Dec 29, 2023 - World

China fires back at U.S. sanctions

Illustration of two toy soldiers pointing guns at each other. One soldier casts a shadow in the shape of a dollar symbol while the other casts a shadow in the shape of the yuan symbol.

Illustration: Shoshana Gordon/Axios

Beijing is taking U.S. sanctions head-on with its latest round of restrictions targeting U.S.-based firms that gather open source data about business links to Xinjiang.

Why it matters: The sanctions expand on Beijing's previous efforts to criminalize certain kinds of research, intimidate individual researchers, and make it harder for companies to comply with U.S. sanctions against China. The escalating sanctions fight between the U.S. and China risks forcing companies to choose between the world's largest markets.

  • The latest restrictions "speak volumes about how China will seek to use its sanctions authorities in the future," Alex Zerden, founder of Capitol Peak Strategies and a former U.S. Treasury official, told Axios.

Driving the news: On Tuesday, China's Ministry of Foreign Affairs announced new sanctions against U.S. data analytics firm Kharon, the firm's director of investigations Edmund Xu, and Nicole Morgret, a Xinjiang-focused researcher who previously worked for the nonprofit data analytics and investigations firm Center for Advanced Defense Studies (C4ADS).

  • Kharon and C4ADS have published investigations tracing supply chains to Xinjiang.
  • Earlier this month, the U.S. sanctioned several Chinese government officials in relation to human rights abuses against ethnic minorities in Xinjiang.

The big picture: Products from dozens of companies, including Apple, Nike, BMW and Shein, have been linked to supply chains tainted by Uyghur forced labor in Xinjiang. Entire global industries, including cotton textiles and polysilicon used to produce solar panels, are heavily dependent on inputs from Xinjiang.

  • The passage of the Uyghur Forced Labor Prevention Act (UFLPA) requires companies seeking to import any products into the U.S. must first prove the product supply chain does not contain any inputs from forced labor in Xinjiang.
  • Companies require detailed analysis of complex supply chains and business relationships to comply with those restrictions, and U.S. data firms have jumped in to provide those services.
  • Beijing has begun targeting China-based firms that provide the supply chain audits and other due diligence research now required to comply with U.S. sanctions.
  • The sanctions announced this week expand that crackdown beyond China's border to include due diligence firms based in the U.S.

What they're saying: Kharon was targeted because it is a "leading data provider allowing global companies to identify UFLPA risk and to ultimately be in compliance with the law," Joshua Shrager, a senior vice president at Kharon, told Axios.

  • But Shrager said the sanctions are unlikely to affect Kharon's business operations and are "largely symbolic" measures that won't affect the firm's ability to collect information about business links in Xinjiang.
  • "We don't have any operations in China. With regards to our underlying data, we exclusively use reliable, publicly available open-source information," he said.
  • "Amid ongoing efforts by the Chinese government to censor open and unbiased reporting on human rights and other critical issues, C4ADS stands in solidarity with Nicole, along with other analysts," a C4ADS spokesperson told Axios in an emailed statement.

The other side: "We again urge the U.S. side to stop smearing China, cancel the illegal unilateral sanctions on Chinese officials and companies, and stop implementing wrongful acts such as the Uyghur Forced Labor Prevention Act," a Chinese foreign ministry spokeperson said in a statement on Tuesday.

Between the lines: China's Ministry of Foreign Affairs invoked the Anti-Foreign Sanctions Law in issuing the latest round of sanctions.

  • That law, passed in 2021, is part of a raft of recent legislation in China that seeks to prevent companies based in China from abiding by U.S. sanctions or from providing data and research that helps others comply, and to extend similar punitive measures beyond China's borders.

What to watch: Beijing is also working to weaken U.S. dominance of the international financial system by promoting the adoption of its own currency in international transactions — an effort that has gained momentum since Russia's invasion of Ukraine.

Go deeper