China's "Blocking Statute," officially known as the "Rules for Countering the Unreasonable Extraterritorial Application of Foreign Laws and Other Measures" (the "Blocking Statute"), is a legal framework designed to protect Chinese entities from "far-reaching" foreign sanctions and export restrictions. It prohibits compliance with foreign laws that China considers unreasonably extraterritorial. China created this law before the start of the Russia-Ukraine conflict, but is now using it in the Strait of Hormuz crisis. The law "spent" nearly 5 years, but now it is time to implement it. The main mechanism for the ban is as follows: If a foreign measure is deemed “unreasonable”, China's Ministry of Commerce (MOFCOM) can issue a ban order. This legally prohibits any individual or legal entity in China from recognizing, implementing or complying with the relevant foreign sanctions. Namet Masumi, Senior Assistant Professor at the Faculty of Law, Department of International and European Law at Maastricht University, spoke to FACT on the topic of the Blocking Statute.
Namet Masoumi
- Ms. Masoumi, why is China not actively responding to the crisis in the Strait of Hormuz, but instead using it to its advantage? Do you think that Beijing is already starting to think geopolitically in a way that until recently was characteristic only of Washington?
- In my opinion, China's behavior during the crisis in the Strait of Hormuz should be viewed through the theoretical prism that silence itself is a form of communication - something that can be called "negative discourse". This is not a lack of foreign policy - it is foreign policy itself. By not taking diplomatic initiatives, not coming up with official positions, and not proposing a multilateral mechanism for resolving the crisis even until the twentieth day of the conflict, Beijing sent a very specific message to all interested parties - Iran, the US Navy, the Gulf states, shipping companies: "We do not We are taking sides and will not pay a diplomatic price for this crisis.“ This is an active message conveyed through inaction, not passive inaction.
This silence operates simultaneously on at least three levels.
First - on a realistic level. China is both the largest importer of oil from the Persian Gulf and a close strategic partner of Iran. Any public position - be it condemning the attacks on shipping or criticizing the US military presence - would damage one of these two relationships. Silence is the only approach that preserves both interests.
Second - on a constructivist level. For decades, China has been building an international image of a great power that does not interfere in the internal affairs of other countries, presenting itself as an alternative to Western hegemony and a defender of state sovereignty. Maintaining silence is a way to maintain this image. Any other position would contradict it.
Third - at the strategic level. Silence has allowed China to benefit from the crisis without bearing its costs. While the United States has borne the financial and reputational burden of naval operations to ensure freedom of navigation, Chinese tankers have benefited from this security without China participating in providing it and without recognizing American leadership in the region. This is not neutrality - it is strategic benefit-taking without political cost.
Therefore, yes, in a structural sense, Beijing is beginning to think geopolitically in a way that resembles Washington's traditional approach, using inaction and ambiguity as tools. However, there is an important difference. The United States has been building its geopolitical tools for decades - through dollar dominance, the SWIFT system and secondary sanctions, making them part of its structural power. China, on the contrary, is creating its tools in real time and in response to American pressure. The silence around The Strait of Hormuz and China's Blocking Statute are expressions of the same trend - China is learning to use restraint and legal ambiguity as tools of influence, but it is still building this toolkit on the fly.
- Did the Chinese Blocking Statute begin to be prepared after the start of the war in Ukraine and the sanctions against Russia? Does this mean that China has been preparing for a future economic war with the United States for years?
- In fact, the chronology is reversed, and this is what makes the case so interesting. The Chinese Blocking Statute was adopted on January 9, 2021 - more than a year before the Russian invasion of Ukraine in February 2022 and the subsequent large-scale Western sanctions campaign against Moscow. Therefore, it cannot be a direct response to the war in Ukraine. However, this earlier adoption allows for two interpretations, and both can be true at the same time.
The first is that the law is a direct reaction to the policy of “maximum pressure“ during the Donald Trump administration - sanctions against Huawei, restrictions on Chinese companies with military ties, and measures against the Chinese technology sector. By 2020-2021, Beijing had already sensed how US extraterritorial sanctions could cut Chinese companies out of global supply chains without a formal declaration of economic war. In this sense, the law is a legal shield built in response to a blow already struck.
The second interpretation is more strategically significant. China may have begun testing its tools in advance, anticipating a greater confrontation in the future. When sanctions were imposed on Russia in 2022, Chinese authorities likely viewed them as a kind of rehearsal for what could be applied against China itself in the event of a crisis over Taiwan or a broader economic divide between China and the West.
Importantly, the law already existed at that time. Whether this was the result of foresight or simply a lucky coincidence, the fact shows that China has already begun to view economic warfare as an area that requires its own legal infrastructure, not just diplomatic protests.
Therefore, it is more accurate to say that China is creating this tool in response to its own experience with American pressure in 2020-2021, and sanctions against Russia in 2022 further reinforce Beijing's belief that similar mechanisms will be necessary in a future confrontation with the United States - whether over Taiwan or otherwise.
- You claim that Beijing is creating an "impossible choice" for international banks and corporations - either to comply with American sanctions or to remain in the Chinese market. Is this the beginning of a new fragmentation of the global financial system?
- This is how such fragmentation begins, even if the Blocking Statute itself is still a legally immature instrument. The law puts European and Asian banks, as well as international corporations, in an almost impossible situation. US secondary sanctions threaten to exclude from the US financial system any company that works with sanctioned Chinese entities. On the other hand, the Chinese Blocking Statute makes compliance with these US sanctions potentially punishable in Chinese courts.
Before the law, foreign investors simply had to comply with US sanctions.
Today, there is already an opposite risk from the Chinese side. The company can no longer simply comply with Washington's requirements and consider the matter closed. The most important feature is that the law does not clearly define exactly what measures it covers. It speaks of “specific extraterritorial measures that violate international law”, but does not specify which ones. In practice, it is understood that this refers to the US sanctions system, but this is not explicitly stated. In this way, the law leaves room for other foreign measures to be included in the future as necessary.
An additional problem is that the law does not provide real protection for investors. It is too abstract and leaves many unresolved questions - for example, whether foreign companies can benefit from its protection at all and whether China has the right to prohibit third parties from complying with foreign law.
The practical result is the following: banks and corporations face US sanctions with a high degree of legal certainty and Chinese sanctions with a high degree of legal uncertainty. This asymmetry is not accidental. It shows that Beijing’s main goal is not to protect investors, but to deter companies from complying with US sanctions.
This is where the seeds of financial fragmentation lie. When companies can no longer accept that compliance with the rules of one jurisdiction is sufficient, the global financial system ceases to function as a single space and gradually begins to split into competing compliance zones. This will not be an abrupt breakup, but a slow, uneven, but very real process of fragmentation.
- China has long avoided direct confrontation with the United States. Do you see in Beijing’s current actions a transition from a cautious economic power to a state ready for open strategic confrontation?
- This question is directly related to the distinction between reactive and structural instruments that runs throughout the analysis.
Based on the information available, the most accurate conclusion would be that this is more a matter of a change in behavior than a complete change in capabilities. Beijing is clearly willing to use tools such as the Blocking Statute and strategic silence in ways that would not have been typical of it a decade ago. However, the analysis repeatedly emphasizes that these are reactive tools built in real time, and not the result of deep structural power of the kind that the United States has been building for decades. Whether this means that China is ready for open strategic confrontation is a stronger claim than the available data allows. Are countries like Russia, Iran, and other countries in the Global South already looking to China as a model for resisting US sanctions? Could this gradually weaken the global influence of the US dollar? There is a real trend in this direction, although the word “model“ probably exaggerates the degree of consistency and applicability of the Chinese approach.
The analysis in Völkerrechtsblog points out that China already conducts almost half of its international trade outside the dollar system, and about 80 countries have introduced bilateral trade mechanisms in national currencies. This represents a significant change in the global payment infrastructure, although it does not yet mean replacing the dollar.
For Russia, the process is particularly visible. After the sanctions of 2022, Moscow was forced to quickly reduce its dependence on the dollar, and a significant part of payments switched to yuan and rupees.
China's parallel financial infrastructure - the CIPS payment system, its own card networks and currency swap lines - provided Russia with an alternative channel for international payments.
Iran has an even longer track record of circumventing sanctions, having lived under various restrictions since the 1980s. There, practices include barter trade, gold transactions, and alternative banking schemes, rather than following a unified Chinese model.
However, there is also a serious trust problem within the BRICS. Russia’s sanctioned status makes it an unsuitable candidate to host a key financial infrastructure, while the possibility of China dominating such a system worries other members, especially India.
Moreover, the Chinese model is supported by specific advantages – the world’s second-largest economy, a dominant manufacturing base, and the ability to manage capital flows. Most countries in the Global South do not have such resources.
Therefore, smaller countries do not see China so much as a universal role model, but rather as an alternative economic partner and a fallback option in case of possible pressure from the United States.
- Does this weaken the dominance of the dollar?
- The analysis also considers the idea of a gold-backed BRICS currency - the so-called “Unit“, but it faces serious structural problems. World GDP exceeds $100 trillion, while the value of all gold mined so far is approximately $12 trillion. This means that even a complete gold peg could not support the modern world economy.
Historically, similar systems have also led to deflationary crises and economic shocks, such as those observed in the late 19th century.
An additional problem is governance issues. Few countries are willing to entrust their gold reserves to Russia, and many fear excessive Chinese influence. In addition, some BRICS countries lack the stable and predictable legal environment needed to build a reliable international monetary system.
The conclusion is therefore relatively modest: the dominance of the dollar is gradually being eroded at the periphery through more payments in local currencies, wider use of the yuan, and gradual diversification of reserves. However, there is currently no real and fully convincing alternative to the dollar.
It is also important to note that the share of the dollar in global foreign exchange reserves has declined from around 70% in 2000 to just over 50% today, but this is a long-term trend, not a sudden change due to sanctions against Russia. Moreover, much of the diversification has been directed towards the euro, yen, and other currencies, not specifically the Chinese yuan.
- If one day the United States imposes large-scale sanctions on China over Taiwan, do you think Beijing is sufficiently prepared to withstand such a blow better than Russia did in 2022?
- Yes, but with one very important clarification that defines the limits of this preparation. The United States has been building its geopolitical toolkit for decades, turning the dominance of the dollar, access to SWIFT and the system of secondary sanctions into a mechanism of structural and even extraterritorial power. In other words, Washington does not always have to actively act, because the system itself works in its favor.
China is doing something different. It is building reactive geopolitical tools in real time in response to American pressure. The Sanctions Blocking Act is the clearest example of this, but at the same time it also shows the limitations of this approach.
The law does not contain a separate and clear definition of the measures it is aimed against. Article 2 protects against “extraterritorial measures that violate international law,” without specifying what they are. This makes it more of an instrument for retaliation than a complete and pre-developed legal regime. Moreover, the law does not offer real and practical protection for investments. Its wording is so abstract that it can hardly create predictable legal expectations. There are also a number of unresolved questions, including whether foreign companies even fall under its protection. This shows the essence of the problem. Since 2021, China has begun to view economic warfare as an area that requires its own legal infrastructure, not just diplomatic protest. This is a significant difference from Russia, which in 2022 was significantly less prepared.
But at the same time, Beijing’s tools remain immature, reactive, and asymmetric. They deter compliance with US sanctions more successfully than they protect companies caught between the two camps.
China is therefore better prepared than Russia in 2022, because it has been analyzing this risk for years and building response mechanisms.
But it still lacks the structural, deeply rooted, and decades-old architecture of influence that the United States has. Beijing’s preparation is real, but it is relative and partial, not equivalent to America’s.