[Salon] Beijing Deploys Long-Threatened Economic Arsenal Against U.S. Pressure

Beijing Deploys Long-Threatened Economic Arsenal Against U.S. Pressure

Plus, has Xi ‘cracked the code’ on how to manage Trump?

China has blocked Meta's acquisition of AI startup Manus. GREG BAKER/AFP/GETTY IMAGES

In a single week, Beijing killed a U.S. tech deal and ordered Chinese companies to defy American sanctions on domestic oil refiners—two unprecedented moves, both terse, both wielding tools that had been advertised for years but never used.

Welcome to the era of Chinese regulatory aggression, one Beijing has spent the better part of a decade promising.

Since the trade war Donald Trump opened in 2018, during his first presidency, Beijing has been quietly building a counter-sanctions arsenal: a blacklist for foreign firms it deems hostile, a law authorizing punishment of any company that helps enforce U.S. sanctions on Chinese targets, a rule ordering Chinese parties to ignore those sanctions outright, and expanded powers for its antitrust regulators to kill cross-border merger deals on national-security grounds.

While the tool kit grew, the willingness to use it didn’t keep pace. Analysts called it deterrence. Skeptics called it bluff. Last week settled the argument.

The first move came at the National Development and Reform Commission, China’s top economic planner. It ordered Meta Platforms to unwind its $2 billion acquisition of Manus, the homegrown artificial-intelligence startup that has become a flagship of China’s effort to challenge American leadership in AI. The notice ran a single sentence: The NDRC “made a decision to prohibit the investment in the foreign acquisition of the Manus project, and requires the parties involved to rescind the said acquisition transaction.”

No remedies were offered to Meta, no extended antitrust analysis, no diplomatic face-saving.

Beijing has long had the legal power to block deals on broadly defined security grounds, but in practice it preferred to slow-walk transactions to death rather than reject them outright. The terseness is the message: Beijing no longer feels obliged to pretend it is weighing the costs.

The second move was bigger. After the U.S. Treasury sanctioned five small Chinese refineries—the so-called teapots—for buying Iranian crude, China’s Ministry of Commerce activated, for the first time, its blocking rules. The 2021 statute is modeled loosely on the European Union’s 1996 blocking regulation against U.S. extraterritorial sanctions on Iran and Cuba, but the Chinese version has teeth its European model rarely tested.

Under Beijing’s rules, the affected refineries can now sue, in Chinese courts, any counterparty anywhere in the chain that complies with the U.S. sanctions—the bank that refuses the payment, the insurer that declines coverage, the shipowner that won’t carry the cargo.

Compliance with Washington has just become a litigable offense in Beijing. Every multinational touching Chinese oil flows now faces a bilateral liability problem its compliance department wasn’t built to manage.

What changed? Three things. The first is greater readiness in Beijing to assert its will. The second is the maturation of Chinese alternatives in key technologies—certain chips, AI agents, batteries —which has lowered the perceived cost of cutting Western counterparties out. Manus itself is the symbol: five years ago, refusing a Meta tie-up of that scale would have looked like self-harm.

The third, and the one I have heard most consistently from people around the Chinese leadership this past year, is Xi Jinping’s own growing confidence that he has, as one interlocutor put it to me, “cracked the code” on managing Trump. The theory: The U.S. president can be exhausted and outwaited, and calibrated escalation resets the bargaining floor instead of blowing up the relationship.

That confidence has a near-term test. Trump and Xi are scheduled to meet next week, a summit Trump has been visibly more eager to lock in than Xi. Activating the blocking rules and humiliating Meta on the eve of that meeting reflects a leader who assumes his counterpart will arrive anyway—and pay for the privilege.

Whether Xi has read the room correctly is a separate question.

Has China overplayed its hand? Desmond Shum, the Chinese-born businessman turned chronicler of the system that produced him before breaking with it, framed the dilemma to me this way: “On one hand, Xi prioritizes security in every dimension. On the other, Beijing would like to boost its dwindling foreign investment. In the end, paranoia always wins.”

Each new measure, he added, “narrows entry into China—even as fewer investors and companies are willing to enter or expand.” His verdict: China is “a colossal beast,” unlikely to collapse, but headed for “a long grinding exhaustion with moments of 廻光反照” — huí guāng fǎn zhào, the Chinese _expression_ for the brief flare a dying lamp throws before going out.

What’s clear now is that the gap between threat and action has closed. The next phase of the U.S.-China economic conflict won’t be fought with threatened tools, but rather, with the tools Beijing is now using.

Has Xi cracked Trump’s code, or has he just handed Washington the pretext for the next round of hostilities? Write to me at lingling.wei@wsj.com. Include your full name and location, and I might publish your response in a coming issue (if you’re reading this in your inbox, you can just hit reply).