The rise of China’s secondary sanctions

In its dispute with Lithuania, Beijing has launched a form of economic pressure analogous to the powerful US secondary sanctions.

Why is this important: The approach challenges the idea that decoupling from the Chinese market can free a company, or a country, from coercion from Beijing.

What is happening: Beijing is pressuring multinationals with operations in China to sever 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 multinationals that do.
  • German companies with Lithuanian suppliers have since seen their business with China come to a halt and they are pressuring the Lithuanian government to meet Beijing’s demands, Reuters reported.

In the past, Beijing has used the 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 has only given 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 US secondary sanction which punishes third parties outside the United States for doing business with a sanctioned entity.
  • Secondary sanctions could potentially allow Beijing to significantly expand the reach of its economic coercion.

The big picture: “China is increasingly using its trade dominance to sanction countries in a way that strongly resembles the dominant position of the United States in international finance, but is much less transparent and understandable, and for arguably much less constructive,” said Matt Schrader, adviser for China. at the International Republican Institute.

  • Although the effects are similar, Schrader said he is wary of a direct comparison with US secondary sanctions because “US sanctions go through a careful legal process, are subject to appeal and are effectively declared.”

What to watch: The EU has not yet taken any significant steps to support Lithuania, despite being an EU member.

  • “With everything going on in Ukraine, China and Lithuania are not on everyone’s mind,” said Bryce Barros, China affairs analyst at the German Marshall Fund’s Alliance for Securing Democracy.

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