China’s Exit Bans: Navigating a Complex Landscape

In a surprising turn of events, China, despite proclaiming openness for business and international collaboration after years of stringent COVID-19 restrictions, seems to be increasingly barring people from leaving the country. This concerning trend raises questions about China’s commitment to its proclaimed openness and its impact on foreign executives and ordinary citizens alike.

Legal Landscape Expansion

Since Xi Jinping assumed power in 2012, China has expanded the legal framework for exit bans, using them more frequently, sometimes without clear legal justification. Over the last few years, the number of laws permitting exit bans has increased, reaching a total of 15 today. This has created a situation where “tens of thousands” of Chinese individuals are estimated to be subject to exit bans at any given time.

Foreigners are not exempt from this phenomenon, with a 2022 academic paper revealing that 128 cases of foreigners, including Americans and Canadians, were exit-banned between 1995 and 2019. The apparent surge in exit ban cases, as indicated by an eight-fold increase between 2016 and 2022 raises concerns, especially amid escalating China-USA tensions.

Heightened Tensions and Uncertain Environment

The recent strengthening of China’s counter-espionage law, allowing exit bans on anyone under investigation, irrespective of nationality, adds to the uncertainty. While China contends that it is opening up to overseas investment and travel, the reality on the ground paints a different picture.

Foreign businesses, wary of the heightened scrutiny and vague wording of the counter-espionage legislation, are expressing concerns. Lester Ross, an experienced lawyer in China, notes a rising interest in companies seeking advice on how to prepare and mitigate the risks associated with exit bans. The European Union Chamber of Commerce in China highlights the need for clarity, especially when China is actively trying to restore business confidence to attract foreign investment.

Diverse Targets and Growing Concerns

Exit bans in China extend beyond foreign executives and impact a wide spectrum of individuals, reflecting the complexity and diversity of those subjected to such restrictions. The affected groups include:

• Regular Chinese Citizens in Financial Disputes: individuals entangled in financial disputes find themselves subjected to exit bans, facing limitations on their ability to leave the country.
• Rights Defenders and Activists: those advocating for human rights and actively participating in civil society may encounter exit bans as a means to restrict their movement and curb their activities.
• Lawyers: legal professionals may also face exit bans, potentially hindering their ability to engage in their professional duties or pursue legal activities abroad.
• Ethnic Minorities: ethnic minorities, such as the Uyghur community in Xinjiang, are highlighted as targets of exit bans, reflecting broader concerns about human rights abuses in the region.

The diversity in the types of individuals affected is underscored by a Chinese judicial report, revealing a notable 55% increase in exit bans imposed between 2016 and 2018 for those owing money. This statistic emphasizes that exit bans are not confined to specific demographics but extend across various segments of the population, further complicating the understanding of the scope and motivations behind these restrictive measures.

The Impact on Due Diligence and Business Confidence

In the face of escalating tensions between the U.S. and China, the specter of exit bans casts a shadow over foreign businesses operating in the Chinese market. The increasing geopolitical discord heightens the risk associated with these measures, creating a challenging environment for international enterprises. Uncertainty and potential risks linked to exit bans have become focal points for foreign businesses, forcing them to grapple with the intricacies of conducting due diligence and preserving business confidence.

As the geopolitical landscape shifts, foreign businesses are navigating uncharted territory. The risk of key personnel being subjected to exit bans adds a layer of unpredictability, prompting companies to reconsider their strategies for maintaining operational continuity. The challenges extend beyond the operational realm to impact investor and stakeholder confidence. Faced with these uncertainties, businesses must not only adapt their operational frameworks but also enhance their risk management strategies to mitigate potential disruptions caused by exit bans. In this environment, the ability of foreign businesses to adeptly address these challenges will be pivotal in sustaining confidence and ensuring stability within the complex dynamics of U.S.-China relations.

Conclusion

The increasing use of exit bans in China raises concerns about the country’s commitment to openness and its adherence to the rule of law. Foreign businesses and individuals, already navigating a complex geopolitical landscape, now find themselves contending with a new set of challenges. As China seeks to attract foreign investment, addressing the uncertainties surrounding exit bans becomes imperative to foster genuine confidence and collaboration on the global stage.