By: Alexandr Svetlicinii and Xue Wang | October 21, 2025
As Washington continues its practice of using sanctions as foreign policy tools, the target countries are building up their anti-sanctions arsenal. China’s 2021 Anti-Foreign Sanctions Law (AFSL) is one such example. Aimed at counteracting foreign sanctions against Chinese persons and entities, the AFSL has introduced a number of counter-measures that can be adopted by Chinese authorities. Retaliatory measures have been adopted by various jurisdictions. For example, in 2022, the European Union (EU) has adopted its Anti-Coercion Instrument, which provides for retaliatory actions against third countries applying “economic coercion” tools against the EU and its member states.
What has received less attention within the media and scholarly commentaries is the role of the courts in counteracting foreign sanctions. In this regard, the AFSL and its 2025 Implementation Rules mark a milestone in the development of China’s legal arsenal against foreign sanctions. They effectively entrust the courts with “policing” foreign sanctions against Chinese persons and entities to prevent compliance with such sanctions within China’s jurisdiction.
Prior to the implementation of AFSL, Chinese courts assessed foreign sanctions as force majeure events frustrating the performance of contracts. Force majeure is a concept in contract law that excuses parties from performing their obligations when they are prevented from doing so by extraordinary circumstances beyond their control. These circumstances (e.g. natural disasters, war, or pandemics), sometimes explicitly mentioned in contracts, render performance impracticable or impossible. If foreign sanctions could be ascertained as unforeseeable, unavoidable, and insurmountable events, the courts would excuse the affected parties from contract performance and thus enable the obligor’s compliance with the specified sanctions. After the adoption of AFSL, Chinese courts no longer view foreign sanctions as mere force majeure events; they are called upon to ensure that foreign sanctions against Chinese persons and entities are not implemented within China’s jurisdiction. As a result, instead of advancing force majeure defenses and implementing carefully drafted contractual clauses on sanctions compliance, multinational companies are facing a situation where their compliance with foreign sanctions could be inhibited by the courts and they may become subject of tort liability.
The Old Script: U.S. Sanctions as (Unsuccessful) Force Majeure
Prior to the entry into force of AFSL in 2021, Chinese courts encountered foreign sanctions in contract disputes and treated them as factual circumstances rather than binding peremptory norms which excuse non-performance. The courts were guided by Articles 180 and 590 of China’s Civil Code, which require a party to demonstrate that sanctions are unforeseeable, unavoidable, and insurmountable events, an evidentiary triad for statutory force majeure that made it practically impossible to satisfy in relation to U.S. sanctions.
Foreseeability was the first hurdle. The judges typically held that published notices of the Office of Foreign Assets Control (OFAC), repeated expansions of the Specially Designated Nationals (SDN) List, official press releases, and widespread English-language media coverage meant that professional traders “ought to have known” of the impending risk of U.S. sanctions. The fact that a contractual party or its parent had been placed on a U.S. sanctions list, or that the contracted goods originated from sanctioned jurisdictions such as Iran, Russia, or Venezuela, was deemed sufficient to put the other party on inquiry notice. As a result, the non-performing party would have to demonstrate that, at the time of contracting, no reasonable means of anticipating the imposition of sanctions were available – an argument that frequently failed to convince the courts.
Avoidability and insurmountability requirements are equally demanding. Chinese courts generally conceptualize sanctions-related risks as inherent commercial risks. Analogous to the principle that a contracting party cannot invoke uncontrollable market fluctuations, an inevitable feature of commerce, as a justification for non-performance when a profitable transaction becomes loss-making, the same reasoning applies to alterations arising from sanctions. Moreover, Chinese courts adopt an expansive interpretation of the availability of alternative modes of performance. Judicial reasoning typically posits that commercial risks are susceptible to mitigation through commercial mechanisms, rendering any impediment primarily a question of cost rather than impossibility.
For example, Chinese courts regarded switching the payment currency from U.S. dollars to Euros, routing payments through Dubai or Singapore, or opening a letter of credit with a Chinese state-owned bank as “standard industry practice.” An account freeze at a U.S. correspondent bank was dismissed as a mere “payment inconvenience,” since money is fungible, and goods can be purchased from other suppliers or transshipped through third country ports. Chinese judges frequently insisted that the obligor explore all commercially reasonable alternatives, such as obtaining a specific license from OFAC, procuring sanctions-risk insurance, or substituting the upstream supplier.
As a result of these stringent force majeure requirements, Chinese courts rarely recognized sanctions as force majeure, and U.S. primary or secondary sanctions never made the cut. The consistent message, reinforced across contractual disputes in shipping, petrochemicals, and textile sectors, was that compliance with foreign extraterritorial sanctions would not excuse a party from its contractual obligations under Chinese law.
The New Script: AFSL Turns Sanctions Compliance into Tort
The AFSL, promulgated in 2021 and supplemented by detailed Implementing Rules in 2025, established China’s comprehensive “blocking statute,” and crucially coupled public enforcement with a private right of action. Article 12 of AFSL brands “implementing or assisting in the implementation of” foreign sanctions as a tort, empowering injured companies and individuals to sue in domestic courts for cessation of the infringement and compensation of damages. This provision overrides any contractual defense that rests on compliance with foreign sanctions against Chinese persons and entities.
In accordance with AFSL, judges would have to follow a two-step assessment before they can resort to the traditional force majeure analysis. Step one is rather mechanical: the court should check whether the State Council adopted any specific counter-sanctions. For example, if a specific OFAC measure or an SDN entry appears on the list of counter-sanctions, any contractual performance that gives legal effect to such foreign sanctions would be unlawful and may result in a tort claim against the perpetrator. No balancing of hardships or commercial risks would be permitted and the judge’s role is to treat compliance with such foreign sanctions as an actionable wrong.
If specific foreign sanctions have not (yet) been counteracted by the State Council, then step two, a judicial assessment along with a but-for test, follows. The court will assess whether foreign sanctions correspond to the descriptive categories of Article 3 of the 2025 Implementing Rules. The most obvious category is foreign sanctions against Chinese persons or entities. Once the existence of actionable foreign sanctions is ascertained, the court would perform a but-for test to determine whether a failure to perform a contract is due to foreign sanctions or to other reasons. For example, absent foreign sanctions, would the contractual party still have failed to pay in U.S. dollars or deliver or accept certain goods? If the answer is “no”, the breach of contract can be viewed as “assistance in implementation” of foreign sanctions and the contractual dispute may transform into an AFSL-based tort claim. The resulting damages may then include the contractual party’s lost profit, additional financing costs, and even reputational harm. The injunctive relief can compel the party in breach to resume performance in violation of foreign sanctions.
If the foreign sanctions would fall outside the scope of AFSL, the court would revert to the familiar force majeure assessment and the non-performing party would have to prove that foreign sanctions meet the foreseeability, avoidability, and insurmountability requirements.
Sanctions Clauses under Siege
Prior to the adoption of AFSL, Chinese courts approached sanctions clauses as routine expressions of contractual parties’ autonomy. The prevailing judicial stance was that party autonomy was paramount: if the language of the sanctions clause was clear and did not offend public order, it would be given effect.
The AFSL has fundamentally redrawn this landscape, and a normative trigger is found therein. The legislative text of Article 3(2) of the AFSL is unambiguous that the law is aimed at countering “discriminatory restrictive measures adopted by foreign states against Chinese citizens or organizations.” When foreign sanctions target Chinese persons or entities, any sanctions clause that obliges a party to align its actions with foreign sanctions in violation of AFSL will be void. Where the sanctions programme in question (e.g., the U.S. Iran sanctions or the EU Syria embargo) does not target Chinese persons, entities or territory, the statutory condition is not met and the sanctions clause may survive (Qingdao Jinhai Lian v. Guangzhou BP Oil Development (2021)).
In a 2024 case (Civil Mediation Su 72 Min Chu No. 2157) that was concluded through mediation by the Nanjing Maritime Court, a European buyer (the defendant) cited compliance with U.S. Russia-related secondary sanctions to excuse non-performance of the contract, but agreed to drop its London arbitration clause and accept exclusive Chinese jurisdiction after the judge signaled potential AFSL-based tort liability, as the plaintiff had the right to be free from sanctions. Further, by lodging an application for payment permission from OFAC, the defendant resumed the performance of the contract. Although neither the sanctions clause nor the arbitration clause were held invalid, the court’s approach shows their determination to override party autonomy when it contradicts the AFSL.
Conclusion
By adopting the AFSL, Beijing has employed its courts to push back against foreign sanctions. By recasting assistance in the implementation of foreign sanctions as potential torts, the AFSL inverted the foreign sanctions compliance calculus: comply with Washington’s extraterritorial directives and risk damages in Beijing. The AFSL’s “sovereignty first” filter not only shrinks statutory force majeure relief but also nullifies sanctions clauses that facilitate sanctions targeting Chinese persons, forcing multinationals to choose between conflicting legal orders. As Chinese courts mandate performance despite restrictions imposed by U.S. authorities, the United States will face pushback not only through diplomatic channels but also through civil lawsuits that penalize compliance with its economic statecraft.
Alexandr Svetlicinii is Associate Professor of Global Legal Studies at University of Macau, Faculty of Law where he also serves as the Programme Coordinator for Master of Law in International Business Law. Svetlicinii has published extensively on the subjects of international economic law, competition law, and commercial dispute resolution. In addition to academic work, he serves as the Co-Director of the Academic Society for Competition Law in South-East Europe, member of the International Advisory Board of the Institute for Consumer Antitrust Studies at the Loyola University Chicago, Ambassador of the Value of Competition initiative at the University of Oxford, Centre for Competition Law and Policy, and the Non-Governmental Advisor to the International Competition Network.
Xue Wang is an independent researcher, based in Hong Kong. She used to work as a trainee paralegal in Shanghai, China and currently works as a research assistant at School of Law, City University of Hong Kong. Wang obtained her Bachelor of Laws at Shanghai University of Political Science and Law in 2022 and Master of Laws at City University of Hong Kong in 2024.