China has quietly enacted two sweeping laws that legal experts say put thousands of multinational companies in an almost impossible position: comply with Western sanctions and supply chain rules, or comply with Beijing’s — but increasingly not both at the same time.
The State Council, China’s highest executive body, issued Decree No. 834 on March 31, 2026, and Decree No. 835 on April 7, 2026. Both took effect immediately, granting businesses no grace period. Together they form what law firms across four continents are calling the most consequential overhaul of China’s economic security architecture since the Anti-Foreign Sanctions Law of 2021 — and significantly more enforceable.
Decree 834, formally titled the Regulations on the Security of Industrial and Supply Chains, is China’s first dedicated State Council-level regulation on supply chain security. Its most commercially sensitive provision is Article 13, which prohibits foreign entities from conducting investigative or information-gathering activities related to Chinese supply chains without government approval. That single clause puts routine corporate due diligence — supplier audits, questionnaires, on-site inspections — in direct legal conflict with the US Uyghur Forced Labor Prevention Act (UFLPA) and the European Union’s Corporate Sustainability Due Diligence Directive (CSDDD), both of which legally require companies to investigate exactly that.
Decree 835 goes further. It establishes a formal mechanism by which Chinese authorities can designate foreign laws and enforcement actions as constituting “improper extraterritorial jurisdiction,” and order all organisations and individuals in China to refuse cooperation. Violations carry potential criminal liability under Article 12 — a significant escalation from the administrative fines and travel bans that characterised China’s earlier toolkit. The decree also creates a new Malicious Entities List, targeting foreign firms and individuals deemed to have promoted or assisted such measures, with “piercing rules” allowing penalties to reach affiliated entities within multinational corporate structures.
The laws have already been used. On May 15, 2026, China’s Ministry of Justice, acting jointly with the Ministry of Commerce, issued its first formal determination under Decree 835, declaring the European Commission’s cross-border investigation into security scanner maker Nuctech — a partially state-owned firm under Tsinghua Tongfang that operates in more than 170 countries — to constitute improper extraterritorial jurisdiction. All organisations and individuals were ordered to refuse to assist the EU probe immediately. The EU’s Foreign Subsidies Regulation, under which the Nuctech investigation was conducted, allows Brussels to impose fines for non-compliance, meaning Nuctech and its Chinese partners now face legal exposure on both sides simultaneously.
Legal analysts say the Nuctech case is a preview, not an outlier. “The pattern is plain: write the rule, wait six to twelve months, then pull the trigger at scale,” one compliance advisory noted. “April 2026 started the stopwatch.”
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The political context for the decrees is unmistakable. They arrived amid escalating US tariffs on Chinese goods, US pressure on third countries to restrict Chinese business activity, and a series of episodes Beijing viewed as direct attacks on Chinese commercial interests abroad — including the Dutch government’s move to take control of Chinese-owned chipmaker Nexperia, the forced sale of CK Hutchison’s Panama Canal port assets under US pressure, and disruptions to Chinese-owned assets following the war in Iran. The regulations are also embedded in China’s 15th Five-Year Plan, published in March 2026, which explicitly calls for accelerating the build-out of a foreign-related rule of law system.
The compliance trap for multinationals is both structural and immediate. Terminating a Chinese supplier to satisfy US or EU requirements now risks triggering both Decree 834 and Decree 835 simultaneously, exposing a company to administrative designation, civil litigation from the terminated party, and potential criminal exposure for the executives responsible. Running ESG audits or forced-labour checks in Chinese facilities, as required under the UFLPA or EU CSDDD, may now constitute illegal supply chain information collection under Article 13 of Decree 834. Corporate-wide sanctions compliance policies that automatically apply to Chinese subsidiaries may be reframed under Decree 835 as the promotion of improper extraterritorial jurisdiction.
Christoph Nedopil Wang, director of the Green Finance and Development Center at Fudan University, warned that the implications extend well beyond trade law. Scope 3 emissions data — which underpins corporate climate reporting under the ISSB’s IFRS S1 and S2 standards, as well as the EU’s Corporate Sustainability Reporting Directive — depends entirely on supply chain transparency that Decree 834 now restricts. “Should the decree be narrowly interpreted to sanction any research on supply chains, any emission and other ESG data will become unavailable,” he wrote in April.
An exemption mechanism exists within both decrees, allowing companies to apply to Chinese authorities for approval to carry out otherwise prohibited activities. Law firms advise clients to document every compliance decision carefully and to begin applying for exemptions now, before enforcement escalates. But analysts at Morrison Foerster caution that the exemption process is untested and that key terms — including “discriminatory measures” and “interrupting normal transactions” — remain legally undefined, leaving significant interpretive uncertainty.
What is clear is that Beijing intends to expand this framework. Previous instruments such as the Unreliable Entity List and the MOFCOM Blocking Rules resided at the ministry level. Elevating these powers to the State Council signals that China views economic countermeasures not as a diplomatic afterthought but as a permanent, whole-of-government instrument of statecraft. With the 15th Five-Year Plan running through 2030, legal experts across multiple firms say the two April decrees are, in the words of one analysis, “only a beginning.”
