China’s new 2026 Supply Chain Security and Counter-Extraterritoriality Rules: What Companies Need to Know and how to React

China has introduced two important new State Council instruments in March/April 2026 that materially expand the legal toolkit available to Chinese authorities when responding to foreign measures affecting Chinese companies, supply chains and cross‑border business: 

• The Regulations on the Security of Industrial and Supply Chains (State Council Decree No. 834, the Supply Chain Security Provisions), effective 31 March 2026; and
• The Regulation of the People’s Republic of China on Countering the Inappropriate Extraterritorial Jurisdiction of Foreign Countries (State Council Decree No. 835, the Counter-Extraterritoriality Regulation), effective 13 April 2026. 

Both regulations are highly relevant for companies operating in or with China, particularly where business operations are influenced by foreign sanctions, export controls, ESG due diligence, supply chain “de-risking” or data restrictions. Both decrees form part of a more comprehensive policy framework for responding to external economic pressure and managing strategic dependencies that the Chinese government is establishing since 2020, comprising: Unreliable Entity List (UEL), MOFCOM Blocking Rules, Anti-Foreign Sanctions Law (AFSL) and AFSL Implementation Regulations. On 15 May 2026, we have already seen these new frameworks being applied by the Chinese Ministry of Justice, in declaring that a current EU state aid investigation (in relation to the EU Foreign Subsidies Regulation) against Nuctech, a Chinese manufacturer of airport scanners, constitutes a measure of “unlawful extraterritorial jurisdiction”.

Key Elements of the Supply Chain Security Provisions 

The Supply Chain Security Provisions establish an encompassing administrative structure for safeguarding supply chains in China, involving a wide range of central government departments (including foreign affairs, industry, commerce, customs, financial administration, market regulation and cyberspace administration) as well as provincial governments. 

Restrictions on the gathering of information within the supply chain

The Supply Chain Security Provisions target in particular “information gathering”. Where any organization or individual conducts investigations or other information collection activities related to industrial and supply chains in China in violation of Chinese laws, administrative regulations, departmental rules or other relevant state provisions, the relevant departments are to take “corresponding disposition measures according to law” 

This decree does not establish new criteria for what constitutes “illegal” information-gathering. Instead, it cross-references existing PRC laws, which could potentially include the Data Security Law, Cybersecurity Law, Personal Information Protection Law, Statistics Law, Measures for the Administration of Foreign-Related Investigations, and National Security and Counter-Espionage Laws. It, therefore, functions as an enforcement mechanism for established regulatory regimes rather than a source of new standalone obligations. Companies currently in full compliance with these existing Chinese laws should not, as a general rule, face incremental substantive requirements under this new decree.

However, it is worth noticing that the introduction of this new Regulation signals heightened resolve to enforce existing rules more rigorously in the supply chain context. The specific scope of available “disposition measures” remains undefined, leaving broad discretion to the Chinese authorities. This is especially relevant for diligence exercises, supply chain mapping and ESG audits carried out in China, where the boundary between permissible commercial data collection and regulated “information-gathering activities” may be tested by Chinese authorities.

Investigations and restrictive measures against foreign actors

Where a foreign state, region or international organization adopts measures considered discriminatory against China in respect of industrial and supply chains – or conducts or assists acts harming their security – relevant State Council departments may investigate and adopt 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 fees. They may also, under the Anti-foreign Sanctions Law framework, place directly or indirectly involved organizations or individuals on a countermeasure list.

Similarly, if a foreign organization or individual, “in violation of normal market transaction principles”, ceases normal transactions with Chinese citizens or organizations, adopts measures deemed discriminatory against them, or otherwise “causes or threatens substantial damage to the security of China’s industrial and supply chains”, the relevant authorities may investigate and impose measures such as:

• prohibiting or restricting China-related import/export activities;
• prohibiting or restricting investment in China;
• prohibiting or restricting Chinese organizations and individuals from conducting relevant transactions or cooperation;
• barring relevant persons and means of transport from entering China; or
• cancelling or restricting work, stay or residence qualifications in China.

Failure to do so may trigger corrective orders and additional restrictions, including on government procurement, bidding, trade, and the import/export of data and personal information. Key terms such as “normal market transaction principles”, “discriminatory measures” and “substantial damage” are not defined, which creates uncertainty and leaves discretion to the authorities in interpreting and enforcing these provisions.

Key Elements of the Counter-Extraterritoriality Regulation 

The Counter-Extraterritoriality Regulation creates an administrative “working mechanism” to coordinate the response to foreign countries’ “inappropriate extraterritorial jurisdiction measures”. The State Council’s rule of law department (i.e., the Ministry of Justice), together with other authorities, is tasked with identifying such measures and may conduct investigations and external consultations; organizations and individuals may also propose that a measure be reviewed. In determining whether a foreign measure is “inappropriate”, the authorities are to consider, among other things:

• whether the measure violates international law and basic norms of international relations;
• whether the conduct targeted by the foreign state has an appropriate connection with that state; and
• whether the measure harms China’s sovereignty, security or development interests or infringes the legitimate rights and interests of Chinese citizens or organizations.

If a measure is identified as inappropriate, the Ministry of Justice may issue a public announcement, and no organization or individual may execute or assist in executing that foreign measure. 

The EU Corporate Sustainability Due Diligence Directive (CSDDD) and the US Uyghur Forced Labor Prevention Act (UFLPA) could, on the pure wording of the decree, be designated as “inappropriate extraterritorial jurisdiction measures”. However, China has exercised restraint in deploying its countermeasures tools in the past years, particularly in the commercial context. A designation would more likely be triggered where China considers that its core or sensitive interests are materially affected. 

Where, under special circumstances, a “Chinese citizen or organization” needs to execute or assist in executing an “inappropriate extraterritorial jurisdiction measure”, he can submit an application to the Ministry of Justice.

Foreign organizations and individuals that drive or participate in the imposition of “inappropriate extraterritorial jurisdiction measures” can be included in the “malicious entity list” and be subject to severe countermeasures and restrictive measures, e. g., denying entry and ordering departure, prohibiting import and export activities as well as investment within China.

Furthermore, the Ministry of Justice may also issue an order to prohibit the execution of an “inappropriate extraterritorial jurisdiction measure”.

Where, in exceptional circumstances, an organisation or individual needs to carry out the prohibited or restricted activities in question with an organisation or individual against whom countermeasures or restrictive measures have been imposed, that organisation or individual can submit an application to the relevant department of the State Council that adopted the countermeasures or restrictive measures, setting out the relevant facts and reasons. In addition, the Regulation grants Chinese citizens and organisations, under certain circumstances, the right to bring an action against the organisations or individuals implementing or complying with such measures, seeking cessation of infringement and/or compensation for losses. 

Practical Implications and Recommendations for Companies

Companies subject to foreign sanctions, export controls or due diligence rules

Multinationals with China operations and non-Chinese companies that transact with Chinese counterparties should assume that compliance with foreign law can now be scrutinized through a sharper Chinese lens. If, for example, a company terminates a supplier relationship or refuses a transaction because of a foreign sanctions measure, ESG due diligence requirement (e. g., under the EU Corporate Sustainability Due Diligence Directive [CSDDD]) or export control rule, Chinese authorities may examine whether that amounts to:

• executing or assisting a foreign “inappropriate extraterritorial jurisdiction measure”; or
• a discriminatory cessation of normal transactions harming supply chain security.

Companies conducting diligence, audits or supply chain mapping in China

The restrictions on “investigations or other information collection activities” related to industrial and supply chains are particularly relevant for:

• supplier audits;
• ESG due diligence;
• external consultants and investigation teams operating on the ground in China.

For instance, a company that conducts a detailed supplier mapping project in China in support of a foreign compliance programme may need to reassess who collects the information, what data is requested, whether local legal approvals are needed, and how information flows are documented and localized.

The “dual compliance dilemma”

The two new Chinese regulations deepen the “dual compliance dilemma” for multinational companies. Companies should be aware that:

• Multinational headquarters should reconsider whether global standardised sanctions policies can be applied without modification to Chinese operations. A non-tailor made, globally applicable set of rules may trigger the risk of being characterised as “executing or assisting in executing” foreign measures under Chinese law.
• Chinese law assessment should be conducted before global compliance directives are implemented at the China level. 

Contractual and operational implications

Companies should consider:

• Contract review: sanctions, force majeure, termination, compliance-with-law, data-sharing and audit clauses - assessing whether provisions requiring compliance with foreign sanctions or export controls may create exposure under Chinese law;
• Governance reform: escalation procedures where foreign law obligations may conflict with Chinese law;
• Documentation: decision records for supplier exits, trade restrictions or transaction refusals;
• China interface: protocols for dealing with local regulators, counterparties and employees in potential conflict situations; and
• Litigation risk: private claims by Chinese parties under the Counter-Extraterritoriality Regulation and other existing regimes (such as the AFSL).

Conclusion

China’s 2026 Supply Chain Security Provisions and Counter-Extraterritoriality Regulation significantly strengthen the legal tools available to Chinese authorities in response to foreign measures affecting Chinese entities, supply chains and cross-border business. Therefore, they form part of the “lawfare” securing business and trade interests as well as of the regionalization of ESG concepts. 

Companies with a China nexus should review their sanctions, export control, ESG due diligence, procurement, data and transaction processes now - both to reduce legal risk and to ensure that business teams are not forced to make high-stakes decisions without an adequate framework for dealing with these competing regimes.