Both Chinese and foreign enterprises must confront and anticipate that suspending transactions with China-based enterprises may expose them to the risk of Chinese countermeasures. Enterprises must identify and assess the relevant risks, including both the risk of the suspension itself and the risks that lie behind it, namely the harm to China's national security and to the security of its industrial and supply chains that may be implicated by foreign long-arm jurisdiction or by foreign discriminatory measures against China. In key sectors marked by intense China–US competition, or in fields where the EU adopts discriminatory measures against China on the basis of assumed "risk", enterprises face a heightened risk of becoming the subject of investigation over security of industrial and supply chains, or even the subject of countermeasures.
In recent years, the United States, European Union, and other countries have repeatedly invoked purported national security and foreign policy to impose supply-chain restrictive measures on China, including export controls, and have acted in concert in an attempt to obstruct and suppress the development of China's key industries. In other instances, using purported "risk management" relating to labor, the environment, or subsidies as a pretext, they have subjected China-related upstream supply chains to discriminatory risk screening, or to import-restrictive measures by way of long-arm jurisdiction, in order to force the relevant segments, or even entire key industrial and supply chains, to relocate out of China, thereby undermining the resilience and security of industrial and supply chains of China. These measures not only run counter to the WTO's free-trade principles but also violate the basic norms of international law. The resilience and security of China-based industrial and supply chains is subject to unprecedented threat and challenge.
To address the foregoing industrial and supply chain security concerns, on March 31, 2026, the State Council of the People's Republic of China issued the Provisions of the State Council on the Security of Industrial and Supply Chains (hereinafter, the "Provisions"). From the outset, the Provisions bear a distinctly defensive, countermeasure-oriented character.
I. Scope of Countermeasures
The core counter measures by which the Provisions respond to industrial and supply chain security risks operate against the following restrictive measures taken against China by foreign states or foreign entities.
(1) Foreign States and International Organizations
Article 14 of the Provisions authorizes the government to conduct a security investigation into industrial and supply chains in respect of discriminatory measures or acts by foreign states, regions, or international organizations that harm the security of China's industrial and supply chains. Such discriminatory measures and acts must satisfy the following conditions for investigation purposes: (1) they violate international law and the basic norms governing international relations; (2) they adopt discriminatory prohibitive, restrictive, or other similar measures against China in respect of industrial and supply chains; and (3) they implement, or assist in implementing, acts that damage the security of China's industrial and supply chains.
Where a security investigation finds that discriminatory measures or acts harming the security of China's industrial and supply chains exist, the relevant departments of the State Council may, against the foreign state in question: (1) take trade countermeasures such as prohibiting or restricting the import and export of relevant goods and technologies, or international trade in services; and (2) collect "special fees" on the relevant trade conducted by that foreign state.
Government bodies, entities, and individuals that directly or indirectly drive discriminatory measures or acts harming the security of China's industrial and supply chains may, in addition, be included in a list of parties subject to countermeasure under the Anti-Foreign Sanctions Law.
(2) Foreign Entities and Individuals
Article 15 provides for security investigation into industrial and supply chains in respect of acts by foreign market participants that harm the security of China's industrial and supply chains. Acts by such foreign enterprises and individuals that harm the security of China's industrial and supply chains must satisfy the following conditions before they are subject to the investigation: (1) they violate the normal principles of market transactions; (2) they are directed at Chinese citizens or organizations; (3) they involve interrupting normal transactions, adopting discriminatory measures, or other such acts; and (4) in effect, they cause substantial damage, or create a threat of substantial damage, to the security of China's industrial and supply chains.
Where a security investigation establishes that foreign enterprises or individuals have committed acts harming the security of China's industrial and supply chains, the relevant departments of the State Council will be empowered to take the following countermeasures: (1) restricting their import and export activities related to China; (2) restricting their investment within China; and (3) restricting organizations and individuals within China from conducting transactions or cooperation with them. The countermeasures may further extend to entry restrictions over relevant persons and means of transport, including prohibiting or restricting their entry into the country, and cancelling or restricting the qualifications of relevant persons for work, stay, or residence within China, among others. These countermeasures may be extended to organizations that are actually controlled by such foreign enterprises or individuals, or in whose establishment or operation they have participated.
II. Obligations to Comply with Countermeasures
In respect of the foregoing countermeasures against foreign government, or enterprises, and individuals, the enterprises and individuals within China are each under an obligation to comply. Failing this, the relevant departments of the State Council have the authority to order rectification and to prohibit or restrict the party from engaging in government procurement, bidding and tendering, and international trade; from the cross-border flow of data and personnel; and from staying or residing within China, among others.
III. Other Obligations and Risks for Enterprises
(1) Cooperating with Emergency Response Measures
Under Article 11 of the Provisions, where circumstances arise that endanger the security of industrial and supply chains in key fields, the state may intervene and take emergency response measures such as emergency allocation of resources, the use of reserves, and the organizing production, transportation, and supply.
Enterprises within China, and key-field enterprises in particular, is to incorporate supply chain emergency management into their internal management systems and add to their contractual clauses addressing such possible impediments to performance caused by governmental emergency measures.
(2) Risks of Information Gathering in China
Relevant organizations and individuals that unlawfully carry out industrial- and supply-chain-related information collection activities within China will be subject to corresponding administrative measures in accordance with law. Enterprises within China that cooperate with overseas information collection must first obtain the evidence that the overseas entity has secured the approval of the Chinese government.
IV. The Policy Orientation of China
The Provisions focus on the security and development of industries in key fields, which emphasize that key-field enterprises must explore diversified supply channels for core technologies, key equipment, critical software, data resources, and the like. At the same time, at the policy level the Chinese government encourages the investment of research funding, research and development, domestic substitution (localization), and breakthroughs in core technologies, and may provide government subsidies or other policy support.
V. Compliance Measures for Enterprises
Both Chinese and foreign enterprises must confront and anticipate that suspending transactions with China-based enterprises may expose them to the risk of Chinese countermeasures. Enterprises must identify and assess the relevant risks, including both the risk of the suspension itself and the risks that lie behind it, namely the harm to China's national security and to the security of its industrial and supply chains that may be implicated by foreign long-arm jurisdiction or by foreign discriminatory measures against China. In key sectors marked by intense China–US competition, or in fields where the EU adopts discriminatory measures against China on the basis of assumed "risk", enterprises face a heightened risk of becoming the subject of investigation over security of industrial and supply chains, or even the subject of countermeasures.
To this end, Chinese and foreign enterprises is advisable to establish the following compliance and internal-control mechanisms to address the risk of Chinese supply chain countermeasures: (1) identifying the specific situations in which transactions with China-based enterprises are, or may be, suspended; (2) for higher-risk suspensions, establishing an early-warning mechanism for the risk of countermeasures relating to the security of China's industrial and supply chains; (3) actively exploring alternative or mitigating arrangements so as to avoid suspending transactions with Chinese counterparts; and (4) when faced with an investigation, actively cooperating and presenting the enterprise's position, so that the authorities fully understand the enterprise's difficulties and its compliance-related dilemmas, as well as the greater economic, employment, and market contributions to China that the enterprise makes even in case of suspending the transaction, and the more negative economic, employment, and market consequences thus avoided.
Enterprises within China need to establish compliance mechanisms for complying with and executing the Chinese countermeasures, and for avoiding cooperation with unlawful, overseas-related supply chain investigations. Enterprises also need to address in advance, through contractual provisions, the impact on the performance of other contracts that may result from emergency response measures by the Chinese government.
