China Doubles Down on Anti-Foreign Sanctions Efforts to Protect Its Supply Chains' Security

At a Glance

• Pursuant to the Supply Chains Provisions, China will establish its early warning system, risks prevention system, and emergency management system for the security of industrial and supply chains in "key sectors". The State Council will identify the "key sectors" in the future, which likely will lead to new restrictions on data collection and cross-border transfer of data in those sectors.
• Governmental investigations often start with an unannounced visit or even a raid on a company to interview employees and collect evidence, including demanding access to an entity's IT system. It is critical for companies with operations in China to have a protocol in place to protect their proprietary information and prepare for potential raids.
• Article 8 of the Blocking Regulations expressly authorizes Chinese regulatory authorities to prohibit importation of the products of noncomplying entities into China. This new penalty could effectively cut off a noncomplying foreign company's market access to China.
• Facing conflicting compliance obligations and liabilities imposed by China and other countries, foreign companies need to carefully calculate compliance risks in different jurisdictions, explore available options, and take proactive actions to prepare for looming risks that appear unavoidable for many of them.

On April 7, 2026, the State Council of China issued the Provisions of the State Council on the Security of Industrial and Supply Chains (Supply Chains Provisions) and the Regulations on Countering Unlawful Extraterritorial Jurisdiction Measures Imposed by Foreign States (Blocking Regulations), refining China's tools to retaliate against entities or individuals following foreign nations' sanction laws or orders that may have negative impacts on the sovereignty, security, and development of China, or the legitimate interests of Chinese entities or individuals. 

These two regulations have provided Chinese regulatory authorities with more power in enforcing China's anti-foreign sanctions law, and expanded the scope of penalties for violations of the anti-sanctions law, making it more challenging for foreign companies to comply with foreign sanction laws or orders if they have business interests in China.

Supply-Chains Investigations, Audits, and Data Collection

Article 13 of the Supply Chains Provisions is the first time China specifically has addressed conducting investigations/audits or collecting data related to upstream or downstream supply chains:

Where any entity or individual violates China's laws, administrative regulations, departmental rules, or relevant national decrees by conducting investigations or other information collection activities related to industrial and supply chains within the territory of China, the relevant departments shall take corresponding handling measures in accordance with the law.

The wording of this provision is very broad but vague. The provision seems to target those conducting investigations/audits or collecting data related to supply chains that is in violation of Chinese laws, not all of the investigations or data collection. Nonetheless, it means that when a foreign company conducts an investigation/audit or collects data related to supply chains, either directly or through a third-party service vendor, it needs to first analyze whether such investigation/audit or data collection would violate any Chinese laws and regulations, especially if such investigation or data collection is for compliance purposes. In the fast-evolving legal landscape of China, a foreign company at least needs to pay special attention to the following two areas of laws and regulations:

1. Data Security and Personal Information

National security is paramount in China, and it asserts data sovereignty more than any other national economy in the world. When conducting an investigation/audit in China, or collecting data related to supply chains, it is essential to analyze whether the data might involve "State Secrets" or "Important Information" as defined by Chinese regulations, whether the volume of "Personal Information" or "Sensitive Information" reaches the threshold that demands special protection, and whether such data relates to a "Critical Information Infrastructure Operator" as designated by Chinese authorities to determine whether approval from Chinese regulatory authorities is needed to export such data out of China.

It is noteworthy that the Supply Chains Provisions have established a new category of business sectors from a national security perspective. Pursuant to the Supply Chains Provisions, China will establish its early warning system, risks prevention system, and emergency management system for the security of industrial and supply chains in "key sectors". Currently, "key sectors" are not defined, and the State Council will issue the list(s) of "key sectors" in the future, which likely will lead to new restrictions on data collection and cross-border transfer of data in those sectors, among others.

2. Anti-Foreign Sanctions Laws 

Article 14 of the Supply Chains Provisions specifically authorizes Chinese regulatory authorities to retaliate against entities or individuals who comply with foreign sanctions endangering the security of the supply chains in China:

Where any foreign countries, regions, or international organizations violate international law and the basic norms of international relations by adopting discriminatory prohibitions, restrictions, or other similar measures against China in the field of industrial and supply chains, or by implementing or assisting in the implementation of actions that harm the security of China's industrial and supply chains, the relevant departments under the State Council shall have the authority to launch industrial and supply chain security investigations on such measures or actions.

The relevant departments under the State Council may, in accordance with relevant procedures, take corresponding measures, including but not limited to prohibiting or restricting the import and export of relevant goods and technologies or international trade in services, and imposing special charges.

The relevant departments under the State Council may, in accordance with the Law of the People's Republic of China on Countering Foreign Sanctions, the Provisions on the Implementation of the Law of the People's Republic of China on Countering Foreign Sanctions, and other relevant regulations, decide to include the entities or individuals directly or indirectly involved in the formulation, decision-making, or implementation of the measures or actions specified in the first paragraph of this Article in the countermeasures list and take countermeasures against them.

While Article 13 of the Supply Chains Provisions does not directly address whether it is in violation of Chinese law to conduct an investigation, audit, or data collection in connection with foreign sanctions or for purposes of compliance with foreign laws that have sanctioning power, when reading Article 13 and Article 14 back to back, it is reasonable to conclude that if such investigation, audit, or data collection is conducted pursuant to a foreign sanction order, or leads to foreign sanctions, Chinese regulatory authorities are likely to take the view that the entity or individual was "involved in the formulation, decision-making, or implementation" of foreign sanctions endangering the security of Chinese supply chains, thus taking retaliations against such entity or individual. 

Regulatory Authorities' Power to Investigate

Both the Supply Chains Provisions and the Blocking Regulations expressly authorize Chinese regulatory authorities to investigate and collect evidence from entities and individuals suspected to be involved in complying with foreign sanctions.

Article 15 of the Blocking Regulations states:

Where foreign entities or individuals violate the principles of normal market transactions by interrupting any normal transactions with Chinese citizens or entities, adopting discriminatory measures, or engaging in other actions that cause substantial damage or pose a threat of substantial damage to the security of China's industrial and supply chains, the relevant departments under the State Council shall have the authority to launch industrial and supply chain security investigations.

Investigations may be conducted by way of questioning the parties concerned, reviewing or copying relevant documents and materials, or by other necessary methods. The parties concerned shall cooperate with the investigation. During the investigation, the parties may make statements or defenses.

Article 12 of the Blocking Regulations also states:

The relevant departments under the State Council may take measures against organizations or individuals suspected of implementing or assisting in the implementation of any unlawful extraterritorial jurisdiction measures imposed by foreign states, such as conducting on-site inspections, and reviewing and copying relevant materials. Relevant organizations and individuals shall render cooperation and assistance, and shall not refuse or obstruct any measures.

Chinese regulatory authorities have unchecked power in China. Governmental investigations often have started in the form of an unannounced visit to or even a raid on a company to interview employees and collect evidence, including demanding the entity provide access to its IT system for government officials to download electronic data via printing, screenshot, video recording, and other means of preserving evidence. It is critical for companies with operations in China to have a protocol in place to protect their proprietary information and prepare for potential raids.

Prohibition Order and Penalties

Under Article 13 of the Blocking Regulations, Chinese regulatory authorities may issue a Prohibition Order to prohibit an entity or individual from complying with foreign sanctions:

The department of legal affairs under the State Council may, through the decision-making process of the working mechanism, make a decision to prohibit the organizations or individuals from implementing or assisting in the implementation of the unlawful extraterritorial jurisdiction measures imposed by foreign states (the "prohibition order"). Relevant organizations and individuals shall comply with the prohibition order.

If an entity or individual refuses to obey or evades Chinese regulatory authorities' anti-foreign sanction measures, including Prohibition Orders, Chinese regulatory authorities could impose severe punishments per Article 17 of the Blocking Regulations:

Where anyone refuses to implement or evades the implementation of any countermeasures and restrictive measures stipulated in these Regulations, or violates any prohibition order, the relevant departments under the State Council may order them to make corrections, prohibit or restrict them from engaging in activities such as government procurement, tendering and bidding, import and export of relevant goods or technology, or international trade in services, prohibit or restrict them from receiving or providing data or personal information from or to any parties outside China, prohibit or restrict their entry or exit from China, or their stay or residence within China, and impose fines, among other measures.

Article 16 of the Supply Chains Provisions adopts the similar penalties on noncomplying Chinese entities and individuals:

Entities and individuals within the territory of China shall implement the measures taken by the relevant departments of the State Council in accordance with Articles 14 and 15. 

Where any entities or individuals violate the provisions of the preceding paragraph, the relevant departments under the State Council shall have the authority to order them to make corrections, prohibit or restrict their involvement in government procurement, tendering and bidding, import and export of relevant goods or technologies, or international trade in services, prohibit or restrict them from receiving or providing data or personal information from or to any parties outside of China, prohibit or restrict their exit from China, or their stay or residence within China.

Unlike the previous anti-foreign sanction laws that prohibit or restrict the provision of data or personal information to the noncomplying entity, the Blocking Regulations and the Supply Chains Provisions could totally cut off the cross-border data connection of the noncomplying Chinese entity by prohibiting it from receiving or providing data or personal information from or to any parties outside of China. 

Moreover, unlike previous anti-foreign sanction laws that only prohibit or restrict the noncomplying entity from engaging in exportation from or importation to China or Chinese entities and individuals, Article 8 of the Blocking Regulations expressly authorizes Chinese regulatory authorities to prohibit importation of the products of noncomplying entities into China:

The relevant departments under the State Council may, through the decision-making process of the working mechanism, include foreign organizations or individuals that facilitate or participate in the implementation of any unlawful extraterritorial jurisdiction measures imposed by foreign states in a list of malicious entities, and decide to take one or more of the following countermeasures and restrictive measures against them in accordance with the Law of the People's Republic of China on Countering Foreign Sanctions, the Provisions on the Implementation of the Law of the People's Republic of China on Countering Foreign Sanctions, and other relevant regulations, and issue an announcement:

(1) Refusing to issue visas to them, denying their entry, cancelling their visas, or ordering them to exit within a prescribed time limit, or imposing deportation or expulsion;
(2) Revoking or restricting the qualifications for relevant personnel to work, stay, or reside in China;
(3) Sealing, seizing, or freezing their movable property, immovable property, and other types of property within the territory of China;
(4) Prohibiting or restricting organizations or individuals within the territory of China from providing data or personal information to them or engaging in relevant transactions or cooperation with them;
(5) Prohibiting or restricting them from engaging in any import and export activities related to China;
(6) Prohibiting or restricting their investment within the territory of China;
(7) Prohibiting or restricting the entry of their products and conveyances, among others, into China;
(8) Imposing fines; and
(9) Other necessary measures.

The measures stipulated in the preceding paragraph may also apply to organizations actually controlled by or established or operated with the participation of the organizations or individuals included in the list of malicious entities.

This new penalty could effectively cut off a noncomplying foreign company's market access to China.

Conclusion

In sum, the issuance of the Supply Chains Provisions and the Blocking Regulations demonstrates the Chinese government's determination in resisting sanctions imposed by the United States and other countries from every angle to protect its interests, on the belief that it has the leverage over foreign companies that have investments or business interests in China. 

Facing conflicting compliance obligations and liabilities imposed by China and other countries, foreign companies need to carefully calculate their compliance risks in different jurisdictions, consult with legal counsel to explore available options, and take proactive actions to prepare for the looming risks that appear to be unavoidable for many of them.