Rules beyond borders

Beijing has started making laws for the world

The People’s Republic of China has long asserted that it does not intend to disrupt the rule-based order in the course of its rise to great-power status. Several recent developments indicate, however, that it has a view of its new status, which encompasses its right to exert judicial authority beyond its boundaries. This marks both a consequential change in the operating environment for global businesses and a new challenge to both the United States (US) and the broader international order. In a recent series of laws, the Chinese government has sought to target companies’ global operations, using a deliberately broad set of definitions for law-breaking. Some of these directly penalise companies for complying with other countries’ existing laws. Others are clearly retributive, targeting companies that have themselves followed other countries’ sanctions on China. Yet others deal with fomenting “ethnic discord”, deliberately vague — but probably including those that comply with Western regulations meant to minimise the oppression of the Uyghur minority in Xinjiang province, among others. It is one thing to have such laws on the books; it is quite another to actually implement them. But a recent prohibition order that was directed at compliance with US sanctions indicates that some in the Chinese Communist Party’s hierarchy intend at least to try.  

Beijing would no doubt point to the rash of extraterritorial orders and laws that have emerged from both the European Union (EU) and the US — covering a range of issues from corruption and bribery to geopolitical sanctions — as justification for its own efforts. However, given that it has also condemned such actions in the past, its new-found love for these measures tends to undermine its claims that it will be a more responsible steward of the global order than the West is. The truth is that it has introduced such laws simply because now it has the power to do so, and in response to the growing salience of US-China competition in every field, particularly in new and emerging technology. It may also be a shot across the bows of Brussels, which is just going through the process of working out how it could conceivably react to Beijing’s economic coercion. The EU’s companies — many of which still depend upon supply chains that pass through the mainland’s vast manufacturing complex — are reminded that they have a great deal to lose if their governments unload their famed anti-coercion “bazooka” on China.  

What is clear is that, for most companies, the existence of a Chinese supply chain takes on new risks. Compliance will have to factor in board-level decisions about future strategy. As far as Beijing is concerned, forcing companies to develop multiple and distinct supply chains is not a problem; indeed, it is stated policy, the famous “dual circulation” theory. For New Delhi, this should serve as another reminder that the breakdown of the multilateral order — particularly the World Trade Organization, which is supposed to be the location where trade disputes are settled — is a material threat to its ambitions. It must put greater effort into repairing this architecture than it has so far.