China’s unprecedented defiance of U.S. sanctions triggers showdown

China has ordered its companies to ignore U.S. sanctions, an unprecedented act of defiance that threatens to trap a vast banking sector in the crossfire as tension rises between the world’s largest economies.

Beijing has often railed against unilateral sanctions and pronounced them illegitimate, but it has also quietly allowed its largest companies to comply with them, in order to avoid blowback on its own economy and to preserve access to the U.S. financial system.

Saturday’s announcement—coming before a long-awaited meeting later this month between President Donald Trump and his counterpart Xi Jinping—signals a far more aggressive stance. Beijing has now directed companies not to abide by U.S. sanctions on private refiners linked to the Iranian oil trade, including heavyweight Hengli Petrochemical (Dalian) Refinery Co. which was sanctioned last month.

Within China, state media outlets and academics who advise the government sought to frame the retaliation as a forceful but calibrated response against U.S. overreach. A commentary on the People’s Daily app, the Communist Party mouthpiece, called it “a pivotal step” in using the legal instrument to restrain what it called the “long-arm jurisdiction” of the U.S.

Beijing’s move will test the U.S. sanctions system at a time when it’s already under pressure, as Washington vacillates on curbs against Russia, Venezuela and Iran. With Trump’s war against Iran straining its global alliances, China has seized the opportunity to defend a major piece of its economic system while expanding its arsenal of economic weapons.

Xi’s government has been progressively cranking up the use of alternative tools, from rare........

© Fortune