China has hit back at the US sanctions on tech giants operating out of the former such as Huawei, SMIC, and Alibaba. A new bylaw announced by the Commerce Ministry of China may allow Huawei to pursue legal action against TSMC for stopping its supply of chips and thereby stifling its mobile business.
The new trade regulation, being touted as Beijing’s latest counterattack to the “extraterritorial excesses” of United States’ bans targeting Chinese firms – will make third-party, non-American entities in China punishable if they adhere to Washington’s punitive demands such as stopping supplies of goods or services.
The bylaw states in the first article that its drafting and implementation are guided by the country’s legal regime in order to preserve national security, specifically laws that criminalize the ability of foreign governments or firms to impinge on the rights and interests of Chinese individuals or organizations.
While the bylaw won’t affect American companies and firms, it mainly covers third-party firms placing restrictions or sanctions on Chinese businesses which may adversely affect the latter. One good example of such restrictions is the Huawei-TSMC relationship which recently came to an end after the US ban forced the Taiwanese foundry from supplying the latest cutting edge chips to the Chinese smartphone-maker.
The new regulation recognizes Washington’s jurisdiction over American firms, as it can ban them from doing business with Chinese partners just like Beijing can do the same to Chinese entities.
But the new message is clear: Washington does not have the extraterritorial power to ban any third-country companies from trading with China and Beijing will not recognize such ‘long-arm jurisdiction.’ And, non-American companies may be punished under the new regulation if their compliance with US bans inflicts losses on their Chinese buyers and partners.
Looking at the final articles (6-9), it looks like the Commerce Ministry may make exceptions in certain cases after determining whether the lodged complaints against the third-party firms/persons actually poses a danger to China’s national security and interests.
Chinese businesses can also sue a non-American foreign company to make up for losses incurred by the restrictions on the same. An enforcement mechanism also allows Chinese courts to step in to recover losses. If a case holds up, the Ministry will issue orders to the third-party firm to cease the ban and compensate for the losses incurred to the Chinese partner.
Speculations are running rampant on Chinese social media whether Huawei will actually pursue legal action against TSMC or let the matter drop. TSMC hasn’t responded to this new bylaw at the time of writing and it’d to safe to assume that the foundry is consulting its legal teams on the same matter.
TSMC has multiple foundries in China, the most notable being the Shanghai and Nanjing plants which are used to fabricate budget to midrange wafers. In the third quarter of 2020, these two foundries accounted for roughly 22% of its total revenue, with plans to ramp up production further in the coming months.