China: Update on counter sanctions and their impact on multinationals

Why should I read this?

In June, our article set out the growing tension between China’s counter-sanctions framework and supply chain due diligence requirements, such as those introduced by EU authorities. Since then, Beijing has moved from building that framework to using it, while also introducing new laws.

New rules on foreign trade, outbound investment and exit and entry strengthen Beijing’s powers to respond to foreign measures, while a draft Anti-Cross-Border Corruption Law would restrict foreign investigations in China. Recent sanctions on US and EU businesses show these powers used in practice. Their reach is not confined to China: multinational groups, wherever headquartered, may need to consider how decisions taken elsewhere, such as on sanctions compliance or internal investigations, affect their Chinese subsidiaries, suppliers and employees. For multinationals, this adds to an already complex compliance environment, where different regulatory requirements can increasingly come into conflict.

What are some of the major regulatory updates since June?

As we noted then, Decree 835 (Regulations on Countering Foreign States’ Improper Extraterritorial Jurisdiction) allows the Ministry of Justice (MOJ) to declare that a foreign law, sanction, investigation or regulatory measure is an “improper extraterritorial measure”. If the MOJ makes such a finding, it can become unlawful for people or organizations in China to comply with, assist with or facilitate the foreign measure. The decree also creates a “Malicious Entity List” for foreign parties considered responsible for such measures, who may face restrictions or countermeasures.

Decree 835 was issued alongside Decree 834 (State Council Provisions on the Security of Industrial and Supply Chains). Under Article 13, authorities can take action where investigations or other information-gathering activities relating to industrial or supply chains are carried out in China in breach of Chinese law. This may be relevant to activities such as supplier audits and ESG reviews. In June, the Ministry of Commerce (MOFCOM) issued implementing measures setting out how supply chain security investigations will be conducted.

These new powers have been used recently, offering insight into their practical application. On August 19, the MOJ and MOFCOM ruled that a European Commission investigation into a Chinese e-commerce group under the Foreign Subsidies Regulation (FSR) was an “improper extraterritorial measure”, following a similar finding regarding an EU FSR investigation into a Chinese security equipment maker.

Decree 835 forms part of a broader legislative push that also includes the revised Foreign Trade Law (effective from March 2026) and the State Council Provisions on Outbound Investment (effective from July 2026). Both clarify powers that Chinese authorities can use in response to such foreign measures.

Furthermore, in August, a draft Anti-Cross-Border Corruption Law was released for public comment. The draft law is intended to tackle corruption connected with China but would also restrict foreign anti-corruption investigations in China without official approval, prohibiting Chinese companies and individuals from assisting in such investigations. If adopted in its current form, companies could find themselves caught between competing legal obligations in different jurisdictions.

Finally, on September 15, Decree 841 (State Council Provisions on Exit and Entry Administration) entered into force. It clarifies that Chinese immigration and visa authorities can enforce travel bans against foreign individuals who have been placed on China's sanctions or countermeasure lists.

In the meantime, designations continue to be deployed swiftly and strategically. In August, China imposed sanctions on several US businesses in the life sciences, supply chain management and due diligence and certification sectors for supporting foreign measures contrary to China’s national interests. This followed a similar pattern in July, when China responded to the EU’s new sanctions package by placing 14 EU companies on its Export Control List.

What comes next?

In Europe, the Omnibus I Directive entered into force in March 2026, narrowing the scope of the Corporate Sustainability Reporting Directive (CSRD), which governs sustainability reporting, and the Corporate Sustainability Due Diligence Directive (CSDDD), which requires human rights and environmental due diligence across operations and value chains, and revising the timetables for both. Very large groups remain in scope and others may still face due diligence expectations from customers, investors and lenders. It is the CSDDD that most directly engages the information-gathering issues above.

We expect further laws to be enacted by Beijing. A MOFCOM spokesperson described the August countermeasures as “restrained in general” but warned that China would retaliate further if the US introduced new restrictions. The current pause may be short-lived - the bilateral trade truce, reportedly extended in September to January 10, 2027, has suspended some measures on both sides, but those measures could return quickly and with greater force.

For foreign companies with operations in, or links to, China, the question is no longer just whether to comply, but also with which laws. The focus will be on structuring and communicating compliance decisions in a defensible and appropriately risk-balanced manner. Any China-facing compliance strategy will need to be under continuous review to account for the changing regulatory landscape.

Further resources:

• China: Counter-sanctions and EU due diligence obligations (June 25, 2026)
• Sustainability Omnibus Hub
• CSRD Hub
• CSDDD Hub