China has, for the first time, explicitly ordered its companies to ignore US sanctions. This decision, announced on Saturday, could put China’s banking sector directly in the middle of the economic rivalry between the world’s two largest economies.
This move could be a turning point. While China has often spoken out against sanctions imposed by one country, it usually let its companies quietly follow them. This avoided damage to its own economy and ensured access to the US financial system.
Now, Beijing is taking a much tougher stand. It has told companies not to follow US sanctions targeting five Chinese oil refiners. These refiners have links to the Iranian oil trade.
A commentary on the People’s Daily app, which is the voice of the Communist Party, called the announcement “a pivotal step” for China’s legal tools against foreign actions, moving them from just being available to actually being used.
This action is Beijing’s most aggressive move yet against Washington’s financial strategies. It sets the stage for a major conflict before a highly anticipated meeting between President Donald Trump and Chinese President Xi Jinping later this month. This comes at a time when the US sanctions system is already under pressure, with Washington wavering on restrictions against countries like Russia, Venezuela, and Iran.
China is using a “blocking measure” it introduced in 2021. This measure aimed to protect its companies from foreign laws that China deemed unfair. The refiners, including Hengli Petrochemical (Dalian) Refinery Co., which was sanctioned last month, and several other private processors, faced asset freezes and bans on transactions.
Banks that work with Hengli and these other private processors are now trying to understand this new directive. They are seeking clear guidance from China’s banking regulator. Public holidays in China this week give them a bit of breathing room, as business is paused, as does a grace period from the US Treasury Department’s Office of Foreign Assets Control.
Ji Wenhua, a law professor and advisor to China’s Commerce Ministry, wrote in a state-run newspaper that the order primarily targets specific US sanctions on Chinese firms. He explained that its main goal is to cancel the legal effect of these sanctions within China, rather than immediately taking harsher revenge.
