Supply Chain Regulations in China: A Legal Test for Global Supply Chains

On April 7 and 13, 2026, the State Council of China issued two far‑reaching sets of regulations that became binding immediately – granting businesses no grace period. The Regulations on the Security of Industrial and Supply Chains (Decree No. 834) and the Regulations on Countering Foreign Improper Extraterritorial Jurisdiction (Decree No. 835) complement each other to form a systemic counter‑measure framework that creates unprecedented legal friction for foreign companies.

For multinationals with business in China, a widening compliance gap is emerging in which they must simultaneously adhere to Western sanctions and related regimes and Chinese law. The scope of this development will have massive implications for global supply chains with ties to China.

Major Challenges for Supply Chains

Conflicting Compliance Obligations with Personal Consequences

A central element of Decree No. 835 is the expansion of personal liability. The regulation requires organizations and individuals in China to strictly comply with Chinese counter‑measures. There is no provision for discretion or exceptions based on business decisions. However, it is possible to apply for an exemption with the relevant departments of the State Council.

For foreign managers, this means: if they are for example instructed by their corporate headquarters to implement certain U.S. sanctions, such as the exclusion of a Chinese supplier, they may face personal consequences such as cessation and damage compensation claims, entry refusal, work and residence permit withdrawal, and even criminal charges. The regulation contains references to criminal liability, thereby going beyond previous administrative sanctions and entry bans. Management thus finds itself trapped between two potentially irreconcilable legal obligations – with immediate consequences for personal freedom and career prospects.

Companies and individuals may also face prohibitions or restrictions regarding government procurement, bidding and tendering, and the import or export of relevant goods or technologies or international trade in services, receiving data or personal information from outside the territory of China or providing data or personal information to outside the territory of China.

New Restrictions on Supply Chain Information Gathering

Decree 834 allows actions against any form of “industrial and supply chain information gathering” that is “in violation of the laws, administrative regulations, departmental rules of China and relevant provisions of the State”. This directly affects all standard tools of international supply chain management: ESG audits and reporting, supplier evaluations, due diligence questionnaires – anything that collects structured data on Chinese supply chains can in the future be subject to a Chinese security review.

The practical consequence is for example that a European company seeking to fulfill its CSDDD obligations can find itself confronted with Chinese regulations that prohibit or restrict precisely this data collection. It is important for the company to understand which information can be collected and which not. The same applies to U.S. UFLPA compliance requirements, which also require in‑depth supply chain transparency. The very act of gathering data now carries a potential regulatory exposure if the information gathering is violating Chinese laws or regulations.

“No‑Russia” and Other Sanctions Clauses at Risk

Decree 835 expressly prohibits organizations and individuals from implementing or supporting the implementation of unlawful foreign extraterritorial measures, after the unlawfulness has been announced by China. Also here, an exemption can be applied for. For contractual practice, this will for example likely mean that clauses obligating a contracting party to comply with U.S. or EU sanctions, such as “No‑Russia clauses” that require compliance with sanctions against Russia, may be unenforceable or even invalid in China if China decides to call these sanctions unlawfulness. However, the Chinese legal position is clear on this point: the MOFCOM Blocking Rules of 2021 and the new regulation prohibit compliance with foreign extraterritorial measures. A foreign court ruling based on the enforcement of such sanctions will not be recognized by Chinese courts. Companies that include such clauses in contracts related to China run the risk that these will be deemed a violation of mandatory Chinese law and thus void by Chinese courts.

New Escalation Levels: What Companies Might Still Face

Malicious Entity List

Foreign companies, organizations, and individuals that “promote” foreign extraterritorial measures or are involved in their implementation may be placed on a “Malicious Entity List”. The term “promote” is not legally defined and can therefore be interpreted very broadly. “Promoting” could also encompass public endorsement – particularly via social media – lobbying, or urging other companies to sever their ties with Chinese entities, even if no direct implementation takes place.

The potential actions against the listed organizations / individuals include visa refusals, entry bans, deportations, revocation of work‑ or residence permits, seizure or freezing of assets, prohibitions on data sharing or transactions, restrictions on import‑export, investment and the entry of their goods or transport, fines, and any other necessary actions, and to publicly announce them.

This may also apply to organizations effectively controlling or having been invested by the listed parties.

Civil Lawsuits and Extraterritorial Jurisdiction

Chinese companies and citizens harmed by compliance with foreign extraterritorial measures may file lawsuits in Chinese courts against those implementing such measures. The regulations establish the basis for China to exercise its own extraterritorial jurisdiction over matters with a “appropriate connection” to China – a step that would further exacerbate existing conflicts between legal systems.

What Does This Mean for Your Company?

The new Chinese regulations are not merely a theoretical construct. Chinese authorities have already made use of their tools on multiple occasions, most recently by adding 14 foreign entities to the “Unreliable Entity List” in October 2025, including Dedrone by Axon, DZYNE Technologies, Elbit Systems of America LLC, etc. The introduction of a new export control watchlist in February 2026, featuring 20 Japanese entities, including SUBARU Corporation, and Mitsubishi Heavy Industries Shipbuilding Co., also demonstrates that China is gradually expanding and refining its sanction mechanisms.

Particularly relevant in practice: the identification of foreign “unlawful extraterritorial measures” initially rests with the Chinese government – however, no specific measures have yet been publicly identified. This decision will depend largely on the course of trade relations, particularly between the U.S. and China. Companies must therefore prepare for significant legal uncertainty while simultaneously operating in a complex, multi‑dimensional compliance environment.

Key Areas of Action:

• Supply Chain Compliance: Reviewing all data collection processes in China for legal conformity with Decree 834
• Contract Drafting: Revising existing contracts with China exposure, particularly sanctions clauses
• Managerial Liability: Developing protocols for executives in China on how to handle conflicting instructions
• Risk Management: Identifying business activities that could be affected by both Western sanctions and Chinese counter‑measures

Your Next Steps

The new regulations create significant pressure to act for companies with supply chains in China. The personal liability of managers, the risk of lawsuits by Chinese business partners, and the potential invalidity of key contract clauses require a systematic legal review.

Contact us. We can assist you in analysing your specific risks, reviewing your contracts, and developing a compliance strategy that takes both Western and Chinese requirements into account.