China has created new legal tools to retaliate against sanctions imposed by the U.S. and some of its allies over issues ranging from human rights to national security. This arsenal could put global firms in the cross-hairs of a conflict between the world’s two largest economies. So far, however, China has shown a desire to avoid escalation.

1. What are the new tools?

An anti-foreign sanctions law passed in June gives the Chinese government broad powers to seize assets from, and deny visas to, those who formulate or implement sanctions. It also empowers individuals and companies to sue “individuals and organizations” in Chinese courts seeking compensation for losses that result from “discriminatory restrictive measures.” China was said to be moving to make clear that the law applies to its semi-autonomous regions of Hong Kong and Macau as well. Earlier measures included new rules from the Ministry of Commerce to counter “unjustified extra-territorial application” of foreign laws, and an “unreliable entities list” targeting foreign companies.

2. What does that mean in practical terms?

It’s hard to say because much is left vague. In theory, the anti-foreign sanctions law could make it possible for a person hit by U.S. sanctions to sue a bank for closing his or her account, say, or for a Xinjiang cotton farmer to claim damages if a Western firm cancels a contract. It remains to be seen what types of lawsuits will be accepted by Chinese courts, and investor confidence could suffer. Recent developments present “potentially irreconcilable compliance problems,” said Greg Gilligan, chairman of the American Chamber of Commerce in China.

3. Has China acted on its concerns?

In a restrained way. For example, the unreliable entities list was announced in 2019, but Chinese officials have yet to put it into effect or name any targets. Instead, they have focused on tit-for-tat responses with little tangible effect, such as visa and travel bans for foreign officials with few ties to China. Targets include former U.S. Commerce Secretary Wilbur Ross and others over a Biden administration warning about doing business in Hong Kong, and former Secretary of State Michael Pompeo and other members of President Donald Trump’s administration over their China policy. Companies including Lockheed Martin Corp. and Boeing Co.’s defense unit were hit with unspecified sanctions for selling arms to Taiwan, which China claims as its territory. Senators Marco Rubio and Ted Cruz as well as nongovernmental organizations and think tanks such as Human Rights Watch and the Mercator Institute for China Studies were sanctioned over human rights issues. In some of these cases, Beijing explicitly prohibited Chinese citizens and institutions from doing business or having exchanges with sanctioned entities.

4. What sanctions does China face?

• The U.S., the European Union, the U.K. and Canada have all announced sanctions on Chinese officials over their treatment of ethnic minorities in Xinjiang. The U.S. also put import bans on cotton, tomatoes and some solar products originating from Xinjiang.

• President Joe Biden’s administration barred U.S. investment in firms considered to be in Chinese defense and surveillance technology sectors including Huawei Technologies Co. and top chipmaker Semiconductor Manufacturing International Corp.

• The U.S. has sanctioned officials it sees as responsible for cracking down on political dissent in Hong Kong.

• The Biden administration has added companies to an entity list for conducting “activities that are contrary to the national security or foreign policy interests of the U.S.” American firms are prohibited from doing business with those blacklisted entities.

• The U.S. has also sanctioned Chinese officials and blacklisted companies seen as helping China advance territorial claims in the South China Sea.

5. Is there more to come?

Multiple China-related bills have been introduced in the U.S. Congress including proposals to sanction Chinese officials over the early handling of the coronavirus pandemic. In response to the U.S. blacklisting some Chinese solar firms in June, China’s Ministry of Commerce said it would take “necessary measures” to safeguard the rights and interests of Chinese companies. Lawyers said more specifics should come if and when the ministry starts issuing “prohibition orders” barring Chinese parties from accepting or complying with certain foreign legislation or measures.

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