Despite recent high-level U.S.-China talks, several recent developments in China have elevated international trade-related compliance risks and challenges for companies with commercial ties to mainland China or dealings with Chinese counterparties. While it is unclear the extent to which these developments move the needle in terms of practical legal and enforcement implications in China, there is little doubt Beijing is sending a clear message that it is elevating the tone and seriousness of the counter-threat against companies deemed to be complicit in implementing foreign sanctions and other measures affecting Chinese companies.
On April 7, 2026, Beijing, through the State Council, issued two Decrees which in essence are designed to continue to push back against what China considers to be the unjust extraterritorial reach of foreign (primarily U.S.) sanctions, export controls and other laws which target and discriminate against China and Chinese businesses. The two Decrees (translated) are Decree No. 834 “State Council Provisions on Industrial and Supply Chain Security,” and Decree No. 835 “PRC Regulations on Countering Improper Extraterritorial Jurisdiction by Foreign States.”
Decree 835 largely consolidates and enhances many of the tools and mechanisms that already existed in this space (such as the Ministry of Commerce (“MOFCOM”) blocking statute, the anti-foreign sanctions law (“AFSL”) and the Unreliable Entity List regulations), elevates the legal status of the regulations, and does add a few elements (discussed in more detail below). Decree 834 broadly is a set of provisions designed to monitor, protect and enhance China’s critical supply chains. As part of this protection, it includes several provisions which explicitly target certain supply chain-related data-gathering efforts or certain actions by foreign states, organizations, entities or individuals which negatively impact China’s supply chains or Chinese companies.
On May 2, 2025, Chinese authorities invoked Decree 835 to impose its first ever “blocking” action, declaring recent U.S. sanctions on a number of Chinese “teapot” refineries for trade related to Iranian oil to be unfairly extraterritorial, mandating that the sanctions shall not be recognized, enforced or complied with by persons in China. And again on May 15, 2026, PRC authorities declared the relevant cross-border investigatory practices adopted by the European Union under its Foreign Subsidies Regulation against Chinese entities in the investigation of Nuctech constitute improper extraterritorial jurisdiction measures, and prohibited persons from assisting in those efforts.
In a related vein, there have been recent developments of note in the context of civil litigation in China, with Chinese plaintiffs relying on private right of action provisions contained in the AFSL to pursue damages and injunctive relief against foreign parties for complying with foreign sanctions to the detriment of the litigant. While this private right of action has existed since the promulgation of the AFSL in 2021, no cases were brought until fairly recently, which may have been a strategic choice by Beijing. However, China passed additional regulations in March 2025 which more explicitly green lit such private actions, and there are now four known cases, including two recent cases involving U.S. banks which could have significant ramifications should they proceed. This clearly signals that Beijing is increasingly willing to allow such cases to proceed should relations with Washington continue to deteriorate.
The May 14–15, 2026 Trump-Xi Beijing summit was largely a modest, inconclusive check-in rather than a major realignment. On positive notes, the summit appears to have extended the late 2025 Busan trade “truce,” under which the U.S. had suspended the promulgation of the Department of Commerce “Affiliates Rule” expanding Entity List controls, deferred Section 301 maritime/shipbuilding measures, and reduced fentanyl-related IEEPA tariffs, while China suspended its retaliatory export controls on critical minerals including rare earths, gallium, germanium, antimony, and graphite, and removed or suspended restrictions on a number of U.S. companies under its Countermeasures List, Export Control Controlled Parties List, and Unreliable Entity List. There has also been talk out of D.C. that the U.S. could be considering relaxing the sanctions on the Chinese refineries which led to the China blocking action mentioned above.
Notwithstanding the outcomes of the summit, to the extent China continues to ratchet up its anti-foreign sanctions enforcement, including through the use of these April 7, 2026 Decrees and recent civil litigations, we expect the pace of enforcement to remain slow, measured, incremental, and politically targeted, as opposed to a sudden wholesale expansion. That said, we do expect there to be immediate practical implications for multinational enterprises and financial institutions doing business in or with counterparties in China as a result of the new Decrees, in the form of increased friction and complexities in contract negotiations and obtaining reps and warranties, due diligence particularly around supply chains, drafting and implementing compliance polices and guidelines, etc. In short, regardless of whether the actual legal enforcement risk has increased, we fully expect the compliance and operational risk and effort to mitigate against the potential for elevated legal enforcement risk, to be felt acutely by many of our clients.