This will open the door for Huawei to sue Taiwan Semiconductor Manufacturing Company for not supplying chips to the telecommunications firm, with an US order getting in the way.
The Asia Times said the new by-law, which has the cumbersome name Regulations to Stifle Improper Extraterritorial Application of Foreign Laws and Measures, had been instituted by the new Chines Commerce Minister Wang Wentao.
The US put rules in place in 2019 and 2020 to prevent Huawei from obtaining semiconductors which it needed for its smartphones. To do this, the Americans first put Huawei on an list called the Entity List which made it impossible for the Chinese firm to buy good from American companies.
Last year, the US banned companies, both American and non-American, from supplying any product made using US software or hardware to Huawei, unless the company in question obtained a waiver from the Commerce Department.
Washington periodically blacklists countries for political reasons and prohibits companies which do business in the US — both American and non-American — from doing business with any entities in these countries.
For example, no company that does business in America can do business with an Iranian firm. The US is the only country which indulges in this practice.
The Chinese by-law is not cut from the same cloth. It allows a Chinese company, which has been deprived of income in the US due to any non-American company following Washington's demands, to sue for damages in China.
And Beijing has been quick to characterise this measure as something that is connected to national security. As the Asia Times put it, it was meant to "criminalise acts by foreign entities to impinge on the rights and interests of Chinese individuals and organisations".
The newspaper quoted an academic as explaining the statute thus: "The new regulation recognises 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 extra-territorial power to ban any third-country companies from trading with China and Beijing will not recognise 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.”
Exactly how this will play out remains to be seen, but it will mean that companies like TSMC will have to tread with care to avoid offending either the US or China – it needs to maintain sales in both markets.