Joe Lay

There's a range of motivations here.

For quite a few years, China has been doing informal sanctions against countries.

But now, increasingly, it's been introducing legislation and regulations that are really formalizing these forms of economic sanctions.

And in the past two weeks, it came out with some of the broadest and more sweeping rules that we've seen to date.

I think these new rules were probably coming for a long time and probably they had them up their sleeve.

But recently there was a posting on social media, an official sort of Communist Party mouthpiece, which essentially linked these rules to the Iran war and also the Panama Ports dispute in which a Hong Kong company, CK Hutchison, has had its ports concessions in Panama recently.

annulled and China says this is the result of US pressure.

So China has put these rules into that context

So these most recent rules, as you mentioned, supply chain rule, and then there's extraterritorial rule, which is aimed at basically retaliating or responding to countries when they do something that China perceives as stopping its companies from doing business overseas.

In the case of the supply chain rules, they mentioned something like 15 ministries that can identify a supply chain blockage overseas or an action by a foreign company or country or even individual that is prejudicing China's supply chains.

And they can investigate that and then take action.

And some of the actions that they can take are quite concerning for foreign companies.

There's a thing in China called the exit ban, where if you're under investigation, they can prevent you from leaving.

So let's say that you're a t-shirt company and you source some of your cotton out of China and you need to do supply chain compliance to prove that this cotton doesn't come from a place where there's forced labor.

Under these rules, you could be investigated, subject to sanctions and your executives detained in China during the investigation.

Foreign companies generally will wait for more guidelines or to see how they're implemented in practice.

But we have seen the chambers of commerce express strong concern about these, saying that they seem to be counterproductive and that they could raise the risk and the cost of doing business in China.

I think it's probably not at the stage where it will force them to flee.

They'll be waiting for more details, but it will increase the motivation for companies to diversify their supply chains.

And if you are in an area that is deemed high risk, it will force you to look very closely at your supply chain compliance and to work out whether or not you do need to move your production out of China.