China Expands Legal Toolkit to Counter Foreign Extraterritorial Jurisdiction

Over the past three months, China has introduced a series of measures that significantly expand its legal framework for responding to foreign extraterritorial laws and regulatory actions. Collectively, these measures strengthen the ability of Chinese authorities to respond to foreign sanctions, export controls, investigations and other exercises of “long-arm” jurisdiction.

For multinational companies, the practical challenge is an increasingly complex compliance environment. Conduct required under foreign legal or regulatory regimes may, in certain circumstances, give rise to risks under PRC laws and regulations. Businesses operating across jurisdictions should therefore assess potential conflicts of law and ensure that internal policies, protocols and processes are equipped to manage these competing obligations.

China’s Counter-Foreign Jurisdiction Extraterritorial Framework and the New State Council Decrees

China’s existing counter‑foreign sanctions regime is anchored in the following law and regulations:

• The Anti‑Foreign Sanctions Law (June 2021) provides the legal basis for the adoption of countermeasures against foreign organizations and individuals that participate in the formulation, decision‑making or implementation of discriminatory measures against China or Chinese parties (see our previous article here).
• The Unreliable Entity List mechanism (September 2020) authorizes the designation of foreign entities deemed to endanger China’s interests or to have taken discriminatory measures against Chinese parties, and to impose restrictions or prohibitions on trade, investment and other dealings with such entities (see our previous article here).
• The Rules on Counteracting Unjustified Extraterritorial Application of Foreign Legislation and Other Measures (January 2021) address foreign laws and measures that improperly restrict Chinese parties from engaging in normal economic and trade activities with third-country parties.

Against this backdrop, China’s State Council recently promulgated Decrees 834 and 835, both being administrative regulations with nationwide legal effect.

• Decree 834: The Provisions on the Security of Industrial and Supply Chains (effective March 31) specify China’s industrial and supply-chain security as an independent regulatory concern and set out the countermeasures against foreign organizations and individuals engaging in activities that may disrupt, undermine or discriminate against China’s industrial or supply chains.
• Decree 835: The Regulations on Countering Foreign Improper Extraterritorial Jurisdiction (effective April 7) establish a formal mechanism to counter foreign measures deemed to constitute improper extraterritorial applications of jurisdiction and prohibit parties — both within and outside China — from complying with such identified foreign measures.

Decree 834: Provisions on the Security of Industrial and Supply Chains

Decree 834 establishes a dedicated framework for protecting China’s industrial and supply-chain security and extends beyond traditional sanctions-related measures.

• Prohibition on Information Collection Activities. Decree 834 prohibits supply-chain-related investigations or information collection activities conducted in China that violates PRC laws or regulations. This requirement may be relevant to supplier audits, origin tracing, ESG reviews, sanctions and export-control compliance checks, internal investigations and M&A due diligence conducted in China.
• Government Investigations. Decree 834 authorizes the competent State Council departments to investigate conduct involving discriminatory measures that affect or are deemed to undermine the security of China’s industrial or supply chains. Such conduct may encompass not only the adoption or implementation of those measures by foreign governments or international organizations, but also compliance with them by foreign organizations or individuals. As a result, companies that decline to transact with Chinese counterparties — for example, due to foreign sanctions designations, restricted‑party listings or supply chain‑related risk assessments — could face regulatory scrutiny in China.

Decision and Consequences. Following an investigation, authorities may impose countermeasures against foreign organizations or individuals found to have harmed China's industrial or supply-chain security. Such measures may include restrictions on China-related trade, investment and cooperation, as well as visa, entry and residence restrictions on relevant personnel. These measures may also extend to entities controlled by, or established or operated with the participation of, the targeted organizations or individuals.

Decree 835: Regulations on Countering Foreign Improper Extraterritorial Jurisdiction

Decree 835 establishes a framework for identifying, blocking and responding to foreign measures that China regards as an improper assertion of extraterritorial jurisdiction.

• Identification of Improper Measures. Decree 835 empowers China’s Ministry of Justice (MOJ) and other competent authorities to investigate and determine whether a foreign measure constitutes application of improper extraterritorial jurisdiction. In making the assessment, authorities may consider factors including international law and basic norms of international relations, reasonableness of the foreign jurisdictional nexus, interests of China and its citizens and organizations, and other unexhaustive situations.
• Announcement and Blocking Effect. Where a foreign measure is identified as improper, the MOJ may issue a public announcement about such identification. Absent MOJ’s approval, implementing or assisting in the implementation of such blocked measures is prohibited. Notably, Decree 835 only states that the MOJ “may” issue such announcement. Accordingly, the absence of an announcement should not be interpreted as confirmation of any foreign measure’s appropriateness, and companies should not assume any such appropriateness even if no relevant MOJ announcement has been issued.
• Inspection and Specific Prohibition. Competent State Council authorities may conduct on‑site inspections and review or copy relevant materials where any organizations or individuals are suspected of implementing or assisting improper foreign measures. The MOJ may also issue specific orders prohibiting these entities’ conduct relating to such measures.
• The Malicious Entity List. The MOJ may designate any foreign organizations or individuals that formulate, promote or participate in the implementation of any improper foreign measures on the Malicious Entity List. Listed entities and their affiliates may be subject a broad range of countermeasures, including visa denial or deportation; revocation of work or residence status in China; seizure or freezing of assets within China; restrictions on transactions, cooperation and data transfers involving Chinese parties; limits on import‑export and investment activities relating to China; product entry bans; monetary fines; and other “necessary measures.” Absent competent State Council authorities’ approval, any organizations or individuals should not engage in any restricted activities with the listed entities.
• Civil Remedy. Any Chinese citizens or organizations harmed by the implementation of an improper foreign measure may bring civil claims and seek compensation from the parties that implement or assist in the implementation of such measure.
• Relief Mechanism. An organization or individual subject to countermeasures may apply to the relevant State Council authority for the suspension, modification or removal of such measures, provided that it can demonstrate the corrective actions taken and measures implemented to mitigate or eliminate the consequences of the relevant conduct.

Practical Impact of the New Regulations

The new decrees will have implications across the full business life cycle, from due diligence to contracting, compliance programs, supply-chain management and dispute resolution. Both foreign companies operating in China and Chinese companies engaged in cross-border business may face increased scrutiny where business decisions or compliance measures could be perceived as implementing foreign discriminatory or otherwise restrictive measures or affecting China’s industrial and supply-chain security.

• Information Requests and Due Diligence. Chinese counterparties may now refuse, limit or delay responses to information requests, particularly where such requests are broad in scope, China-focused or linked to foreign legal or regulatory requirements. Companies conducting internal investigations, M&A due diligence, supplier reviews or compliance assessments involving China should carefully assess the legal basis, scope and handling of such requests.
• Intra-Group Compliance Measures. Instructions from overseas headquarters to China-based affiliates that is in response to foreign restrictive measures — particularly those of a potential discriminatory nature targeting China — or vice versa, may now require additional consideration under PRC anti-sanctions, anti-extraterritoriality, supply-chain security, data security, state secrets or related laws.
• Counterparty and Supply-Chain Management. Decisions to suspend, terminate or restrict dealings with Chinese counterparties may attract scrutiny where they are linked to foreign legal or regulatory measures. Chinese companies operating abroad may likewise face competing obligations between foreign compliance requirements and Chinese legal restrictions.
• Contractual and Dispute Risks. The new regulations may increase commercial negotiation friction and dispute risk in cross-border transactions involving China. Contract negotiations may become more challenging where parties seek to include provisions relating to audits, information access, supply-chain due diligence, compliance undertakings or termination rights connected to foreign legal or regulatory requirements. Similar issues may also arise during contract performance, potentially resulting in commercial disputes or regulatory intervention.
• Cross-Border Investigations and Proceedings. Companies responding to foreign regulatory investigations, enforcement actions, judicial proceedings or other overseas legal processes should carefully assess the implications of transferring information from China. Even where such transfers are undertaken for legitimate defensive purposes or to comply with foreign legal obligations, the transfer of data or other information outside China, including to overseas affiliates, external legal counsel or other advisers, may be subject to PRC legal and regulatory restrictions.

What Should Companies Do?

We expect that application of the new State Council decrees will be highly fact‑specific, depending on the nature of the conduct involved and how compliance measures are structured and implemented. Accordingly, early legal assessment and carefully calibrated compliance measures can play a critical role in risk mitigation. Companies may wish to consider the following steps:

• Risk Identification and Governance. Identify business activities and commercial decisions that could create tension between foreign legal or regulatory requirements and Chinese law, and establish clear governance and escalation procedures to manage such conflicts.
• Compliance Framework Review. Reassess existing compliance, risk management and due diligence processes to ensure they remain fit for purpose in light of the evolving regulatory landscape.
• Contractual Safeguards. Review contractual arrangements and standard templates to determine whether they adequately address potential conflicts between foreign requirements and Chinese law. Early engagement with Chinese counterparties during negotiations may help surface sensitivities and align expectations before issues arise.
• Documentation and Communication Protocols. Update communication protocols and document retention policies to ensure that key decisions and correspondence are properly recorded, as such materials may become relevant in regulatory inquiries or disputes.
• Regulatory Inspection Protocol. Establish a clear internal protocol to standardize interactions with Chinese authorities in the event of inspections or inquiries related to foreign restrictive measures. This should include designated points of contact, document handling procedures, internal escalation mechanisms and guidelines for employee communications in order to ensure a coordinated, compliant and well‑documented response.
• Managing Competing Obligations. Where foreign regulatory requirements may conflict with Chinese law, evaluate alternative compliance pathways — including, where appropriate, engagement with relevant authorities following legal advice — to balance competing obligations and mitigate legal and regulatory risk.

Ending Note: Rapid Operationalization of China’s Counter-Extraterritorial Measures

Following the issuance of Decrees 834 and 835, a series of related developments has underscored China’s increasing readiness to deploy its counter‑extraterritorial and anti‑sanctions toolkit in practice.

• MOFCOM’s Announcement Regarding US SDN Designation. On May 6, China’s Ministry of Commerce (MOFCOM) made its first announcement pursuant to the 2021 Rules on Counteracting Unjustified Extraterritorial Application of Foreign Legislation and Other Measures that the United States’ recent designation of certain Chinese companies as Specially Designated Nationals (SDNs) constituted improper extraterritorial jurisdiction. MOFCOM stated that no organization or individual may acknowledge, implement or comply with U.S. requirements to freeze the assets of, or terminate transactions with, the affected Chinese entities.
• MOJ’s Announcement Regarding EU Investigation. On May 15, the MOJ announced that the European Union’s investigation of a Chinese company under the EU Foreign Subsidies Regulation — in particular its cross‑border requests for allegedly broad and unnecessary information within China — constituted improper extraterritorial jurisdiction under Decree 835. The MOJ ordered that no organization or individual may implement or assist in the implementation of such EU investigative measures.
• Anti-Foreign Sanctions Law Litigation. In late May 2026, a Chinese technology company filed suit in China against certain Netherlands-based entities, seeking approximately US$1.1 billion in damages, alleging that the defendants implemented discriminatory measures imposed by the Dutch government against the Chinese company in violation of the Anti-Foreign Sanctions Law.

These developments in May 2026 alone signal China’s increased willingness to operationalize its counter‑extraterritorial framework. Chinese companies are now also readily positioned and legally equipped to seek relief and substantial damages in China resulting from foreign sanctions, trade controls and other restrictive measures. Companies with Chinese operations should take heed.