China increases pressure by ramping up sanctions and anti-sanctions toolkit

Recent developments in China's anti-sanction regime and supply-chain security regulations include the 22 June decision by China’s Ministry of Commerce (MOFCOM) to add ten US entities to the Export Control List; MOFCOM’s 29 June decision to add 20 Japanese entities to this list; and MOFCOM’s 29 June decision to add 20 Japanese entities to the Watch List as well as MOFCOM’s Measures for Investigations into the Security of Industrial and Supply Chains of 22 June. 

In June 2026, China took the following actions vis-à-vis its export control measures:

• On 22 June 2026, China's Ministry of Commerce (MOFCOM) added ten U.S. entities to the Export Control List. Chinese exporters are prohibited from exporting dual-use items to these entities, and organisations and individuals in any country or region are prohibited from transferring or supplying China-origin dual-use items to them. Any ongoing export activities involving these entities must cease immediately.
   
• On 29 June 2026, MOFCOM added a further 20 Japanese entities to the Export Control List with the same restrictions: Chinese exporters are prohibited from exporting dual-use items to these entities, and organisations and individuals in any country or region are prohibited from transferring or supplying China-origin dual-use items to them. Any ongoing export activities must be terminated immediately.
   
• On 29 June 2026, MOFCOM added 20 Japanese entities to the Watch List. Exporters of dual-use items to these entities will no longer be eligible to apply for a general licence or utilise the registration and information-reporting mechanism for export authorisation. Instead, they must apply for an individual licence, submit a risk assessment report concerning the relevant watch-listed entity, and provide a written undertaking that the exported dual-use items will not be used in a manner that contributes to enhancing Japan's military capabilities. In addition, the review period for such licence applications will not be subject to the time limit set out in Article 17(1) of the Regulations of the People's Republic of China on the Export Control of Dual-Use Items.

According to MOFCOM, it will apply enhanced end-user and end-use scrutiny to exports of dual-use items involving entities on the Watch List. Export transactions involving Japanese military users, military-end uses or any other uses that may contribute to enhancing Japan's military capabilities will not be approved.

There may be legal implications if a company maintains business relationships with any of the entities referenced above. As a result, companies should review the potential impact of these developments on business operations and compliance obligations.

Implementing rules to supply chain security regulations 

On 22 June 2026, the MOFCOM promulgated the Measures for Investigations into the Security of Industrial and Supply Chains (Announcement No. 24 of 2026). These Measures serve as the implementing rules for the Regulations of the State Council on the Security of Industrial and Supply Chains (State Council Decree No. 834), which garnered attention earlier this year since they could serve as punishment for foreign companies in their efforts to de-risk from China. Specifically, the Measures set down the circumstances under which MOFCOM may initiate investigations into de-risking activities (i.e. supply chain security investigations), and the legal consequences of these investigations.

The key provisions of the Measures include the following:

• A central feature is the establishment of a mechanism for supply chain security investigations. Under Article 2, MOFCOM may initiate an investigation where:
  • foreign states, regions or international organisations impose discriminatory restrictions or other measures against China or engage in or support activities that undermine the security of China’s industrial or supply chains; or
  • foreign organisations or individuals disrupt normal commercial transactions with Chinese parties, impose discriminatory measures or otherwise cause, or threaten to cause, actual harm to the security of China’s industrial or supply chains.

In addition, Article 5 allows Chinese legal persons and other organisations to request MOFCOM to launch an investigation by submitting supporting materials demonstrating that measures or actions taken by foreign states, organisations or individuals have harmed, or are likely to harm, the security of China’s industrial or supply chains.

• Under Article 18 of the Measures, following an investigation, MOFCOM, together with relevant authorities, can impose a range of measures on foreign organisations or individuals found to endanger the security of China’s industrial and supply chains, including restrictions on trade, investment, transactions with Chinese parties, entry into China, and the ability of relevant personnel to work, stay or reside in China, as well as other necessary measures. These measures can also be extended to entities controlled by, or established or operated with the participation of, foreign organisations or individuals. 

In addition, where persons or organisations in China fail to comply with measures imposed under Article 18, MOFCOM may order corrective action and, together with relevant authorities, impose additional restrictions, including on government procurement, bidding activities, international trade, cross-border data transfers, and entry, stay or residence in China.

Legal implications 

Companies operating in China should closely monitor the implementation and enforcement of these rules and assess any compliance implications promptly should they face enforcement actions. 

For more information on these export control measures and how they could impact your China-based business, contact your CMS client partner or the CMS experts who contributed to this article.