the China enterprise research centre at the Central University of Economics and Finance, comes amid mounting tension between the US and China that has seen American authorities target Chinese firms with legislation on national security grounds.
The Trump administration has forced tech giant ByteDance to divest itself of popular video app TikTok, while telecommunications giant Huawei has been cut off from supplies of cutting-edge semiconductors that use US-developed technology.
Beijing has regularly slammed unilateral sanctions based on US domestic laws, but it is believed to have only limited options to counter them.
Liu, who built her reputation fighting financial fraud, said China should develop a reciprocal capability by revising domestic laws, including those on export controls, the safeguarding of state secrets, international criminal judicial help, cybersecurity, commercial banking and data security.
“US [long-arm] jurisdiction is so far the most mature in the world, and also deserves our study the most,” she wrote on her WeChat account. “China’s system should not be confined to territorial or nationality jurisdiction, but learn from the US and Europe to exercise the [long-arm] jurisdiction.”
Though China’s sweeping Hong Kong national security law has broad extraterritorial scope, Liu called for legislation that could help Chinese businesses operating overseas.
China should exercise jurisdiction in some cases where overseas entities provide information about Chinese customers or contacts to foreign judicial bodies that cause losses, she said. Beijing could even step in if foreign courts or governments caused damages to Chinese parties.
The most urgent need for this new capability, Liu said, is to regulate foreign investigations into Chinese companies and violations of Chinese law by foreign entities.
The proposal underscores concern among domestic academics, companies and policymakers about the threat posed by US extraterritorial law on Chinese firms overseas, especially as there was push by Beijing to go global.
As bilateral trade tensions have turned into a full-scale rivalry over the past two years, dozens of Chinese enterprises have been placed on the US Commerce Department’s entity list for reasons ranging from the erosion of Hong Kong autonomy, to alleged human rights abuses in Xinjiang and a growing tech war.
Ren Zeping, chief economist of the Evergrande Research Institute, said in a note last week that China is entitled to enact similar laws.
“It should pass blocking statutes to protect Chinese companies against the effects of the extraterritorial application of US legislation,” he said.
According to the revised annual lawmaking schedule released in June, the Standing Committee of the National People’s Congress, the country’s legislature, will “strengthen the research on the overseas applications of Chinese laws as well as blocking and countering long-arm jurisdiction”.
China has shown its teeth in the past by demanding a say in the clearance of mergers and acquisitions it was affected by. Beijing effectively blocked US semiconductor maker Qualcom from taking over Dutch chip maker NXP, forcing Qualcom to abandon the deal in 2018.
China is also developing an unreliable entity list to mirror the US, but it is yet to publicise any details.
Beijing’s expansion of long-arm jurisdiction could create dilemmas for multinational corporations in the US and China, forcing them to choose which laws to obey.
At present, foreign firms that comply with US sanctions on individuals or institutions in Hong Kong risk violating the national security law.
China has recently been more aggressive in inserting itself into high-profile cases involving its nationals or companies.
State media have attacked British bank HSBC, the largest foreign-funded financial institution in China, for its role in the detention of Huawei chief financial officer Meng Wanzhou Wanzhou, who faces possible extradition from Canada to the US.
Earlier this month, China amended its technology export rules to effectively block ByteDance from including the algorithm that powers TikTok as part of any US sale.
But any move to develop long-arm jurisdiction comes with risk, especially as China appeals to foreign businesses to maintain operations in the country and prevent decoupling from the US.
Premier Li Keqiang on Tuesday reiterated the need for multilateral efforts to promote trade and investment.
“We need global cooperation more than ever,” he said at a special virtual dialogue with business leaders organised by the World Economic Forum.