China Expands Its Playbook: New Industrial Supply Chain and Counter-Extraterritoriality Regulations Create Direct Compliance Conflicts for Multinationals

On April 13, 2026, China issued the Regulations on Countering Improper Extraterritorial Jurisdiction by Foreign States (the “Extraterritorial Jurisdiction Regulations”), following the April 7, 2026 release of the Regulations on Industrial and Supply Chain Security (the “Supply Chain Regulations”) (together, the “Regulations”). Both took effect immediately, with no grace period or transition arrangements. The Regulations build on, and substantially expand, China’s existing counter-sanctions and counter-extraterritoriality framework.¹

The Regulations expand China’s retaliatory toolkit against foreign sanctions, export controls, forced-labor rules, and other extraterritorial measures, framed in the language of national security and supply chain resilience. The conduct most likely to draw the regulators’ attention is precisely the conduct that US, UK, and EU regimes increasingly require: complying with US OFAC sanctions; refusing or terminating exports under the US Export Administration Regulations (“EAR”), the BIS Entity List, or the Foreign Direct Product Rule (“FDPR”); declining or unwinding transactions caught by the Non-SDN Chinese Military-Industrial Complex Companies (“NS-CMIC”) investment prohibitions under Executive Order 14032 (and related designations on the DoD’s “Chinese Military Companies” list under Section 1260H of the National Defense Authorization Act for Fiscal Year 2021); blocking imports under the US Uyghur Forced Labor Prevention Act (“UFLPA”); complying with the US Outbound Investment Security Program under Executive Order 14105; conducting human-rights and supply chain due diligence under the EU Corporate Sustainability Due Diligence Directive (“CSDDD”) and EU Forced Labor Regulation; complying with UK and EU sanctions and dual-use export controls; and producing data or documents in response to US, UK, or EU regulatory investigations or litigation discovery.

The Supply Chain Regulations empower the authorities to investigate and impose countermeasures against foreign actors deemed to threaten China’s supply chain stability by taking any of the steps above. The Extraterritorial Jurisdiction Regulations create a mechanism for identifying “improper” foreign extraterritorial measures and authorize a broad suite of countermeasures, including a “malicious entity list.” Together, they carry material compliance implications for any multinational entity with exposure to the Chinese market.

The Regulations create a structural conflict between Chinese law and the foreign regimes most multinationals are obligated to follow. Routine compliance with US, UK, and EU sanctions, export controls, forced-labor rules, outbound-investment restrictions, and disclosure obligations may itself trigger Chinese investigations, prohibition orders, and Malicious Entity List designations—with consequences spanning trade, investment, data transfers, asset freezes, and entry restrictions reaching corporate personnel and outside advisers. Personal exposure for executives, in-house counsel, compliance staff, and outside advisers (visa refusal, denial of entry, exit bans, asset freezes, and potential criminal liability) warrants particular attention. Several of the concepts—including “improper extraterritorial measures,” “appropriate connection,” “normal market transaction principles,” and “discriminatory measures”—are undefined, giving Chinese regulators broad discretion. Because of this, the Regulations should be treated as an active source of compliance risk, not merely a regulatory backdrop.

Supply Chain Regulations

The Supply Chain Regulations comprise 18 articles framed as enhancing industrial and supply chain resilience.²
The Regulations establish a centralized coordination mechanism across multiple agencies to monitor and respond to supply chain risks. State Council departments are tasked with compiling and updating a list of key sectors affecting economic and social stability and national security, covering raw materials, technologies, equipment, and products.

Supply Chain Investigations and Countermeasures

Article 14 authorizes State Council departments to launch supply-chain security investigations, and to impose countermeasures where foreign states, regions, or international organizations adopt discriminatory measures against China’s industry or supply chain, or implement or assist measures harming those interests—a category likely to capture many of the foreign regimes cataloged above. Available countermeasures include (without limitation) prohibitions or restrictions on imports, exports, or international trade in services, and special fees. Pursuant to the Anti-Foreign Sanctions Law and its implementing provisions, those participating in formulating, deciding on, or implementing such measures may also be added to the “list of countermeasures.”

Article 15 extends to commercial decisions by businesses themselves, and is the provision most likely to be triggered by routine compliance with the foreign regimes listed above. Where foreign organizations or individuals are deemed to violate “normal market transaction principles”—for example, by suspending normal transactions with Chinese counterparties or adopting discriminatory measures that cause or threaten harm to China’s supply chain security—State Council departments may launch investigations and impose restrictions on trade, investment, and other activities, restrict entry of relevant personnel and transport, and cancel or restrict rights to stay, reside, or work in China. Countermeasures may also extend to entities controlled by, or established or operated with the participation of, the targeted parties (e.g., subsidiaries); the Regulations do not define “control” or “participation,” leaving open whether the reach extends to minority-stake joint ventures, sister entities, or non-Chinese parents of Chinese subsidiaries.

Information Collection Restrictions

The Supply Chain Regulations prohibit any organization or individual from conducting supply-chain-related investigations or information collection within China in violation of state laws and regulations. Without further implementation guidance, the restrictions could sweep in supply chain tracing, audits, and due diligence required under foreign legislation such as the CSDDD and the UFLPA, and potentially discovery in foreign litigation involving a Chinese subsidiary.

Extraterritorial Jurisdiction Regulations

The Extraterritorial Jurisdiction Regulations are sweeping in scope and provide express legal cover for retaliation against foreign extraterritorial measures that, in China’s view, endanger its sovereignty, security, or development interests, or harm Chinese citizens and organizations. Likely targets include the foreign regimes cataloged in the Overview that have express extraterritorial reach, as well as foreign court orders and discovery directed at Chinese entities. Notably, the Regulations claim China’s own extraterritorial jurisdiction over any conduct with an “appropriate connection” to China, which is the broad kind of nexus that China has previously condemned when invoked by Western regulators.

Identification of “Improper” Measures and the Malicious Entity List

A coordinated “working mechanism,” led by the State Council’s legal affairs office, identifies foreign extraterritorial jurisdiction measures as “improper,” considering, among other factors, whether they violate international law, whether the jurisdictional nexus is appropriate, and whether they harm China’s sovereignty, security, development interests, or the rights of Chinese parties. Once a measure is so identified, no organization or individual may execute it or assist in executing it, absent a specific exemption from the working mechanism. Foreign organizations and individuals that promote or participate in implementing such measures may be placed on a “malicious entity” list and subjected to a broad range of countermeasures, including visa refusal or cancellation, denial of entry, deportation, asset seizure or freezing, prohibitions on transactions and cooperation with Chinese parties (including restrictions on data provision), import, export and investment restrictions, entry restrictions on products or transport, and fines. The list is therefore capable of capturing financial institutions implementing OFAC or EU/UK sanctions, exporters honoring BIS Entity List or FDPR restrictions, importers and brands enforcing UFLPA-driven supplier prohibitions, and professional advisers (including law firms and accountants) that assist clients with such compliance. These measures may also extend to entities controlled by, or established or operated with the participation of, listed parties. The State Council may further issue prohibition orders barring any party from executing or assisting in such measures. Affected Chinese citizens and organizations also have a private right-of-action to seek injunctive relief and damages from those who executed or assisted in the measures.

Enforcement and Penalties (Both Regimes)

Organizations and individuals within China must strictly comply with measures imposed under the Regulations. Non-compliance under either regime may trigger remedial orders and prohibitions or restrictions on participation in government procurement and bidding, imports and exports of goods and technologies, international trade in services, and cross-border data transfers (including personal information). Individuals may face restrictions on leaving, entering, staying in, or residing within China, and monetary fines. Conduct violating the Extraterritorial Jurisdiction Regulations that constitutes a criminal offense may also attract criminal liability.

Key Takeaways

The two regimes are mutually reinforcing. A bank that screens or exits a Chinese counterparty under OFAC, OFSI, or EU sanctions; an exporter that withholds shipments to a BIS Entity List or FDPR-affected customer; an importer that suspends sourcing under the UFLPA or the EU Forced Labor Regulation; a buyer that walks from a deal because of US outbound-investment restrictions; or a multinational that produces documents in response to a US subpoena or conducts CSDDD-style due diligence may all become the subject of a supply chain security investigation and, simultaneously, violate prohibition orders or trigger Malicious Entity List designation.

Given the breadth of the available countermeasures (spanning import, export, data-transfer, and entry or visa restrictions), exposure extends beyond corporate entities to personnel in China, including locally based executives, compliance staff, and outside advisers. We recommend that multinational entities take the following steps:

• Map the foreign legal triggers most relevant to the business—sanctions (OFAC, OFSI, EU, and UK regimes); export controls (EAR, BIS Entity List, FDPR, UK and EU dual-use rules); forced-labor rules (UFLPA, EU Forced Labor Regulation); outbound-investment restrictions (NS-CMIC under Executive Order 14032 and the Outbound Investment Security Program under Executive Order 14105); CSDDD-style due diligence obligations; and disclosure or discovery obligations under foreign litigation or regulatory enforcement.
• Review sanctions and export-control compliance frameworks and supply chain arrangements to assess vulnerability under both Chinese regimes, including the exposure of Chinese subsidiaries and affiliates that could be swept into countermeasures.
• Develop escalation protocols and governance pathways for situations where compliance with foreign law creates exposure under the Regulations, including licensing, exemption, or carve-out strategies (such as OFAC general or specific licenses and the Chinese working-mechanism exemption process).
• Implement personnel-safety measures for executives, compliance staff, and outside advisers traveling to or based in China, including contingency planning for visa, entry, or detention risk.

¹  Including the Anti-Foreign Sanctions Law (2021), the Unreliable Entity List Provisions (2020), and the MOFCOM Rules on Counteracting Unjustified Extra-territorial Application of Foreign Legislation and Other Measures (January 2021).

²  They are grounded in the National Security Law, Foreign Relations Law, Counter Foreign Sanctions Law, and Foreign Trade Law; the inclusion of the Counter Foreign Sanctions Law underscores their retaliatory orientation; Article 1, Supply Chain Regulations