China’s new regulations complicate compliance landscape for multinationals

Collectively, the new regulations strengthen and integrate China’s countermeasure toolkit. The measures underscore China’s position that foreign sanctions, export controls, and other trade restrictive measures impacting China-related commerce may potentially raise concerns tied to national security, supply chain resilience, and foreign policy. Similar to “implementing regulations”, the two administrative regulations serve a similar purpose in operationalizing higher-level legislation such as the Anti-Foreign Sanctions Law by setting out additional rules, procedures, and enforcement mechanisms.

Key provisions in the two regulations stipulated key areas that would trigger an anti-foreign sanctions investigation and potentially enforcement, creating an actionable framework for compliance, supervision, and sanctions that could have additional ramifications. These regulations establish formal mechanisms for monitoring supply chain risks, including prohibiting illegal supply-chain-related information collection, imposing countermeasures, and prohibiting support for assistance in implementing foreign measures that China deems unjustified extraterritorial jurisdictional reach.

For multinationals, the practical implication is a heightened compliance challenge: Actions taken to meet foreign legal obligations may, in certain circumstances, attract scrutiny or give rise to potential exposure under Chinese law if they affect operations, data, suppliers, customers, or personnel connected to China. Activities such as due diligence, supplier audits, sourcing reviews, customer screening, and supply chain mapping may give rise to Chinese-law compliance concerns or draw regulatory scrutiny, depending on how they are conducted, whether they are considered unlawful under Chinese law, and whether discriminatory decisions are perceived as “discriminatory.”

Key provisions of the Supply Chain Regulations

Investigations and countermeasures targeting foreign State Actors and international organizations

Supply Chain Investigations for State Actors and International Organizations

The relevant departments under the State Council are authorized to carry out industry and supply chain security investigations (“Supply Chain Investigations”) where foreign States or regions (“State Actors”) or international organizations violate international law and the basic norms of international relations by engaging in discriminatory prohibitions, restrictions, or other similar measures against China in the area of industrial and supply chains, or carry out or assist in carrying out acts that harm China’s industrial and supply chain security.

Countermeasures

The relevant departments under the State Council are authorized to undertake the following countermeasures targeting the aforementioned State Actors and international organizations pursuant to the Anti-Foreign Sanctions Law and relevant implementation regulations:

• Prohibition or restriction on the import and export of relevant goods and technologies or international trade in services, and the imposition of special charges; and
• Designation of the aforementioned State Actors and international organizations on the counter-sanctions list.

Supply Chain Investigations and countermeasures against Foreign Private Entities

Supply Chain Investigations and countermeasures also apply to foreign organizations and individuals (“Foreign Private Entities”) where they engage in discriminatory/restrictive/similar conduct measures viewed as “in violation of normal market transaction principles and interrupting normal transactions with Chinese citizens and organizations” and “causing substantial damage or threatening to cause substantial damage to China’s industrial and supply chain security”.

Countermeasures applicable to Foreign Private Entities may include prohibiting or restricting imports/exports/international services trade, imposing special charges, restricting investment, limiting transactions or cooperation, and entry/residential restrictions.

The aforementioned countermeasures may apply to entities de facto controlled, established, or operated with foreign participation. This suggests a potentially broad reach that could extend to subsidiaries, affiliates, and other connected entities located in China.

The Supply Chain Regulations do not provide a specific definition of “substantial damage”, and the use of open-ended language grants Chinese authorities broad discretion in determining what may constitute “substantial damage.” In practical terms, this could mean that activities such as (1) cutting off China related supply chains, (2) discontinuing supply to Chinese customers, or (3) undertaking large scale adjustments to sourcing or customer strategies, could potentially fall into the scenarios targeted by the Supply Chain Regulations.

Countermeasures against foreign states, organizations, and individuals

The Supply Chain Regulations authorize countermeasures where foreign states, regions, international organizations, foreign organizations, and individuals whose discriminatory or restrictive conduct is deemed harmful and caused “substantial harm” or threatened to cause “substantial harm” to China’s industrial and supply chain security. Potential measures include prohibiting or restricting imports/exports/international services trade, imposing special charges, restricting investment, limiting transactions or cooperation, entry/residence restrictions, or placing participants on countermeasure lists pursuant to the Anti-Foreign Sanctions Law.

Importantly, these countermeasures may extend to entities controlled, established, or operated with foreign participation, suggesting a potentially broad reach that could include subsidiaries and affiliates.

The term “substantial harm” is not expressly defined, granting authorities considerable discretion. In practical terms, actions such as cutting off China-related supply chains, discontinuing supply to Chinese customers, or undertaking large-scale adjustments to sourcing or customer strategies could potentially fall within the scope.

Application to entities within China

Organizations and individuals within China are required to implement the aforementioned countermeasures adopted by the Chinese government. Failure to comply may result in rectification orders, restrictions on government procurement, tendering, bidding, import-export/international services trade limitations, restrictions on cross-border data transfers, and limitations on entry, stay, or residence in China. For multinationals, this means that China-based subsidiaries and executives are legally obligated to comply with Chinese countermeasures.

Risk monitoring and reporting

The Supply Chain Regulations establish a formal risk system for monitoring and reporting in key sectors. Relevant departments under the State Council are tasked with assessing the stability of supply channels for raw materials, technologies, equipment, and products, and evaluating their impact on economic and national security. Enterprises and industry associations may also report circumstances affecting supply chain security to authorities at or above the county level. This creates a structured channel for industry engagement while underscoring the government’s intent to closely monitor supply chain vulnerabilities.

Restrictions on supply-chain-related information collection

The Supply Chain Regulations prohibit organizations and individuals from conducting supply-chain-related investigations or information collection in violation of Chinese laws, administrative regulations, departmental rules, or other relevant provisions. This Provision does not appear to introduce new legal bounds but rather conforms and reiterates existing legal obligations (i.e. all organizations and individuals must comply with the Chinese laws when conducting supply-chain-related information collection).

This provision is likely to be especially relevant for multinational compliance programs. Due diligence, supplier mapping, audit requests, and verification exercises conducted to satisfy foreign legal requirements on the supply chain and other relevant trade-related compliance requirements may need to be reviewed carefully to avoid any outright conflicts with Chinese law.

Key provisions of the Counteracting Unjustified Extraterritorial Jurisdiction Regulations

Identification and blocking mechanism

The Counteracting Unjustified Extraterritorial Jurisdiction Regulations establish a mechanism for identifying foreign laws and measures deemed to constitute unjustified extraterritorial jurisdictional reach (“Foreign Unjustified Extraterritorial Jurisdiction Measures”). Relevant organizations and individuals may advise the State Council’s legal affairs department to undertake an identification process for certain measures, and the State Council’s legal affairs department leads the identification process. The identification of Foreign Unjustified Extraterritorial Jurisdiction Measures shall be conducted by comprehensively considering the following factors:

• whether such measures violate international law and basic norms of international relations;
• whether there is an appropriate connection between the conduct subject to foreign extraterritorial jurisdiction and the foreign state concerned;
• such measures harm China’s sovereignty, security, development interests, or infringe upon lawful rights and interests of Chinese citizens or organizations; and
• any other relevant factors.

Once a measure is identified as a Foreign Unjustified Extraterritorial Jurisdiction Measure via the identification process, any organization and individual is prohibited from implementing or assisting in its implementation, unless specifically authorized.

Malicious Entity List and counter measures

The Counteracting Unjustified Extraterritorial Regulations empower the “working mechanisms for Addressing Foreign Unjustified Extraterritorial Jurisdiction by Foreign Countries” (“Working Mechanism”) to impose countermeasures against entities that implement or assist in implementing Foreign Unjustified Extraterritorial Jurisdiction Measures.

Relevant departments under the State Council are authorized, in accordance with decision-making procedures of the Working Mechanism, to designate foreign organizations or individuals that “promote or engage in implementing Unjustified Extraterritorial Jurisdiction Measures” on the “Malicious Entity List” and impose countermeasure and restrictions on such foreign organizations or individuals. Such countermeasure and restrictions include asset freezes, bans on transactions or dealings with entities located in the PRC, data-transfer restrictions, import-export restrictions, investment restrictions, and measures relating to visa issuance, entry denial, and removal (including deportation and expulsion).

Absent further guidance and definition, the scope of foreign organizations or individuals that “promote or engage in implementing Unjustified Extraterritorial Jurisdiction Measures” may be interpreted broadly, potentially encompassing compliance measures adopted by foreign companies and intermediary parties for purposes of complying with foreign unjustified extraterritorial jurisdiction.

Civil liabilities

The Counteracting Unjustified Extraterritorial Jurisdiction Regulations also establishes a cause of action for Chinese citizens to bring civil claims before the People’s Courts for cessation of infringement and damages where implementation or assistance in implementation harms their lawful rights and interests.

The Counteracting Unjustified Extraterritorial Jurisdiction Regulations further provide that these measures may extend to entities actually controlled, jointly established, or operated by listed parties. This mirrors the broader control-based approach seen in the Supply Chain Regulations.

Implications for multinationals

For multinationals operating in China, these regulations formalize a familiar but increasingly complex challenge: Compliance with one jurisdiction’s rules may create exposure in another. The new framework provides Chinese regulators with explicit tools to scrutinize supply-chain conduct, information gathering, cross-border compliance workflows, and decisions made in response to foreign sanctions or trade controls. The practical risks extended beyond direct sanctions or fines. Companies may face procurement exclusions, trade restrictions, data-transfer limits, personnel restrictions, and reputational consequences. This tension is especially acute for multinationals with global compliance programs involving supply chain mapping, third-party diligence, restricted-party screening, and remediation protocols triggered by foreign trade-related compliance requirements.

Conclusion

Neither regulation is expected to cause immediate disruption of multinational companies’ operations in China. Their greater significance lies in formalizing and expanding China’s legal toolkit for responding to foreign measures and for policing supply-chain conduct with a national-security lens.

Multinationals should anticipate continued attention to how global compliance programs are implemented in China, particularly where they intersect with sanctions, export controls, and supply chain compliance.

Authored by Ben Kostrzewa and Percy Ting.