China has delayed plans to enact a new law banning Hong Kong banks and companies from complying with sanctions – a decision that reflects Beijing’s caution against a move that has sparked a wave of concerns in the city’s business community.

The Chinese Legislature has planned to implement new laws in Hong Kong and Macau that would reflect the law against foreign sanctions passed in the continent in June, in response to a series of restrictive measures imposed on China by the US and Europe. For the time being until you study the subject, Tam Yao.chong, a Hong Kong representative on the council, said over the weekend.

In the past year, the U.S. and the EU have imposed sanctions on a growing list of businesses and people in China who have accused unfair industry practices, enforced enforcement against ethnic minorities in the remote province of Xinjiang and suppressed individual liberties in Hong Kong. Beijing denies these allegations and has responded In its own sanctions.

Now the delay gives breathing space to companies that feared the 22nd trap of violating Chinese law by obeying sanctions or violating U.S. law by disobeying them.

Fear of investors fleeing

Beijing feared the law could further undermine the confidence of companies and investors, which has already plummeted after the Chinese government’s regulatory punitive measures against the technology sector and other areas, people familiar with the discussions said. The Hong Kong Seng Index, meanwhile, has fallen 8.75% this year.

China is still eager to implement the law in Hong Kong, but will likely rewrite some of its sections to avoid smuggling foreign capital, one person said.

“I believe it will make the law against foreign sanctions more effective,” Tam said of the extra time for hearings.

Hong Kong and Macao have their own local constitutions and legislators, but there is also a called council that can introduce laws directly and has been doing so more and more recently, including the “National Security Law” and a change to Hong Kong’s electoral rules, which have been criticized undemocratically. These and other actions have led the West to impose some of the sanctions.

“As the state’s highest body, the National People’s Congress and the convened council are making decisions concerning Hong Kong based on the city’s interest,” the Hong Kong government announced last Friday without direct reference to delaying the implementation of the law against sanctions in the city. “The Hong Kong government fully supports and implements any such decision.“

International companies are actively considering the dangers of the law in both China and Hong Kong and are waiting to see if the very act of complying with foreign sanctions could be considered a breach – a scenario of the worst case where financial institutions could be punished for complying with U.S. or UK law, Benjamin Kostaswa said , An international trade lawyer at Hogan Lovells.

According to Kostazwa, the law could have far.reaching effects if applied to supply chain issues – especially those related to the sensitive Chinese province of Xinjiang, where cotton manufacturing and other industries have been accused of using forced labor.

Who will draft? Who will enforce?

Chinese law stipulates that Beijing responds with its own measures against entities or individuals engaged in sanctions against it. These countermeasures include cancellation of visas or refusal to issue them, takeover or confiscation of assets within China, blocking transactions or cooperation with Chinese entities and unspecified “other necessary measures”. The law also allows Chinese companies to file lawsuits in Chinese courts against partners in foreign companies that have severed ties with them in order to comply with a provision of foreign sanctions.

Hong Kong officials have suggested that the anti.sanctions law – contrary to national security law, which Beijing secretly drafted and imposed on Hong Kong last year – will be drafted and enforced by the city legislature.

Carrie Lam, the leader of Hong Kong, said at a news conference last week that she supported the implementation of the law in the local legislature and that she had submitted proposals to the central government. A local version of the law may allow lawyers to establish better compliance mechanisms based on the way Hong Kong’s legal system has interpreted legal provisions in the past within the city’s legal framework, Kostazwa said.

By Editor

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