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China’s Enhanced National Security “Great Wall”– Supply Chain Security, Red Lines, and Blocking Rules
Alerts
June 1, 2026

Recent Developments and Insights for Businesses Navigating China’s Evolving Regulatory Landscape

Recently, the People’s Republic of China (PRC or China) introduced further unprecedented national security measures spanning sanctions, supply chain security, and data security, in addition to blocking rules to protect the internal market from the extraterritorial effects of certain foreign regulatory measures. These developments build on the PRC’s already well-established national security framework, and underscore China’s determination to construct a fortified system designed to shield its supply chains and legal order from foreign influences it deems unjustified. These measures increasingly create potential conflicts of law and pose complex compliance, governance, and commercial challenges for businesses striving to navigate multiple major regulatory regimes worldwide.

The key developments include:

The newly introduced Supply Chain Provisions and Extraterritorial Regulations reinforce China’s existing national security framework, while the Blocking Orders represent the first instances in which China has explicitly prohibited compliance with specified foreign sanctions and investigative steps. In this alert, we examine these pivotal developments and their implications for multinational corporations (MNCs) operating in China.

What Is the Significance of the Supply Chain Provisions?

The Supply Chain Provisions formally recognize supply chain security as a pillar of China’s national security and establish a framework for monitoring and safeguarding sectors considered critical to China’s supply chains.

The most critical significance of the Supply Chain Provisions lies in the express prescription of the PRC government’s authority to review foreign measures and investigate and penalize foreign parties for adopting or implementing the same, on grounds of supply chain security. Key features include:

  • A broad scope of foreign regulatory measures that could be investigated on supply chain security grounds: Any prohibitive or restrictive measures that are “discriminatory” in nature, incompatible with “principles of international law and international relations,” and in effect implement (or facilitate the implementation of) conduct harming China’s supply chain security, could be investigated. Positive findings could lead to the imposition of export controls on relevant goods, technology or services, additional charges, etc. Entities or individuals who have directly or indirectly participated in the promulgation, determination, and implementation of the relevant measures could also be designated as subject to PRC countersanctions.
  • A broad scope of business conduct by foreign entities and individuals that might trigger a government investigation: Any foreign entities or individuals could be subject to an investigation for suspending its ordinary courses of dealings with PRC entities or persons, while implementing any “discriminatory” or “other” measures, in violation of “normal market principles,” thereby causing material damage to or threatening China’s supply chain security. In practice, this may capture a broad range of ordinary business decisions, including terminating supply relationships, suspending transactions, or adapting commercial arrangements, particularly where such actions are taken in response to foreign regulatory measures that could be determined as “discriminatory.” In this regard:
    • The PRC Government’s broad investigative powers: Investigative steps that the PRC Government may take against foreign entities or individuals include issuing inquiries, seeking or taking copies of relevant documents and information, or “any other necessary steps.”  As respondent, the party “should” comply with any such investigation. 
    • Potential negative consequences: Based on its investigation findings, the PRC government may penalize relevant foreign entities and individuals for engaging in the subject conduct by imposing on them (and entities “controlled,” “established,” or “operated” by them) extensive trade restrictions in relation to import and export activities, investments, business dealings, as well as visa restrictions. It is unclear what constitutes “control,” although the relevant language suggests that de facto control would be sufficient.  
  • Mandatory compliance requirement for all entities and individuals in the PRC: Failure to comply with any such countermeasures and restrictions imposed by the PRC Government following its investigations could spell severe consequences, including being faced with (among others) business restrictions and exit bans. In other words, for foreign persons, being penalized on supply chain security grounds would effectively mean that they could be denied access to the PRC market.
  • Restrictions on supply chain data collection and investigations: The Supply Chain Provisions further entrench China’s strict position on data security within the broader aegis of national security by prohibiting entities and individuals from conducting supply chain “investigations or information collection” within China “in violation of China’s laws, regulations, rules, and measures.”  While the scope of this provision remains unclear, it may have implications for routine business and compliance practices, such as supply chain due diligence, ESG-related audits, or data gathering conducted as part of regular business activities, which should be handled with caution.

What Are the Key Points About the Extraterritorial Regulations in Light of Recent Blocking Orders?

The Extraterritorial Regulations seek to identify and counter measures imposed by foreign states exercising “unlawful extraterritorial jurisdiction.” In 2021, The Ministry of Commerce (MOFCOM) had already promulgated the Rules on Counteracting Unjustified Extraterritorial Application of Foreign Legislation and Other Measures (阻断外国法律与措施不当域外适用办法) (Blocking Rules), modeled after the EU Blocking Statute (Regulation (EC) 2271/96), which was designed to protect European companies and individuals from the extraterritorial effects of unilateral foreign sanctions targeting Iran. The 1st Blocking Order was issued pursuant to the Blocking Rules. The Extraterritorial Regulations are significant in that they complement and effectively broaden China’s legal framework for blocking foreign regulatory measures exerting “unjustified” long-arm jurisdiction: 

  • Distinction between the Extraterritorial Regulations and the Blocking Rules: Unlike the Blocking Rules, which are promulgated by MOFCOM, China’s main sanctions authority, and aimed at countering unilateral foreign sanctions that may adversely impact Chinese business interests, the Extraterritorial Measures are promulgated by the State Council, and establish a cross-departmental function to coordinate efforts to counter foreign “unlawful extraterritorial” measures. As stated previously, shortly after the Extraterritorial Regulations took effect on May 2, 2026, the Ministry of Justice, having investigated the matter alongside MOFCOM and “other relevant departments,” issued the 2nd Blocking Order under the Extraterritorial Regulations, prohibiting entities and individuals in the PRC from complying with measures taken under the EU foreign subsidies probe, which leads us to the next point…
  • …it is not just about sanctions anymore: The Extraterritorial Regulations are not specific to unilateral sanctions imposed by foreign states.  Article 6, which sets out the factors for assessing whether a measure involves “unlawful extraterritorial jurisdiction,” reflects (among others) a broader focus on whether there is a “appropriate” nexus between the extraterritorial jurisdiction being exerted through a measure and the foreign state in question. Any regulatory measures or actions taken by a foreign state could be identified as “unlawful,” the implementation of which would be prohibited in the PRC. As an illustration of this broad scope, and in contrast to the Blocking Rules,2 Article 19 further expressly calls out “anti-corruption, anti-monopoly, anti-unfair competition, export controls, data security, and judicial assistance, etc.” as examples of areas in which unlawful extraterritorial jurisdiction may have been exerted, to be reviewed in conjunction with any pre-existing PRC laws in these areas.   
  • PRC authorities’ with broad investigative powers and a new “Malicious Entity List”: Relevant government departments may investigate entities or individuals suspected of implementing (or assisting with the implementation of) unlawful extraterritorial measures, such as by conducting on-site inspections and obtaining copies of relevant materials, and obstruction is expressly prohibited. Relevant entities and individuals could be subject to interviews, corrective orders, and prohibitive orders. The Extraterritorial Regulations also empower PRC authorities to designate foreign entities and individuals involved in the implementation of such measures, and (again) entities “controlled, established, and operated” by them, under a new “Malicious Entity List,”3 potentially subjecting them to wide restrictions on trade, investment, and commercial activities in China, to be specified in relevant notices.  
  • Evasion of countermeasures constitutes a violation: Interestingly, Article 17 of the Extraterritorial Regulations provides that any refusal to comply with, or evasion (“规避”) of, orders and countermeasures imposed under these Regulations would constitute a violation. To date, no further guidance has been provided on what constitutes evasive conduct—it remains to be seen how the PRC authorities will interpret business conduct and arrangements in this respect.
  • Civil remedies continue to feature as an avenue for relief: Consistent with China’s existing anti-foreign sanctions framework,4 Article 14 provides for a private right of action, allowing Chinese counterparties to bring civil claims for damages before the PRC courts for losses caused by another party’s compliance with an unlawful extraterritorial measure.

What Does This All Mean for MNCs with Global Business Activities Including China?

Issues to consider include:

  • Embed multi-jurisdictional analysis into decision-making to assess conflict of laws risk: Ensure that compliance with a single regulatory regime (e.g., foreign sanctions, export controls, or supply chain due diligence requirements) is not implemented on a standalone basis without considering the implications under PRC law, particularly where there is a PRC nexus. Commercial decisions relating to transactions, counterparty selections, or supply chain adjustments that are cascaded from a company’s global headquarters and may have an impact on PRC counterparties or business activities in China should be assessed against both PRC legal requirements and applicable foreign regimes, and potential regulatory compliance risks should be considered.
  • Review contractual provisions in transaction agreements: Evaluate enforceability of clauses pertaining to suspension and/or termination of contractual obligations triggered by changes in regulatory requirements in existing template agreements. Update these provisions as necessary to manage potential conflict of law issues that may arise if a counterparty is a PRC individual or entity. Companies should weigh potential litigation risks where a proposed suspension of business dealings or contract termination is based on compliance with a foreign regulatory measure that can be considered “discriminatory” in nature or otherwise an “unjustified” extraterritorial measure. Recent cases5 involving PRC parties initiating court proceedings against organizations—such as foreign financial institutions—over termination or refusal to perform contractual obligations due to compliance with foreign sanctions highlight the increasing relevance of this risk within the evolving PRC regulatory framework.
  • Assess operational risk and information governance: Given the risk of regulatory inquiries or dawn raids, and the PRC authorities’ increasingly broad express powers to inspect and seize documents and data, companies should update or establish internal protocols for managing government inquiries and on-site inspections. This process should also include evaluating current information management practices and document retention protocols both within China and internationally. Providing training to relevant company personnel is also recommended.
  • Staying abreast of geopolitical developments: The impact of rapidly evolving geopolitics on businesses is unlikely to abate anytime soon and companies must remain nimble to changes in foreign policy decisions. For example, following U.S. President Trump’s May 2026 visit to Beijing, and the issuance of the 1st Blocking Order which effectively signals the PRC Government’s red lines, President Trump issued a statement to reporters that he was considering lifting sanctions on Chinese oil companies that buy Iranian oil.6 It remains to be seen what decision will ultimately be made and the impact it may have on the 1st Blocking Order. Companies should also be on close watch for further Blocking Orders or other countermeasures that may be adopted by the PRC government in response to shifting foreign policy objectives against the backdrop of the evolving global geopolitical landscape.

The latest developments summarized in this alert mark a further evolution of China’s national security framework which, at its nascent stages, comprised a patchwork of various regulations and administrative measures focusing on counter-sanctions, but has since matured into a coordinated mechanism being actively operationalized across key areas such as export controls,7 retaliatory tariff policies, national security reviews, data security reviews, etc., all forming part of a fully-fledged legal and regulatory “toolbox” at the PRC Government’s disposal.

For more information on these developments and their implications for your business, please contact Jocelyn Chow, Grace Chow, Kevin Chan, or any member of Wilson Sonsini’s National Security and Trade practice.

[1] On December 11, 2025, the European Commission opened an investigation to assess, under the EU Foreign Subsidies Regulation, the activities of Nuctech, a Chinese company engaged in the production and sale of threat detection systems and the provision of related services within the EU, over concerns that it may have been granted foreign subsidies that could distort the EU internal market.

[2] Specifically, Article 5 of the Blocking Rules refers to foreign measures that restrict or prohibit PRC persons from engaging in “economic, trade, and related activities with a third state or its citizens,” which could be construed as broad references to the imposition of U.S. secondary sanctions, for example, that prevent non-U.S. persons from engaging in certain proscribed conduct even where there is no U.S. nexus. 

[3] The PRC currently maintains several designation mechanisms under different regimes within its sanctions, anti-foreign sanctions and export controls framework, including: i) the countermeasures list under the PRC Anti-Foreign Sanctions Law (中华人民共和国反外国制裁法) issued in 2021 and its implementing regulations issued in 2025; ii) the Unreliable Entity List under the Provisions on the Unreliable Entity List (不可靠实体清单规定) issued in 2020; and iii) the Control List and Watch List under the PRC Export Control Law (中华人民共和国出口管制法) issued in 2020 and/or PRC Regulation on the Export Control of Dual-Use Items (中华人民共和国两用物项出口管制条例) issued in 2024. The Ministry of Foreign Affairs has also designated persons as subject to PRC sanctions.

[4] Article 12 of the PRC Anti‑Foreign Sanctions Law prohibits organizations and individuals from implementing or assisting in “discriminatory restrictive measures” imposed by foreign states, and provides that affected parties in the PRC may bring civil claims before courts seeking cessation of such conduct and compensation for losses.

[5] In 2024, a Chinese court adjudicated a civil claim by a PRC company against its foreign customer for failure to make payments under a contract after the former was included to the U.S. Office of Foreign Assets Control Specially Designated Nationals List. More recently in May 2026, news outlets reported that two U.S. banks were sued by a Chinese energy company for freezing payments meant for an entity that was subject to U.S. sanctions.

[6] See https://www.cnbc.com/2026/05/15/trump-china-sanctions-iranian-oil.html.

[7] Significant developments have also taken place within China’s export control regime in the last few months.  In particular, following the EU’s 20thsanctions package against Russia, which included sanctions against Chinese companies, the PRC Government designated multiple EU entities under its export control regime in April 2026.  Over January and February 2026, the PRC government imposed enhanced restrictions on dual-use exports to Japanese military end users and for military-related end uses, and added multiple Japanese entities to the control and watch lists under its export control regime, following remarks from Japan’s Prime Minister Sanae Takaichi that Japan would intervene militarily if China attacked Taiwan.

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