China Releases Key Regulations to Safeguard Industrial and Supply Chain Security

On 31 March 2026, the PRC State Council promulgated the Provisions of the State Council on Industrial and Supply Chain Security (“Provisions”). The Provisions took effect immediately. They constitute China’s first dedicated regulation on industrial and supply chain security. Against a backdrop of rising geopolitical tensions, the aim of the Provisions is to provide China with a comprehensive legal toolkit to prevent and respond to supply chain disruptions, to build systemic resilience, and safeguard national and economic security.

This newsletter focuses on the application scope of the Provisions, as well as the key mechanisms for supply chain resilience, supply chain investigation and countermeasures which are introduced.

Application Scope and Positioning of the Provisions

• Application Scope

The Provisions, use the terms “industrial chain” and “supply chain”, but do not define them. The two concepts operate at different levels. The industrial chain describes the full vertical value chain of a sector, from upstream R&D and raw material extraction, through midstream manufacturing and processing, to downstream distribution and sales. It captures the entire lifecycle of a product within a given industry. The supply chain focuses more narrowly on the procurement and input side, i.e., the network through which raw materials, technology, equipment, and products flow from source to end-user. It is primarily an enterprise-level concept concerned with sourcing and logistics. The Provisions treat the two as complementary and do not draw an operational distinction between them. The Provisions, thus, aim at protecting Chinese industries across the full chain, not merely at any single point.

Further, most of the substantive mechanisms under Articles 8 through 12 (as discussed below), apply specifically to critical industry sectors. Article 7 requires the relevant State Council departments to establish a list of critical industry sectors and to adjust it dynamically over time. The list has not yet been published. Its scope will determine the practical reach of the Provisions’ protective framework. Enterprises should monitor the development closely and assess their exposure once the list was issued.

Regarding the territorial scope, the Provisions primarily apply to activities within China. Notably, Articles 14 and 15 extend their legal reach to foreign states, organizations, and individuals whose conduct damages China’s industrial and supply chain security. Further details on the extraterritorial dimension are provided below.

• Positioning of the Provisions

Prior to the Provisions, China’s foreign-related legal tools addressed supply chain pressures only indirectly and fragmentarily. The PRC Foreign Relations Law and the PRC Foreign Trade Law contain general provisions to counter discriminatory foreign measures. The PRC Anti-Foreign Sanctions Law, the PRC Unreliable Entity List Regulations, and related measures each target specific actors or acts. The PRC Export Control Law and the PRC Regulations on Export Control of Dual-Use Items serve a different purpose: rather than protecting China’s supply chains from external pressure, they function as offensive instruments to restrict foreign access to critical PRC-origin materials and technologies. None of these instruments was designed to address systemic, chain-wide disruptions, nor do they include any mechanism for proactive resilience-building ahead of a crisis. 

The Provisions fill this gap by protecting the industrial and supply chains at a systemic level. The external pressures they are designed to address can strike at any point along the chain, from the exclusion of PRC institutions from academic venues to tightening of export controls on advanced semiconductors to PRC and the exclusion of certain PRC products by foreign brands. Each case can potentially disrupt the stability of China’s industrial and supply chains. The Provisions address this full spectrum of risks through proactive resilience-building in critical industry sectors, and reactive investigation and providing a countermeasure toolkit.

Key Regimes and Measures

• Proactive Mechanisms for Supply Chain Resilience 

Articles 8 through 12 of the Provisions lay out the operational architecture to enhance supply chain resilience, covering information sharing, risk monitoring, risk prevention, emergency response, and technology investment. 

Regarding information and monitoring, the Provisions require relevant authorities to build out supply chain information-sharing platforms across critical sectors and take necessary measures to enhance data protection. A national risk monitoring and early-warning system is also established, tracking the stability of raw materials, technology, and equipment supply channels and their potential impact on national and economic security. Enterprises and industry associations are expressly empowered to report supply chain security concerns to county-level authorities.

Articles 10 and 11 together establish a risk prevention and emergency response system. Competent authorities are tasked with building physical and capacity reserves to enhance supply chain resilience in critical sectors. The emergency mechanism allows authorities, upon State Council’s approval, to intervene in production, logistics, and distribution where a disruption threatens national or economic security. Enterprises and individuals shall cooperate with these emergency measures. Importantly, both central and local government authorities may adopt targeted risk prevention measures tailored to their respective industries and regions. Enterprises should not only look at national-level rules but also monitor regulatory developments at the local level accordingly.

Article 12 addresses technological self-sufficiency. It encourages private investment in core technology R&D and requires enterprises and research institutions to maintain security and control over their core technologies, information systems, and data. Relevant authorities are also required to provide guidance and training.

• Supply Chain Security Investigation and Countermeasure 

Articles 13 through 16 are the Provision’s core reactive countermeasures. They define what China can do in response to supply chain harm, and against whom. 

(1) Supply Chain Survey

Article 13 prohibits any organization or individual, regardless whether foreign or domestic, from conducting supply chain-related surveys or information collection activities within China “in violation of applicable laws, regulations, and state rules.” Article 13 does not create new prohibitions. Rather, it connects supply chain-related information collection activities with China’s existing national security, data security, and counter-espionage framework. The scope of this provision, however, still remains undefined. In practice, foreign companies often send factory audit requests, raw material traceability questionnaires, and labor condition surveys to their Chinese suppliers, according to their home-country supply chain due diligence legislation. All of these activities might involve supply chain-related information collection within China. While the provision may be primarily aimed at covert intelligence-gathering activities conducted under the disguise of commercial research, it is unclear whether its broad language could also capture routine compliance and commercial activities carried out by foreign businesses. 

(2) State Level Countermeasures

Article 14 provides for countermeasures against foreign state-level discrimination, i.e., China’s state-to-state retaliation toolkit. It provides that when a foreign state, region, or international organization violates international law and basic norms of international relations by imposing discriminatory prohibitions, restrictions, or similar measures on China’s supply chains, the relevant State Council departments may:

• Investigate the relevant measures or conduct;
• Restrict or prohibit the import or export of related goods and technologies, or restrict international service trade; or
• Levy special fees.

In addition to countermeasures targeting states, regions, or international organizations, Article 14 also imposes penalties on responsible individuals and entities. Those directly or indirectly involved in designing, deciding upon, or implementing such measures may be placed onto a counter-sanctions list under the PRC Anti-Foreign Sanctions Law. Listed individuals and entities face a range of consequences, including restrictions or prohibitions on entry and stay in China, seizure of China-based assets, and restrictions or prohibitions on transactions and cooperation with Chinese parties. Accordingly, once triggered, Article 14 has broad-reaching implications.

(3) Entity Level Countermeasures

Article 15 is China’s entity-level enforcement toolkit targeting foreign companies and individuals directly. According to Article 15, where foreign organizations or individuals violate normal market transaction principles by cutting off normal trade with Chinese citizens or organizations, imposing discriminatory measures, or taking other actions that cause or threaten substantial harm to China’s supply chain security, competent authorities may investigate and impose a broad range of measures, including:

• Prohibiting or restricting their import/export activities with China;
• Prohibiting or restricting investment in China;
• Prohibiting or restricting Chinese organizations and individuals from conducting transactions or cooperation with them;
• Prohibiting or restricting entry of relevant personnel and transport vehicles; or
• Cancelling or restricting relevant personnel’s right to work, stay, or reside in China.

Article 15 does not define the terms “violate normal market transaction principles”, “discriminatory measures” and “substantial harm”. To date, only very limited cases from the PRC Ministry of Commerce (“MOFCOM”) can provide interpretive references (i.e., two US companies were listed on the Unreliable Entity List for cutting off supply of gene sequencing instruments and excluding certain PRC cotton products). Further, whether suspending supply or excluding PRC products in compliance with a mandatory foreign government order necessarily falls within this scope of Article 15 remains unclear. This ambiguity leaves enforcement authorities with broad discretion.

The penalties under Article 15, taken together, can effectively exclude foreign entities and individuals from the Chinese market. Notably, Article 15 adopts a “look-through” approach similar to international practices that extends liability beyond the directly sanctioned entity to any organization it controls or participates in. No minimum ownership threshold (such as the common 50% rule) applies here. Thus, the sanctioned entities cannot circumvent the Provisions simply through complex corporate structures or minority shareholding. Further, the “look-through” approach does not exclude the PRC affiliates of the sanctioned entities, which means these affiliates may also be affected.

Article 15 creates a concrete conflict scenario. A foreign enterprise that suspends supply or restricts services to Chinese counterparties, in compliance with foreign sanctions or export control obligations, may find that very conduct characterized as “violating normal market transaction principles.” This could trigger investigation and countermeasures under Article 15. Legal conduct in one jurisdiction may constitute a violation in another. This is not merely a legal question but a commercial and strategic one. To mitigate risks, structural solutions should be evaluated in advance. 

(4) Entities within the territory of PRC

Article 16 completes the enforcement framework. It aims to ensure that actors within the territory of the PRC, including foreign-invested enterprises and foreigners based in the PRC, shall not circumvent or undermine the countermeasures imposed on foreign entities. Organizations and individuals within the territory of the PRC must comply with measures taken under Articles 14 and 15. Failure to comply may trigger the following consequences:

• Being ordered to rectify;
• Prohibition or restriction from participating in government procurement and tendering;
• Prohibition or restriction on import/export of goods, technologies, or international service trade;
• Prohibition or restriction on receiving data from or transmitting data abroad; and
• Prohibition or restriction on exit from China, or on staying and residing in China.

Conclusion

The Provisions are China’s first legislation directly addressing industrial and supply chain security. They establish proactive supply chain resilience mechanisms and reactive investigation and countermeasure procedures. For foreign enterprises with China related business, violations of these Provisions can have far-reaching consequences. They may affect not only the sanctioned entity itself, but also other companies under its control or in which it holds shares, including its PRC subsidiaries, may also be affected. Companies should monitor the forthcoming critical sector list closely. Also the following proactive actions may be considered. First, review force majeure clauses in existing contracts to assess whether they cover disruptions caused by government directives. Second, foreign buyers should diversify supply sources to reduce exposure to sudden interruptions arising from Chinese suppliers’ obligations to comply with government orders. Third, internal compliance mechanisms should be established to assess potential exposure under Article 15 before responding to home-country export control or sanctions requirements. Finally, restructuring to separate the China related operations within a dedicated legal entity may help to limit to a certain extent the reach of any enforcement measures to that entity and prevent potential exposure from spreading across the wider group.