Jan 25, 2022 - World

The rise of China's secondary sanctions

Illustration of a Lithuania and Chinese flag.

Illustration: Aïda Amer/Axios

In its dispute with Lithuania, Beijing has debuted a form of economic pressure analogous to America's powerful secondary sanctions.

Why it matters: The approach challenges the idea that decoupling from China's market can free a company, or a country, from Beijing's coercion.

What's happening: Beijing is pressuring multinational companies with business in China to cut ties with Lithuania, after the Baltic nation allowed Taiwan to open an unofficial representative office.

  • Lithuania has relatively little direct trade with China, but its factories supply many multinational companies that do.
  • German companies with Lithuanian suppliers have since seen their business with China grind to a halt, and they're pressuring the Lithuanian government to meet Beijing's demands, Reuters reported.

In the past, Beijing has used denial of market access to punish companies and countries for political infractions, such as criticizing Chinese policies in Xinjiang or engaging too closely with Taiwan.

  • This only gave the Chinese government leverage over companies and countries with direct business interests in China.
  • Pressuring third parties to exclude an entity that has offended Beijing is similar to the concept of a U.S. secondary sanction that punishes third parties outside the U.S. for doing business with a sanctioned entity.
  • Secondary sanctions could potentially allow Beijing to greatly expand the reach of its economic coercion.

The big picture: "China is increasingly using its trade dominance to sanction countries in ways that strongly resemble the U.S.'s dominant position in international finance, but are much less transparent and comprehensible, and to what are arguably much less constructive ends," said Matt Schrader, adviser for China at the International Republican Institute.

  • Though the effects are similar, Schrader said he is leery of a direct comparison with U.S. secondary sanctions, because "U.S. sanctions go through a careful legal process, are appealable, and are actually declared."

What to watch: The EU has not yet taken significant measures to support Lithuania, even though it is an EU member.

  • "With everything going on in Ukraine, China and Lithuania are not on the top of everyone’s mind," said Bryce Barros, China affairs analyst with the German Marshall Fund's Alliance for Securing Democracy.
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