OUT-LAW ANALYSIS 8 min. read
New Chinese supply chain laws could create a cross-border headache for UK and EU companies. Photo: Getty Image
01 Jun 2026, 12:28 pm
Two new Chinese State Council regulations - one governing industrial and supply chain security, the other targeting improper foreign extraterritorial jurisdiction - are creating a genuine legal conflict for UK and EU companies with China-connected supply chains.
For businesses operating in those areas, it is vital they act now to understand their exposure and inform any implementation actions.
China has enacted two significant pieces of legislation that, taken together, represent a substantial expansion of existing anti-foreign sanctions legislation impacting any business interacting with Chinese supply chains.
State Council Order No. 834 (the Regulations on the Security of Industrial and Supply Chains) and State Council Order No. 835 (the Regulations on Countering Improper Extraterritorial Jurisdiction by Foreign Countries) came into force in April 2026 and should demand urgent attention from legal and compliance teams.
The regulations do not operate in isolation. They sit alongside China's existing Anti-Foreign Sanctions Law of 2021, the Ministry of Commerce Blocking Rules of the same year, and the Ministry of Commerce Provisions on the Unreliable Entity List (2020) and in developing that framework, may give rise to tensions between obligations under Chinese law and those under UK, EU, and US regulatory regimes.
Order No. 834 establishes China's first comprehensive statutory framework for the protection of its industrial and supply chains, with particular emphasis on those deemed critical. The State Council will maintain a list of “critical sectors” to which the enhanced protection mechanisms of Order No. 834 will apply.
Foreign enterprises operating in China are expressly within scope where they touch designated critical sectors, which - in our view - could potentially include solar, wind, batteries, rare earth processing, semiconductors, and advanced manufacturing among others.
Of particular relevance to foreign companies doing business with Chinese counterparts are Articles 13 and 15, which outline relevant countermeasures. Article 13 prohibits due diligence and information gathering on industrial and supply chains where such activities would be in contravention of applicable Chinese law – although it remains unclear at present the precise categories of due diligence activity that will qualify.
Article 15 enables Chinese authorities to initiate an investigation and take enforcement measures if any foreign company violates normal market transaction principles (such as by cutting off normal trade with Chinese companies), imposing discriminatory measures, or taking other actions that cause or threaten substantial harm to China’s supply chain security. Enforcement consequences under Article 15 include prohibiting or restricting the foreign company from engaging in export or import activities in China or investing in China, together with ancillary measures such as restricting the entry of key personnel into China or their visas.
These provisions may give rise to uncertainty as key terms such as “violating normal market transaction principles”, “discriminatory measures” and “substantial harm” have not yet been fully defined. Relevant enforcement actions taken under existing anti-foreign sanctions legislation indicate broad discretion on the part of authorities although actions taken to date have focused on highly sensitive sectors such as defence indicating some caution not to over-exercise enforcement.
Foreign companies terminating business relationships with Chinese counterparts on sustainability risk grounds may, depending on the circumstances, face the risk of countermeasures under Order No. 834.
Order No. 835 complements Order No. 834 by creating a mandatory blocking framework in relation to foreign laws which have improper extraterritorial impact.
The Ministry of Justice is tasked with identifying foreign laws which have extraterritorial impact on Chinese citizens and companies and assessing whether they endanger China’s national sovereignty, security and development interests. If a foreign law is identified as constituting an improper extraterritorial jurisdiction measure, the Ministry of Justice may issue a public announcement to that effect, following which no organisation or individual may execute or assist in executing such foreign law. Chinese citizens and organisations that need to execute or assist in executing such measures due to special circumstances may apply to the Ministry of Justice for approval to do so within a specified scope.
The regulation also directs the Ministry of Justice to establish a Malicious Entity List which will target foreign companies and individuals who promote or participate in implementing laws with improper extraterritorial jurisdiction.
Companies and individuals on the Malicious Entity List are subject to various restrictions on personal, business and investment activities and can also be fined.
Article 14 of Order No. 835 also reiterates that Chinese citizens and companies have a civil right of action to sue entities and individuals - whether domestic or foreign - to stop infringement and to claim for damages, something previously established under Article 12 of the ASFL.
Foreign companies that terminate business relationships or withhold payments from Chinese suppliers on the basis of a foreign law which is determined to have improper extraterritorial jurisdiction could therefore be civilly liable for the loss suffered by Chinese counterparts.
It is the interaction between these two orders and the obligations that businesses face under their home regulatory regimes that creates significant legal complexity.
Consider, as an example, a UK company sourcing components from a Chinese manufacturer in a designated critical supply chain sector. That company may simultaneously be expected to:
Under Order No. 835, complying with certain of those foreign-originating demands - particularly where they are determined by the Ministry of Justice as having improper extraterritorial jurisdiction, could potentially constitute a breach of Chinese law unless prior approval has been obtained. This gives rise to a classic conflict of law risk: compliance with one legal system may result in tension with the other, and there is currently no established multilateral framework for reconciling the two.
This means Orders No. 834 and 835 present one of the more nuanced conflict-of-law challenges to have emerged in the trade and regulatory space in recent years, as both regimes carry weight.
Chinese law can give rise to meaningful consequences, including penalties, restrictions on operating licences, and reputational considerations with government counterparties, while non-compliance with UK, EU or US obligations equally presents risks.
As such, businesses will increasingly need to make carefully considered, risk-based judgments when navigating between legal systems, and early engagement with the issues will be important.
While there still remains uncertainty around key definitions and how far authorities will exercise enforcement discretion under Orders No. 834 and 835, the regulatory direction of travel is clear: China will closely scrutinise foreign laws which impact commerce with Chinese citizens and companies, particularly in sensitive areas.
The list of critical sectors under Order No. 834 has yet to be published – but in our view, sectors most likely to be exposed include:
For businesses in these sectors, the intersection of Order No. 834's supply chain protection powers and Order No. 835's blocking provisions means that certain commercial decisions, such as changing a supplier, commissioning a third-party audit, or carrying out due diligence, may have Chinese law implications that have not historically featured in legal risk assessments.
The conflict is particularly acute for businesses subject to regulatory sustainability due diligence and reporting obligations.
Large companies and regulated financial institutions face increasing regulatory burdens to conduct due diligence on supply chains and to gather information to disclose in sustainability reports, including on issues of environmental compliance, social responsibility, and governance.
Order No. 835's blocking provisions, where triggered, may limit the extent to which Chinese suppliers or Chinese-incorporated subsidiaries are able to cooperate with supply chain audits, respond to information requests, or provide data relevant to due diligence obligations.
In practice, this means that a company may face difficulties, as a matter of Chinese law, in obtaining information needed to comply with sustainability obligations or group-wide policies. Depending on the circumstances, investigations by Chinese authorities could potentially give rise to countermeasures, and certain activities may present legal risk for the company and its Chinese subsidiaries.
The risk cannot be dealt with through quick-fix amendments to supply chain policies; it requires a forensic assessment of the degree to which supply chain due diligence obligations can realistically be met and what is pragmatic if compliance uncertainty remains.
Legal and compliance teams should not wait for enforcement actions to commence before addressing this issue. Prudent businesses with material China supply chain exposure will take action such as:
While the implementing details and enforcement approach under Orders No. 834 and 835 are still developing, the regulatory architecture is already in place and when enforcement does commence it is likely to move quickly.
Businesses should not treat that uncertainty as a reason to delay engagement with the issues. Companies that have already mapped their exposure, identified potential conflict points, and established internal processes for monitoring developments will be significantly better positioned to respond. The priority now is awareness and readiness, not waiting for perfect clarity before acting.
While the initial response to what is emerging may be to extend force majeure clauses, the blocking rules will impact the proper functioning of policies and procedures so companies will also need practical advice on how to revise due diligence measures and remedies.
What we are seeing is a genuinely cross-border legal problem that requires cross-border legal advice.
Orders No. 834 and 835 significantly up the stakes for supply chain compliance by embedding supply chains and responses to improper extraterritorial application of foreign laws within the national security framework.
The geopolitical context, continued US sanctions and export controls, the EU's nascent supply chain due diligence regulation, and the UK's developing framework on economic security, points towards sustained regulatory pressure on the same supply chains from multiple directions simultaneously. China is laying the groundwork for effective countermeasures creating a complex compliance landscape for multinational companies to navigate.
For businesses, the challenge is to build legal and compliance structures robust enough to navigate a world in which the rules being applied by different jurisdictions to the same supply chain activity are, in certain circumstances, mutually incompatible.
That is not a challenge that has a simple legal solution, but it is one that can be managed, with appropriate advice and planning, before it becomes a crisis.
Written by
