China Tests a Rare Tool in Its Sanctions Arsenal

The highlights this week: China blocks companies from complying with U.S. sanctions, Zambia cancels a major human rights conference under Chinese pressure, and a convicted U.S. scientist relocates to Shenzhen.

China Blocks U.S. Sanctions Compliance

On Saturday, China publicly barred its companies from complying with U.S. sanctions after the United States blacklisted five Chinese refineries for processing Iranian oil. This marks the first time China has invoked its so-called blocking statute—one of its strongest tools for countering foreign sanctions.

Though China objects to the U.S.-led global sanctions regime, dollar dominance generally leaves Chinese financial institutions little choice but to comply with it (albeit with some workarounds).

But in 2021, China’s Commerce Ministry issued the blocking statute, which allows firms to sue parties that benefit from complying with foreign sanctions and authorizes state compensation for resulting losses. Crucially, the statute also empowers Chinese authorities to issue public directives prohibiting compliance with foreign sanctions—as is the case now.

China’s restraint until now is notable given the steady expansion of U.S. and European Union sanctions against Russia and Iran in recent years. I suspect that reluctance has stemmed from quiet lobbying from Chinese firms hoping to avoid losses in the first place. China is not shy about using other tools to signal its displeasure, particularly counter-sanctions on European firms and individuals.

Its response to the United States is usually more measured, though that caution seems to have faded since U.S. President Donald Trump returned to office. So, why act now? One possibility is that China believes the Iran war undermines U.S. credibility, lowering the costs of open defiance and sending a powerful signal to countries frustrated by Trump’s unpredictability.

China is also likely emboldened by its success last year in leveraging its dominance over critical minerals to force a de-escalation in its trade dispute with the United States. That episode may have reinforced a perception among Chinese leaders that Washington is reluctant to engage in a prolonged confrontation, particularly when its attention is divided.

Europe may factor into the calculus as well. Beijing bristled over a new round of EU sanctions related to Russia; confronting the United States in this way may dissuade Europeans from escalating further. Still, the move is unusually aggressive since a summit between Trump and Chinese President Xi Jinping is scheduled for next week in Beijing.

Trump is willing to go ahead with the summit, but Beijing is frustrated by Washington’s inability to coordinate on basic diplomatic and security matters. It would not be surprising if the already-delayed summit is postponed again—particularly after China also took aim at U.S. sanctions on Cuba on Tuesday.

In the long term, China’s ambitions extend beyond ignoring U.S. measures to shaping the rules of the global system itself. It has already had some success, such as getting foreign institutions to comply with tax requirements on Chinese nationals. But the yuan remains a small fraction of global trade, and China will be hard-pressed to replicate the extent of U.S. influence.

Eroding that influence, however, may prove a more attainable goal.

What We’re Following

Human rights conference canceled. Zambia abruptly canceled RightsCon, a major human rights gathering scheduled to take place this week, under pressure from Chinese authorities. Beijing objected to the participation of Taiwanese attendees and pushed for their exclusion, a demand that RightsCon refused to meet.

Though Zambia is a major partner in China’s Belt and Road Initiative, there is considerable anti-Chinese sentiment among the Zambian public. As elsewhere in Africa, Zambian politicians often campaign against Chinese influence when in opposition, only to seek Chinese investment once in power.

“Educational equality” campaign. China has ended a prestigious nationwide mathematics program as part of a push for “educational equality.” In principle, Chinese public schools are supposed to provide equal opportunity for all students, but in practice—especially in Beijing—many schools are dominated by the children of the rich or politically connected.

Education researchers have applauded the campaign, which also aims to curb corruption in school admissions. But the most significant disparities lie between well-funded urban schools and rural schools, where facilities are dilapidated and teachers sometimes lack a high school education.

As with past government crackdowns on private tutoring, there is a risk that efforts to eliminate elite pathways will only make them more exclusive and expensive.

FP’s Most Read This Week

Tech and Business

U.S. scientist relocates to China. Charles Lieber, an American scientist convicted of lying to federal authorities about receiving funding from China, has rebuilt his research lab in Shenzhen. Lieber was one of the few non-ethnically Chinese scientists targeted under the China Initiative during Trump’s first term—and one of the few successful convictions.

China has long sought to woo Western scientists, though many find the political environment and institutional culture of Chinese universities too difficult to navigate. The United States used to have a substantial advantage in this talent race, but amid Trump’s war on science, many researchers are reconsidering their options.

Wind power growth. One area where China has already pulled ahead of the United States is green energy—a trend accelerated by the ongoing global energy crisis. China’s solar dominance is already well-known, but it has also built a substantial lead in wind power. Last year, China installed three times the wind power capacity of the rest of the world combined, and Chinese manufacturers dominate the global wind industry.

The United States, meanwhile, is blocking or canceling wind power projects for ideological reasons. At this point, it’s not a competition in green energy—China is the only athlete on the pitch.