Sanctions and Blocking Rules: China Activates Its Countermeasures Arsenal

Since 2020, China has built up an arsenal of legal instruments designed to respond to foreign sanctions targeting its companies. While some of these instruments had already been used on an ad hoc basis to sanction foreign companies, three decisions made public in spring 2026 have taken them into a new phase. For a French company operating in China, the question is therefore no longer theoretical: which of these regimes applies, to which entity of the group, and on account of what conduct?

Developments in Spring 2026

Until spring 2026, China’s countermeasures arsenal had mainly been deployed in only one of its dimensions, namely the listing of foreign persons. More specifically, the Unreliable Entity List and the list established under the Anti-Foreign Sanctions Law were used on several occasions to sanction foreign entities. By contrast, China’s Blocking Rules had never been invoked by the authorities, and the judicial route had only been used sporadically. Three decisions made public in spring 2026 put an end to this restraint:

•       On 2 May 2026, the Chinese Ministry of Commerce (“MOFCOM”) issued the first prohibition order in the history of China’s Blocking Rules, five years after their adoption.

•       On 15 May 2026, the Chinese Ministry of Justice (“MOJ”) issued the first determination under Decree No. 835.

•       On 24 June 2026, the Supreme People’s Court published the first judicial decision applying the Anti-Foreign Sanctions Law as an overriding mandatory provision.

The pre-existing instruments of China’s arsenal have not changed in substance, but they have changed in status, in that they are no longer mere deterrence tools. Against the backdrop of this far-reaching shift, a close analysis of the substance of these measures is warranted, as they are likely to be deployed again by the Chinese authorities in the future.

1. First Regime: Active Sanctions

This regime is based on four instruments, presented below in the chronological order of their adoption: the 2020 Provisions on the Unreliable Entity List, the 2021 Anti-Foreign Sanctions Law, Decree No. 834 of 31 March 2026 and Decree No. 835 of 13 April 2026.

All of them allow the Chinese authorities to impose exclusionary measures on a foreign person, most often through listing. However, they are not triggered by the same events. As a rule, their primary target is the author of the hostile measure; by way of exception, entities that comply with such measures may also be targeted on these grounds.

1.1 The Unreliable Entity List

Established by MOFCOM through Order No. 4 of 19 September 2020, the Unreliable Entity List (“UEL”) is intended to enable the Chinese authorities to sanction certain hostile foreign entities.

More specifically, under Article 2, two distinct triggers may lead to an entity being placed on the UEL by a working mechanism specifically established for that purpose:

•       First, an entity may be placed on the UEL if it has engaged in conduct endangering China’s sovereignty, security or development interests.

•       Second, an entity may be placed on the UEL if it has suspended normal transactions with a Chinese company or person, or applied discriminatory measures against it, in violation of normal market transaction principles and causing serious damage to its legitimate rights and interests.

Article 10 sets out the measures that may be imposed on listed entities. These include, among others, a prohibition on engaging in China-related import and export activities, restrictions on the entry of its personnel and means of transport into China, and fines.

These measures may be softened in two ways:

•       The working mechanism may set a rectification period during which, despite the listing, no measures are applied and the listed entity may rectify its conduct.

•       A Chinese enterprise that has a compelling need to deal with a listed entity may apply for an exemption for that purpose.

The UEL is one of the instruments of China’s arsenal that had seen a fairly substantial body of decisions rendered before 2026. As an example, on 4 February 2025, the US company PVH Corp. was listed on the UEL. This listing followed an investigation opened in September 2024 into possible discriminatory measures adopted by the group in respect of Xinjiang-related products, most likely in order to comply with a foreign regulatory requirements, as well as the alleged suspension of normal business relations with Chinese enterprises or other Chinese actors in that context.

This case thus illustrates how a UEL listing may be used against a company that adapts its activities to the constraints arising from its foreign regulatory environment, where the Chinese authorities characterise that adaptation as a discriminatory termination of commercial relations.

1.2 The Anti-Foreign Sanctions Law

Adopted on 10 June 2021, the Anti-Foreign Sanctions Law (“AFSL”) is intended to respond to discriminatory restrictive measures adopted by a foreign State against Chinese persons or entities.

Its triggering causes must be distinguished from that of the UEL. Whereas the UEL applies on account of a foreign entity’s own conduct, in particular where it terminates its relations with a Chinese enterprise in a discriminatory manner, the AFSL requires the existence of an initial foreign discriminatory restrictive measure targeting Chinese persons.

The law therefore has two limbs that should be distinguished.

The first is an administrative limb:

•       The Chinese authorities may place on a Countermeasures List foreign persons who have directly or indirectly participated in the creation, decision-making process or implementation of the foreign discriminatory restrictive measure.

•       They may apply measures to them such as asset freezes, prohibitions on transactions with Chinese persons or denial of entry into China.

•       This limb differs from the UEL in that it does not sanction an isolated discriminatory commercial conduct, but rather  the participation in a foreign discriminatory restrictive sanction to which China intends to respond.

The second is a civil limb:

•       Article 12 prohibits any organisation or individual from implementing or assisting in the implementation of a foreign discriminatory restrictive measure, and allows the aggrieved Chinese person to bring an action before the Chinese courts for cessation of the infringement and compensation.

•       This limb therefore does not target, through a listing system, a person or entity linked to the foreign discriminatory restrictive measure as such, but rather any person who actually complies with it, for instance by suspending a payment, a delivery or a commercial relationship. It is this second limb that is currently generating litigation, and it may in theory overlap with the blocking mechanisms discussed below.

The boundaries with the other instruments are not watertight. For example, where a foreign company implements a foreign restrictive measure by terminating a commercial relationship with a Chinese enterprise, its conduct may both fall within the civil limb of the AFSL and justify a UEL listing, if that termination is deemed contrary to normal market transaction principles and substantially detrimental to the Chinese counterparty.

In this respect, one of the notable case-law developments of spring 2026 lies in the reasoning of the judgment handed down by the Shanghai Maritime Court and published on 24 June 2026. A Singaporean carrier had refused to deliver a cargo worth RMB 4.99 million to Panama on the ground that the Hong Kong shipper was on a foreign sanctions list. The court held that complying with these foreign sanctions amounted to assisting in the implementation of a foreign discriminatory restrictive measure within the meaning of Article 12 of the AFSL. More importantly, it held that Article 12 constitutes an overriding mandatory provision and therefore applies regardless of the law chosen by the parties.

The direct consequence of this decision for foreign counterparties is clear: where a Chinese claimant manages to bring proceedings before a Chinese court, a foreign governing law clause is no longer sufficient to neutralise the anti-sanctions framework, which thereby becomes fully effective.

The AFSL nevertheless requires that a foreign discriminatory restrictive measure targeting Chinese persons has been adopted. In spring 2026, two decrees adopted a few days apart extended the arsenal beyond this framework: Decree No. 834, focused on the security of China’s supply chains, followed by Decree No. 835, which makes it possible to address foreign measures that do not meet AFSL’s strict definition.

1.3 Decree No. 834

Dated 31 March 2026, State Council Decree No. 834 on Industrial and Supply Chain Security is primarily aim at organising the security and resilience of China’s industrial and supply chains.

It is therefore not primarily a countermeasures instrument. It nevertheless contains several provisions that fall within the scope of active sanctions, as they allow the Chinese authorities to restrict access to the Chinese market for foreign companies, including those established outside China.

More specifically, three provisions directly concern foreign companies:

•       First, Article 13 regulates investigations and information-gathering activities relating to industrial and supply chains carried out in China in breach of Chinese law. Its broad wording could, depending on the circumstances, encompass supplier audits or compliance questionnaires required under foreign supply chain due diligence regulations. This provision thus echoes the concern underlying the Nuctech case, discussed below under Decree No. 835, namely control over information located in China.

•       Second, Article 14 allows the Chinese authorities to investigate discriminatory prohibitions or restrictions imposed by foreign States, regions or international organisations, and to respond with countermeasures. This provision extends the administrative limb of the AFSL into the field of supply chains.

•       Third, Article 15 targets foreign companies and individuals that, in violation of normal market transaction principles, suspend their dealings with Chinese entities or apply discriminatory measures against them, where such conduct harms or threatens to harm the security of China’s industrial and supply chains. Following an investigation, the authorities may, in particular, restrict their import and export activities, their investments in China or their transactions with Chinese operators.

This latter mechanism is similar to the second UEL trigger, without replacing it. Like the UEL, it does not require the existence of a foreign measure, so that a mere policy of reducing exposure to China could fall within its scope. It differs, however, in the harm required. A substantial, even merely potential, harm to the security of China’s supply chains may render this provision applicable, without it being necessary to establish serious damage caused to a specific Chinese enterprise.

Lastly, these provisions must be read bearing in mind that no implementing guidelines have been published to date. The notions of harm to supply chain security and of prohibited information gathering therefore remain undefined, which accordingly widens the authorities’ discretion. Moreover, Decree No. 834 remains confined to supply chains. It is Decree No. 835 that makes it possible to address more broadly foreign measures that do not meet the strict definition of the AFSL.

1.4 The Additions of Decree No. 835

In force since 13 April 2026, State Council Decree No. 835 on Countering Unjustified Extraterritorial Jurisdiction by Foreign States is intended to enable the Chinese authorities to respond where a foreign State applies its law beyond its own territory in a manner that Beijing considers contrary to international law and to Chinese interests, even where the measure does not, strictly speaking, amount to a sanction.

Under a first limb, the framework relies on a determination procedure for the hostile decision, entrusted to the MOJ:

•       Where the MOJ considers, having regard in particular to the breach of international law, the inappropriate nature of the jurisdictional nexus relied on by the foreign State and the harm caused to Chinese interests, that a foreign decision constitutes an exercise of unjustified extraterritorial jurisdiction, it may publish a determination related to that hostile decision.

•       From the date of that publication, anyone who recognises, implements or facilitates the implementation of the foreign decision may be subject to administrative or financial penalties, unless an exemption has been granted by the Chinese authorities.

•       This first limb of the decree therefore does not sanction the author of the extraterritorial foreign measure as such, but prohibits third parties from complying with it, and is thus close to the blocking rules discussed below.

Under a second limb, the decree establishes a Malicious Entity List:

•       Its purpose is to list foreign organisations and individuals that promote or participate in the implementation of measures deemed extraterritorial under the first limb.

•       This limb provides for the application of standard countermeasures to listed entities and the entities they control: visa refusal, asset freezes, prohibition on the provision of data, import and export bans, prohibition on investing in China, fines, etc.

•       However, no entity has been listed under this limb to date, which makes it difficult at this stage to determine the level of involvement by a foreign entity that may lead to listing.

By way of illustration, on 15 May 2026, the MOJ determined under Decree No. 835 that the cross-border investigative measures taken by the European Commission in an investigation conducted under the Foreign Subsidies Regulation (“FSR”) against Nuctech, a Chinese manufacturer of airport scanners, constituted measures of unjustified extraterritorial jurisdiction.

In that case, the measure was neither a sanction nor an embargo, but a foreign subsidies review procedure, accompanied by requests for the production of documents located in China.

Decree No. 835 thus made it possible to cover a previously blind spot, since such a measure fell:

•       Neither within the scope of the UEL, which allows a foreign entity to be sanctioned, but not third parties to be prohibited from cooperating in the implementation of a foreign measure.

•       Nor within the scope of the AFSL, in the absence of a restrictive measure within the meaning of the law.

•       Nor within the scope of Decree No. 834, given that the measures at issue did not relate to the security of China’s industrial and supply chains.

•       Nor within the scope of the 2021 Blocking Rules, discussed below, which are limited to trade with a third State.

For a French company, the implications are considerable. Responding to a request for information from the European Commission concerning data held by a Chinese subsidiary may now constitute an act falling within the scope of Decree No. 835. Under Chinese law, if such a request is the subject of an MOJ determination, the group’s entities will therefore be prohibited from communicating the information to the requesting authority.

1.5 How to Distinguish the Scope of Application of the UEL, the AFSL and Decrees No. 834 and No. 835?

These instruments allow the Chinese authorities to take measures against foreign persons or entities, and impose obligations on Chinese entities. They differ, however, in their trigger, i.e. the situation in which each of them may be invoked:

•       The UEL is based on the foreign entity’s own conduct. The mechanism does not necessarily require the prior existence of a foreign restrictive measure, since it is the conduct of the concerned entity, assessed in its own right, that constitutes the trigger.

•       The AFSL, by contrast, is based on the existence of a foreign discriminatory restrictive measure targeting Chinese persons. Its rationale is therefore one of retaliatory reciprocity.

•       Decree No. 834 draws on the rationales of both the UEL and the AFSL, but in the field of supply chains: its Article 14 requires, like the AFSL, a foreign discriminatory measure, whereas its Article 15 is based, like the UEL, on the foreign company’s own conduct, assessed in light of the security of China’s supply chains.

•       Lastly, Decree No. 835 is based on a broader trigger, namely the extraterritorial application by a foreign State of its law in a manner deemed unjustified. It requires neither the existence of a sanction nor that the foreign measure be discriminatory. It is sufficient for the Chinese authorities to consider that the measure breaches international law and harms Chinese interests for the decree to apply. The decree therefore responds more broadly to a foreign jurisdictional claim considered excessive.

In practice, however, the scopes of these instruments may overlap:

•       A company that terminates its relations with a Chinese person in order to implement a foreign sanction may, depending on the circumstances, fall within the scope of the AFSL, because it implements a foreign restrictive measure, and within that of the UEL, because its termination constitutes discriminatory commercial conduct, or even within the scope of Decree No. 834 if that termination harms the security of China’s supply chains.

•       Similarly, if the foreign measure with which it complies has previously been determined to constitute an unjustified extraterritorial application of foreign law, its conduct may also fall within the scope of Decree No. 835.

The difference therefore lies less in the measures that may be imposed on the targeted entities, which are often similar, than in the trigger enabling the Chinese authorities to intervene.

2. Second Regime: Blocking Rules

Whereas active sanctions in most cases target the author of the hostile foreign measure, blocking rules target those who comply with it without being its originator, where a foreign measure unjustifiably prohibits or restricts a Chinese person in its normal economic relations with a third State or with a person or entity from that third State.

Blocking does not consist in excluding that operator from Chinese territory or the Chinese market, but in prohibiting the persons concerned, once a prohibition order has been issued, from recognising, implementing or complying with the foreign measure. On that basis, they may face administrative penalties and claims for damages.

This regime is mainly based on the 2021 Blocking Rules, which apply only to Chinese persons and therefore primarily affect the Chinese subsidiaries of foreign groups.

2.1 The 2021 Blocking Rules

Adopted by MOFCOM through Order No. 1 of 9 January 2021, the Rules on Counteracting Unjustified Extra-territorial Application of Foreign Legislation and Other Measures (the “Blocking Rules”) are intended to neutralise in China the effects of certain foreign measures applied extraterritorially.

More specifically, under Article 2, they only cover situations in which foreign legislation or other measures unjustifiably prohibit or restrict a Chinese person from engaging in normal economic activities with a third State, or with a natural or legal person of that State.

The Blocking Rules therefore do not, in principle, cover primary sanctions directly governing relations between the adopting State and China. They essentially target secondary sanctions, through which that State seeks to produce effects on commercial relations between a Chinese person and a third State or an operator from that State. In this respect, they are modelled on the EU Blocking Statute.

They therefore differ from the civil limb of the AFSL in having a narrower material scope. Whereas Article 12 of the AFSL prohibits any person from implementing or assisting in the implementation of a foreign discriminatory restrictive measure taken against a Chinese person, the Blocking Rules only apply where the foreign measure affects an economic relationship between a Chinese person and an operator from a third State.

By contrast, the overlap between the Blocking Rules and the first limb of Decree No. 835 may appear more obvious: the imposition of a secondary sanction targeting relations between Chinese operators and those of a third State may be characterised as an exercise of unjustified extraterritorial jurisdiction, and therefore be neutralised under both Decree No. 835 and the 2021 Blocking Rules.

The mechanism operates in four steps:

•       First, a Chinese person prevented from trading with a third State or one of its operators to report the matter to MOFCOM has to report it within thirty days.

•       Second, an inter-ministerial working mechanism assesses whether the foreign measure constitutes an unjustified extraterritorial application, having regard in particular to international law, the impact on China’s sovereignty and the impact on the interests of Chinese operators.

•       Third, where appropriate, MOFCOM issues a prohibition order under which the foreign measure may not be recognised, implemented or complied with. A Chinese person may, however, apply for an exemption allowing it to comply with the measure nonetheless.

•       Finally, a civil remedy is available: a person harmed as a result of an operator’s compliance with a measure covered by the order may bring a claim for damages against that operator before the Chinese courts.

Failure to comply with a prohibition order also exposes the offender to administrative penalties, such as a warning, an order to rectify its behaviour within a set period or a fine.

One of the specific features of this mechanism lies in its personal scope: the persons subject to penalties under the Blocking Rules regime are “Chinese persons”, i.e. Chinese citizens as well as Chinese legal persons. This category therefore includes the Chinese subsidiaries of foreign groups, even where they are wholly owned by their parent company. Conversely, a parent company established outside China does not, in principle, fall within the scope of the regime, unlike the instruments discussed above.

A difficulty may therefore arise at group level. A French parent company may decide, in order to comply with US secondary sanctions, to terminate a commercial relationship with a Chinese enterprise, while its Chinese subsidiary may be required to maintain it if the US secondary sanction is the subject of a prohibition order.

2.2 The Application of the Blocking Rules to the teapot refineries and Its Limits

Since March 2025, OFAC has designated several independent Chinese refineries, known as teapot refineries, for their alleged involvement in purchasing Iranian oil. On 24 April 2026, it notably added Hengli Petrochemical (Dalian), one of the country’s largest independent refineries, to the SDN List.

On 2 May 2026, MOFCOM responded to these designations with the first prohibition order ever issued under the Blocking Rules. The US sanctions targeting five refineries, including Hengli, must therefore not be recognised, implemented or complied with by Chinese entities.

MOFCOM’s rationale is straightforward. The US sanctions target Chinese companies on account of their dealings with Iran, i.e. with a third State. From the Chinese perspective, this is therefore a textbook case of an extraterritorial secondary sanction, which squarely falls within the scope of the Blocking Rules.

The scope of this order is, however, limited. It changes the obligations of Chinese persons, but is not binding on persons and entities established outside China, which remain exposed to the risk of US secondary sanctions. Hengli has therefore nonetheless sought to source non-sanctioned crude, notably from West Africa, in order to continue its operations and obtain its removal from the US sanctions list. This response clearly illustrates the inability of the prohibition order to neutralise the economic effects of US secondary sanctions on the Chinese entities targeted by the United States.

Lastly, uncertainty remains with regard to Hong Kong. The Blocking Rules are part of the law of Mainland China, and the order does not specify whether it applies to Hong Kong entities, even though several Hong Kong companies linked to the Iranian oil trade were designated by OFAC on 24 April 2026. For a group with an entity in Hong Kong, the question remains open.

2.3 Consequences for a French Company: Two Scenarios

Let us apply this mechanism to a French group which, out of caution towards OFAC, decides to stop supplying one of the designated refineries. Its exposure then depends on which entity of the group terminates the relationship.

Scenario A: the termination is decided and carried out from France. The French company does not breach the prohibition order of 2 May 2026. Since it is not a “Chinese person”, it does not fall within the scope of the Blocking Rules. It is not, however, shielded from risk, since other instruments discussed above are not subject to this limitation:

•       The civil limb of the AFSL would apply if the US sanction were to be regarded as a discriminatory restrictive measure. The refinery could then bring a claim for damages against the French company before a Chinese court on the basis of Article 12, since it is an overriding mandatory provision.

•       A UEL listing could be considered if the termination is deemed contrary to normal market transaction principles and seriously detrimental to the refinery.

•       Decree No. 834 would apply if the termination is considered to harm the security of China’s industrial and supply chains.

Scenario B: the termination is carried out by the Chinese subsidiary, on the group’s instructions. This is the most delicate situation. As a “Chinese person”, the subsidiary is directly bound by the prohibition order. By terminating the relationship, it exposes itself to the administrative penalties provided for by the Blocking Rules as well as to a claim for damages by the refinery. If, conversely, it maintains the relationship, the group is exposed to the risk of US secondary sanctions. The only way out is then to apply to MOFCOM for an exemption allowing the subsidiary to comply with the US measure.

In both cases, the conclusion is the same: the Blocking Rules only protect the Chinese counterparty against the actions of entities subject to Chinese law. To reach the foreign parent company, Chinese law therefore relies on the active sanctions instruments discussed above.

3. How the Legal Regimes Interact: One Decision, Five Potential Exposures

The regimes analysed above may apply simultaneously to one single situation. Let us take a concrete example.

A French industrial group manufactures equipment in France and has a production subsidiary in China.

A Chinese customer of this subsidiary is designated by OFAC on account of its dealings with a sanctioned third State, such as Iran. In order to avoid any risk of US secondary sanctions, the French parent company decides to suspend the entire relationship, including its Chinese subsidiary’s flows. At the same time, it launches an audit of its supply chain in order to reduce its dependence on certain Chinese suppliers.

A decision that appears reasonable from a US law perspective may nevertheless trigger several distinct mechanisms under Chinese law. To navigate them, three successive questions should be asked for each instrument: what is the trigger, which entity of the group is targeted, and what consequence is incurred?

•       Under the 2021 Blocking Rules, only the Chinese subsidiary is exposed, and only if the US designation of its customer is the subject of a MOFCOM prohibition order. The French parent company, not being a Chinese person, falls outside their scope.

•       Under the AFSL, the exposure is broader. The trigger here is the implementation of the US measure, as reflected in the termination. If that measure is regarded as a discriminatory restrictive measure, the Chinese customer may bring a claim under Article 12 against any group entity that has ceased dealing with it, including the parent company. Since the Shanghai Maritime Court decision published on 24 June 2026, a foreign governing law clause is no longer sufficient to exclude this provision before the Chinese courts.

•       Under the UEL, it is the commercial termination itself that is examined. If the parent company terminates its relations with the Chinese customer in a manner deemed contrary to normal market transaction principles and substantially detrimental to its interests, it may be placed on the UEL.

•       Under Decree No. 834, the analysis focuses on the security of China’s industrial and supply chains. The parent company may be subject to measures if the termination harms or threatens to harm that security. In addition, the supplier audit may fall within Article 13 if it involves information gathering in China contrary to Chinese law.

•       Lastly, under Decree No. 835, the exposure depends on a prior determination. If the MOJ were to determine that the US measure constitutes unjustified extraterritorial jurisdiction, its implementation by the group or its subsidiary would become prohibited, with a risk, for the foreign entities participating in it, of being placed on the Malicious Entity List.

Ultimately, exposures are not distributed in the same way across the group. The Chinese subsidiary is primarily exposed under the Blocking Rules. The French parent company is exposed under the instruments that are not limited to Chinese persons, namely Article 12 of the AFSL, the UEL, Decree No. 834 and, where applicable, Decree No. 835.

4. Key Points of Attention

Map exposure by entity, not by group. Within the group, a distinction must be drawn between Chinese-law entities, which are subject to the Blocking Rules, and those that are not subject to them but remain exposed to the AFSL, the UEL and Decrees No. 834 and 835. The French parent company and its Chinese subsidiary are not exposed through the same channels.

Document upfront the commercial reasons of a termination. Since a termination may be characterised as discriminatory, the ability to establish an independent, prior and documented commercial rationale becomes decisive. A decision driven solely by a foreign designation is, by definition, the most vulnerable, whether under the AFSL, the UEL or Decree No. 834.

Review sanctions clauses. Clauses allowing the suspension of a contract in the event of sanctions and foreign governing law clauses have lost part of their enforceability before Chinese courts since Article 12 of the AFSL was recognised as an overriding mandatory provision. Their drafting, as well as the choice of forum, calls for review.

Treat information requests as a stand-alone risk. The Nuctech case shows that the investigative measures of a European authority, and not only a US one, may be characterised as an exercise of unjustified extraterritorial jurisdiction under Decree No. 835. Internal procedures for responding to non-Chinese authorities and regulators, as well as supply chain audits, should therefore include a specific review where they concern information located in China.

Spring 2026 thus marked a turning point in the use of China’s countermeasures arsenal. The question is therefore no longer whether this arsenal will be used, but in what circumstances, how often and against which actors. For French companies with business ties to China, these mechanisms must now be treated as a compliance risk in their own right.