China's new counter-sanctions regulations (Regulations No. 834 and 835) intensify legal conflicts for internationally operating companies: supply chain audits, sanctions, and compli-ance may collide—posing increasing risks for on-site managers.
On April 7, 2026, the State Council of the People's Republic of China announced two new regulations on counter-sanctions:
- Regulations on the Security of Industrial and Supply Chains (Regulation No. 834)
- Regulations on Counteracting Unjustified Foreign Extraterritorial Jurisdiction (Regulation No. 835)
Both regulations came into force upon publication and expand the legal framework developed since 2020, through which China responds to economic and political pressure from abroad. The previous legal framework prior to the enactment of Regulations No. 834 and 835 included:
- Provisions on Unreliable Entity List (UEL), MOFCOM regulation from September 2020: The UEL is an economic and security policy instrument aimed at sanctioning foreign organizations and individuals that, from China's perspective, jeopardize national sovereignty, security, or development interests, or discriminate against Chinese companies or harm them for non-market reasons (e.g., supply stoppages) or violate applicable trade principles. Sanctions under the UEL include import/export bans, investment bans, entry restrictions for personnel, revocation of work/residence permits, and fines.
- Rules on Counteracting Unjustified Extraterritorial Application of Foreign Legislation and Other Measures (Blocking Rules), MOFCOM regulation issued in January 2021: These rules aim to protect Chinese companies and citizens from the extraterritorial application of foreign laws and to counter foreign regulations that apply extraterritorially (i.e., outside the territory of the foreign country) and impede Chinese parties in their normal business activities.
The Blocking Rules do not target specific organizations directly, but rather foreign laws, sanctions, embargoes, or export controls that compel companies outside the respective third country to comply and that China deems "unjustified". The rules apply to organizations and individuals in China subject to such foreign regulations. Key provisions include: - Anti-Foreign Sanctions Law (AFSL), enacted by the Standing Committee of the National People's Congress of China in June 2021:
The AFSL is China’s core legal instrument for countering discriminatory or internationally unlawful foreign sanctions. Specifically, it addresses third-country sanctions targeting China, Chinese organizations, or citizens that are regarded as interference in internal affairs or violations of international law. The AFSL applies to:- Foreign states and their authorities.
Organizations and individuals involved in imposing or implementing sanctions against China or supporting or enforcing such sanctions.
Key countermeasures under the AFSL include:
- Sanctions list: Inclusion of individuals/organizations involved in foreign sanctions.
- Countermeasures: E.g., entry bans, freezing of assets in China, prohibition of transactions with Chinese partners, other necessary measures.
- Extended scope: Countermeasures may apply to affiliated companies and family members.
- Enforcement obligations: Organizations and individuals located in China must comply with China’s countermeasures.
Civil lawsuits: Affected parties can claim damages in Chinese courts if harmed by the implementation of foreign sanctions.
- AFSL Implementing Regulations issued by the State Council of China in March 2025: These regulations specify, structure, and expand government powers to implement measures under the AFSL. They clarify and broaden measures generally mentioned in the AFSL, particularly:
- Seizure, confiscation, and freezing of various assets (including financial assets, IP rights, etc.).
- Prohibition or restriction of transactions and collaborations (also cross-sectoral, e.g., trade, education, technology).
- Possibility of "other necessary measures" (general clause).
Additionally, the regulations focus on institutional and procedural design:
- Responsibilities of various authorities (e.g., foreign, trade, security authorities) are clearly distributed.
- Introduction and clarification of investigative powers (investigations, evidence collection), decision-making procedures (listing, measure orders), and coordination mechanisms between authorities.
The Blocking Rules do not target specific organizations directly, but rather foreign laws, sanctions, embargoes, or export controls that compel companies outside the respective third country to comply and that China deems "unjustified". The rules apply to organizations and individuals in China subject to such foreign regulations. Key provisions include:
New Regulations No. 834 and 835
The two regulations No. 834 and 835, introduced in April 2026, add new instruments and consolidate existing mechanisms within the legal framework described above.
What’s new:
- Supply chain information gathering: Organizations are prohibited from conducting supply chain-related investigations or information collection activities in China that violate Chinese regulations. The broad wording potentially covers activities such as ESG audits (e.g., on forced labor or CO₂ footprint assessment), supply chain mapping identifying critical nodes, capacities, or substitution strategies, questionnaires, or on-site inspections of Chinese suppliers by foreign entities. There is also a risk that this restriction under Regulation No. 834 may conflict with due diligence obligations of foreign companies arising from EU/US supply chain requirements.
- Risk of sufficient harm: Chinese authorities may initiate investigations and take measures if foreign organizations or individuals "disrupt normal transactions" or "take discriminatory actions" against Chinese business partners, and such conduct causes or could cause substantial harm to China's supply chains security. Although compliance with foreign sanctions or export controls is not explicitly mentioned, the regulation is broad enough to potentially include business decisions, such as terminating supply relationships or suspending transactions with Chinese business partners, especially if such actions are in response to foreign regulatory requirements. Chinese countermeasures can also apply to entities controlled by foreign organizations, potentially affecting subsidiaries worldwide.
- Malicious Entity List (MEL) and liability extension rules: The "malicious entity" designation is new. It refers to organizations promoting or implementing foreign extraterritorial measures deemed impermissible by China. By including the term "promote," the scope of sanctionable actions extends beyond direct implementation to supportive or advocacy actions. Additionally, the scope is extended to organizations controlled by or affiliated with those listed in the MEL.
- China’s assertion of extraterritorial jurisdiction: China reserves the right to exercise its jurisdiction over extraterritorial actions with a reasonable connection to China. This marks a shift from a defensive blockade against extraterritorial provisions to proactive actions asserting jurisdiction over foreign activities. In practice, this could mean extending Chinese decisions abroad if the impacts on Chinese companies or interests are deemed sufficiently connected.
- Criminal liability: Regulation No. 835 also establishes criminal liability for individuals that violate its provisions, expanding liability beyond previously stipulated administrative measures and travel bans and heightening personal risks for executives based in China.
What has been consolidated/adjusted:
- The consequences for listed entities (trade restrictions, asset freezes, visa bans, etc.) remain largely identical under the UEL, AFSL, and the new MEL.
- Regulation No. 834 requires organizations and individuals in China to strictly implement countermeasures taken by the Chinese government. Thus, subsidiaries and executives of foreign companies based in China remain obligated to comply with Chinese countermeasures, even if these directly conflict with foreign sanctions or global compliance guidelines.
- The core prohibition on complying with foreign measures has existed since MOFCOM’s Blocking Rules and is now also enforced through prohibition orders issued by the Ministry of Justice.
- The right of Chinese companies to sue parties that comply with foreign measures, derived from the AFSL and Blocking Rules, is reaffirmed.
Outlook and Recommendations
The instruments under the aforementioned norms operate cumulatively, meaning that a specific action can trigger sanctions from various authorities in China. Furthermore, the risk increases that business decisions in China directly conflict with foreign compliance obligations. For example, terminating a contract with a Chinese supplier to comply with US export controls could simultaneously trigger inclusion in the UEL, measures under the AFSL, investigations under Regulation No. 834, measures under extraterritorial jurisdiction under Regulation No. 835, and civil lawsuits by the terminated party. Actions must therefore be considered comprehensively under the existing regulations and not just under one part of the norms. In such cases, it should also be considered whether, for instance, an alternative adjustment/suspension of the contract might be appropriate instead of termination.
Regulation No. 835 includes provisions referring to potential criminal liability under applicable law, thereby expanding liability beyond previously prescribed administrative penalties and travel bans and increasing personal risks for executives in China. If such risks are identified, exposed personnel should refrain from traveling to China.
Significant uncertainties remain regarding the implementation of the above-mentioned legal provisions. For example, it is unclear what constitutes "disruption of normal transactions," where the boundaries of "impermissible extraterritorial jurisdiction" lie, and what qualifies as "promotion" in connection with the MEL. In the worst case, public advocacy, lobbying, or urging industry peers to sever ties with Chinese companies could be considered "promotion," even if such advocacy does not lead to direct implementation.
Therefore, companies operating in China should closely monitor how the implementation of these regulations evolves. Already, it is evident that China’s enforcement of countermeasures is increasingly becoming operational practice, as evidenced by the growing number of entries in the UEL and the AFSL sanctions list: the UEL was introduced at the end of 2020, with no entries until February 2023, three entries in 2024, and 67 entries in 2025. By 2025, over 100 entries in the AFSL sanctions list were known. Published cases also show that the option of civil lawsuits under the AFSL/Blocking Rules is being utilized.
Since Regulation No. 834 introduces new restrictions on gathering supply chain information, conducting ESG, forced labor, or supply chain audits in China to comply with EU/US supply chain obligations may conflict with the information-gathering restrictions under Regulation No. 834. Therefore, supply chain audits should be reviewed and, if necessary, adjusted.
General corporate policies that automatically mandate compliance with foreign sanctions across all global business areas (including Chinese subsidiaries) could be considered "implementation" or "promotion" of impermissible extraterritorial jurisdiction under Regulation No. 835 and should be adjusted accordingly.
Susanne Rademacher
