China expands anti-sanctions toolkit, raising risks for foreign firms

China has expanded its ability to respond to foreign sanctions and export controls with a series of new and draft measures that could affect multinational companies operating across Chinese, US and European rules. Since March, Beijing has passed two regulations that broaden its powers to retaliate against foreign entities it says threaten supply-chain security or apply sanctions with improper extraterritorial reach. A third draft law would go further by allowing prosecutors to bring cases against foreign organisations and individuals whose actions are said to harm China's national interests or social public interest.

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The latest measures were described as part of a wider effort to strengthen China's public interest litigation law, with the draft announced in June. Under State Council Decree No. 834, passed in March, companies can face penalties if they disrupt, undermine or discriminate against China's industrial or supply chains. Under State Council Decree No. 835, passed in April, firms could face fines, visa cancellations, asset freezes, investment restrictions and limits on the import or export of goods from China if they are seen as implementing measures with improper extraterritorial jurisdiction.

The changes add another layer of risk for multinational firms already trying to comply with sanctions regimes in the United States and the European Union. James Hsiao, a Hong Kong partner at White & Case, said some companies are worried the rules could affect ordinary commercial transactions where legal obligations conflict. He said a company may be required under US or EU sanctions rules to restrict dealings with a counterparty, while also needing to consider whether that action could create risk under Chinese countermeasures.

The policy shift matters because it formalises a more assertive Chinese response to Western sanctions pressure at a time when trade, technology and supply-chain disputes remain sensitive. It also raises the compliance burden for companies that operate in multiple jurisdictions and must decide whether to follow one set of restrictions without triggering penalties elsewhere. For firms with exposure to China, the issue is not only legal but operational, because supply-chain decisions can now carry potential consequences under competing regulatory systems.

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The measures also reflect a broader pattern of tit-for-tat economic pressure between Beijing, Washington and Brussels. China has increasingly framed some foreign sanctions and export controls as discriminatory or as an improper use of extraterritorial authority. That framing is important because it gives regulators a basis to scrutinise business decisions that might otherwise be treated as routine compliance steps in Western markets.

What remains unclear is how aggressively the new rules will be enforced and how Chinese authorities will define conduct that harms national interests or supply-chain security. It is also not yet clear how foreign companies will balance conflicting obligations if they are caught between Chinese countermeasures and US or EU sanctions requirements. The next point to watch is whether the draft law is adopted in its current form and whether regulators issue further guidance on enforcement.

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