Other BriefingsChina’s New Supply Chain Security Regulations: What Are the Risks to Foreign Companies?
China’s new supply chain regulations, released by the State Council in April 2026, expand government powers to investigate and impose countermeasures on foreign entities deemed to threaten the country’s industrial supply chains. Foreign companies operating in China should assess their exposure to these China supply chain regulations as part of their broader risk management strategies.
On April 7, 2026, the State Council released the Regulations on Industrial and Supply Chain Security (the “regulations”), which expand the Chinese government’s powers to impose countermeasures on actions that are deemed to risk the security of the country’s supply chains.
The new regulations, which came into force on the same day as their release, have caused concern among foreign companies operating in China due to their potential to entangle entities conducting investigations into China supply chains, with possible consequences ranging from investment bans to sanctions on individuals.
However, it is not yet certain how broadly the regulations will be implemented, and they may prove to be targeted only at a small group of multinationals involved directly in lobbying foreign governments to take economic actions against China. Nonetheless, foreign companies with a footprint in China should factor potential exposure to the regulations into their supply chain risk assessments.
What do the regulations say?
The regulations place any actions taken by any organization or individual that conducts investigations or other activities to collect information related to industrial and supply chains within China’s territory in violation of Chinese laws and regulations under the jurisdiction of Chinese law.
Under the regulations, Chinese authorities are granted the power to take retaliatory action if a foreign country, region, or international organization implements any discriminatory actions against China concerning its industrial and supply chains.
Discriminatory actions can include prohibitions, restrictions, or other similar measures against China in relation to industrial and supply chains, or the implementation or assisting in actions that harm the security of China’s industrial and supply chains, “in violation of international law and basic norms of international relations”. Possible retaliatory measures include prohibiting or restricting the import and export of goods, services, or technologies, as well as charging special fees.
The authorities can also add foreign organizations or individuals who “directly or indirectly participate in the formulation, decision-making, or implementation” of the investigations or discriminatory measures against China’s industrial and supply chains.
The regulations additionally grant the State Council the right to investigate the security of industrial or supply chains if a foreign organization or individual “violates normal market transaction principles, interrupts normal transactions with Chinese citizens or organizations, takes discriminatory measures against Chinese citizens or organizations, or engages in other acts that cause substantial damage or threaten substantial damage to the security of China’s industrial and supply chains”.
Such an investigation can involve questioning relevant parties and reviewing or copying relevant documents and materials, as well as other necessary methods.
Based on the results of the investigation, the State Council can take a range of actions against the foreign organizations and individuals. These include:
- Prohibiting or restricting import and export activities with China;
- Prohibiting or restricting investment in China;
- Prohibiting or restricting Chinese organizations and individuals from engaging in related transactions or cooperation with the organizations or individuals in question;
- Prohibiting or restricting the entry of relevant personnel and means of transport; and
- Canceling or restricting work, stay, or residence permits of relevant personnel in China.
These measures can apply to both wholly foreign-owned companies and joint ventures, as well as individuals working in them.
Companies and individuals in China are also required to abide by the decisions taken by the State Council, and any company or individual that violate the regulations are subject to certain liabilities, including being ordered to rectify their actions, being barred or restricted from government procurement, bidding, and related activities such as import and export of goods and technology or international trade in services. They can also be banned or restricted them from either exporting or importing data or personal information, while individuals may face exit ban or prohibitions or restrictions on staying or residing in China.
China’s efforts to bolster supply chain security
China has been steadily growing its toolkit for addressing the threats posed by measures by foreign countries to contain trade and investment from China. These efforts follow the growing number of investigations and trade restrictions, including tariffs, export controls, and other economic sanctions imposed by the US and the EU in particular.
The 2021 Anti-Foreign Sanctions Law (AFSL), along with guiding regulations released in March 2025, grants the government powers to implement countermeasures in the event that a foreign country implements discriminatory or restrictive measures against Chinese organizations or individuals, and place any organization or individual directly or indirectly involved in such measures on a “countermeasures list”, leading to a range of sanctions.
The revised Foreign Trade Law similarly expands the government’s powers to implement countermeasures to foreign economic sanctions.
The new supply chain regulations seek to address what China perceives as unfair economic coercion and sanctions by foreign governments, which have ranged from investigations into China’s trade and investment practices to the imposition of import tariffs and restrictions on exports of key technologies.
Over the past several years, the US has gradually expanded its export control regime, prohibiting the export of a range of high-end technologies – including critical advanced chips – as well as a long list of sanctions on Chinese companies and sweeping tariffs on Chinese goods. The US recently launched two Section 301 investigations into China’s trade practices that could result in further import tariffs.
Meanwhile, the EU has launched several anti-subsidy investigations into China, one of which resulted in the imposition of countervailing duties of up to 35 percent on Chinese-made EVs to tackle “unfair government subsidies”. Since 2023, the EU has also implemented the Foreign Subsidy Regulation (FSR), which enables investigations into companies receiving non-EU financial contributions above a certain threshold when bidding for EU public procurement contracts or undertaking acquisitions within the EU. Such investigations can result in certain remedial measures or the potential prohibition of the transaction.
The new regulations underscore that, for China, global supply chains are a matter of national security. With its continued reliance on imports for certain critical goods and resources – including fuel, foodstuffs, and critical minerals – China is seeking to ensure the security and stable supply of these goods.
In addition to the provisions on foreign actions, the regulations seek to reinforce the stability of China’s supply chains by establishing and improving a “monitoring and early warning system for security risks in industrial and supply chains in key areas”. This will require government departments to assess and monitor the stability of supply channels for raw materials, technologies, equipment, and products in key sectors, as well as their impact on economic and social stability and national security, while also identifying security risks to industrial and supply chains in order to “promptly issue early warning information”.
The regulations also require the relevant government departments to formulate emergency response plans, and, in the event of a situation that could affect the security of supply chains in key sectors that “endanger economic and social stability and national security”, take emergency measures such as the emergency dispatch and mobilization of reserves.
China maintains vast reserves of critical commodities, including foodstuffs, petroleum, and critical minerals, which can be mobilized to ensure supply security and – in the case of goods like pork – to control domestic prices.
Actions by foreign governments to curb exports or investment in China are harder for the government to foresee or control. China’s growing regulatory network tackling foreign sanctions seeks to counter and prevent such moves, though the result may be more volatility for companies.
What do the regulations mean for foreign companies?
The new supply chain regulations have the potential of placing foreign companies in the crosshairs of competing national regulations, being legally required by foreign governments to take certain measures that could be in direct violation of the new regulations. Chief among these concerns stems from the provision that states companies carrying out “investigations or other information collection activities related to industrial and supply chains within the territory of China” will be dealt with according to the law, which suggests companies will face legal consequences simply for carrying out investigations into their Chinese supply chains as part of routine risk assessment and audit procedures.
Such investigations could include those required by companies complying with the US’s so-called Uyghur Forced Labor Prevention Act (UFLPA), under which companies must show that goods are not produced in Xinjiang or by any entity included on the UFLPA Entity List. In the EU, companies must comply with the Corporate Sustainability Due Diligence Directive (CSDDD), which requires large companies to identify environmental and human rights impacts of their value chains, including in relation to business partners.
The EU Chamber of Commerce in China highlighted this predicament, saying in a statement, “Given that many European companies must also comply with European directives related to supply chain due diligence—which requires them to perform audits to demonstrate transparency along their entire supply chain—there is a risk that the information that needs to be collected as part of this process could be interpreted as violating Chinese law”.
While it is not certain that the regulations would indeed extend to such routine procedures, the vague wording of the provisions mean it will be difficult to know exactly which kind of activity could trigger investigations and retaliatory measures. More politically sensitive procedures – such as companies complying with the UFLPA – may be more likely to be flagged for countermeasures compared to routine supply chain audits.
Some fears over the impact of the regulations – such as the concern that the government could take action against companies simply for choosing to move their supply chains out of China – may prove to be overblown. As is often the case, the government is more likely to target large corporations that have close ties to foreign governments, in particular those that have lobbied foreign governments to carry out investigations into China’s trade and investment practices. Smaller companies with fewer audit obligations are less likely to be exposed to such risks.
What is more certain is that companies with a footprint in China will have to fold potential exposure to these regulations into their overall supply chain risk assessments. This will mean assessing whether existing audit or compliance procedures could trigger investigations under the regulations, or whether other activity conducted outside of China could be construed as falling within the scope of the regulations and thereby expose the company to legal risk or retaliatory measures. Given the uncertainty of how the regulations will be implemented, this may be difficult to do in practice, but preparation and open communication with local authorities may help to mitigate the uncertainties and ensure business continuity and protect existing operations in China in the short term.
It is also important that companies keep up to date with regulatory developments from the State Council and other relevant authorities, as they may release guiding implementing regulations or other official interpretations for the supply chain regulations. Such additional documents may provide answers to some of the questions and concerns that have been raised in the weeks since their release.
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