China strengthens counter-sanctions and export control regime

China has intensified its counter-sanctions and export control regime by adding new entities to the Countermeasures List, implementing new rules promulgated earlier this year, and increasing judicial enforcement of the relevant legal framework. 

The following article summarises the key recent regulatory developments.  

Implementation of new rules on entry and exit ban

On 22 July 2026, the State Council published Regulations of the State Council on the Administration of Entry and Exit (Decree No. 841), which will come into effect on 15 September 2026.

Two provisions worth noting in the Decree include:

• Article 4 provides that where a Chinese citizen violates export control regulations or the rules governing technology imports and exports, and such violation may endanger national industrial or technological security, MOFCOM and other competent authorities under the State Council may decide to restrict that individual’s departure from China.
• Article 5 provides that where a foreign national is included on the Countermeasures List, the Unreliable Entity List, or the Malicious Entity List, or is otherwise subject to countermeasures or restrictive measures, immigration authorities and visa-issuing agencies may, in accordance with their respective responsibilities, implement measures such as refusing to issue entry/exit documents or denying entry into China.

Legal implications: The provisions of Decree No. 841, together with the Regulations of the State Council on Outbound Investment, provide an express legal basis for restricting outbound travel of Chinese nationals in cases involving technology exports. As a result, Chinese companies may adopt a more cautious approach when engaging in technology export transactions, particularly where regulatory approvals, compliance obligations or national security considerations are involved. Overseas counterparties may therefore experience longer transaction timelines, and more extensive compliance requirements when conducting technology-related transactions with Chinese entities. 

Addition of US entities to the Countermeasures List

On 5 August 2026, China’s Ministry of Commerce (MOFCOM) announced the inclusion of seven US entities to the Countermeasures List (CML), which are active in the areas of advanced technology. Pursuant to the relevant measures, organisations and individuals within China are prohibited from engaging in transactions, cooperation or other activities with these entities, which includes technology companies and an NGO.

Legal implications: Foreign investors should ensure that their PRC subsidiaries do not engage in any transactions, cooperation or other business dealings with the entities listed above since activities may expose them to regulatory risks and potential enforcement actions under PRC law. 

Tightening export controls on dual-use items related to drones destined for the US

On 5 August 2026, MOFCOM issued a decree strengthening export controls on dual-use items related to drones destined for the US under the decree. US exports of drones, their key components and related technologies listed in the PRC Export Control List for Dual-Use Items will be subject to enhanced case-by-case review. Such exports will not be eligible for export licence facilitation measures. 

Legal implications: Overseas entities or foreign investors should assess whether any of the current business activities involve drones, drone-related technologies or key drone components, and whether any such items may be exported from China to the US. If so, the relevant exports may be subject to heightened regulatory scrutiny and potentially longer approval timelines under the PRC export control regime.  

Initiation of a national security investigation into certain imported printing, photocopying and office equipment

On 5 August 2026, MOFCOM announced the initiation of a national security investigation into imported office equipment with printing and photocopying functions that incorporates system software developed abroad.

As part of the investigation, MOFCOM may examine the following:

• The import activities relating to the products under investigation;
• The impact of the imported products, technologies or services on China’s national security interests;
• Domestic demand within the relevant sectors and the degree of reliance on foreign products, technologies or services;
• The development status of the relevant domestic industries in China and the extent to which they are affected by imports;
• The capacity and capability of China’s domestic industries to satisfy domestic demand and safeguard national security interests;
• The impact of relevant foreign government policies and measures on China’s national security interests; and
• Any other matters affecting national security interests in the context of foreign trade.

The investigation is expected to be completed within 12 months. When completed, the findings and any corresponding measures will be announced.

Legal implications: This is the first time China has initiated a national-security investigation in the context of foreign trade, which signals a broader trend towards increased use of national security review mechanisms in the regulation of foreign trade and imports. Foreign investors are advised to revisit procurement practices for the relevant devices and continue to monitor developments in China’s foreign trade and national security regulatory landscape since similar measures may be adopted more frequently in the future.

EU’s FSR investigation into a Chinese company recognised as unlawful extraterritorial jurisdiction

On 19 August 2026, China’s Ministry of Justice (MOJ) announced that the EU’s use of its Foreign Subsidies Regulation (FSR) to conduct cross-border investigations into a Chinese e-commerce giant constitutes an unlawful exercise of extraterritorial jurisdiction. This was in response to EU’s FSR investigation into the proposed acquisition of a German electronics retailer by the Chinese e-commerce giant. 

Pursuant to the MOJ’s relevant injunction, no organisation or individual may recognise, enforce or assist in the enforcement of such measures.

Legal implications: This represents another application of the injunction mechanism under the Regulations of the People’s Republic of China on Countering Improper Extraterritorial Application of Foreign Laws and Measures. The decision follows the MOJ’s first use of the mechanism on 15 May 2026 in relation to another EU FSR investigation, which occurred shortly after the Regulations came into effect. These developments signal China’s determination to use the Regulations to counter foreign regulatory measures. Whether this injunction will effectively act as a roadblock to the acquisition of the German electronics retailer by the Chinese e-commerce giant will be decided by the European Commission through the application of EU law. From a Chinese law perspective, overseas entities and foreign investors should closely monitor further developments regarding the continued use of injunctions under the Regulations, as well as the evolving reaction of PRC authorities to their implementation and enforcement. 

A typical case published by the People’s Supreme Court on the mandatory application of the PRC Anti-Foreign Sanction Law

On 24 June 2026, the People’s Supreme Court published a ruling that clarifies the mandatory application of PRC’s Anti-Foreign Sanction Law. 

In this case, a Hong Kong company sued a Singaporean shipping company after the carrier refused to deliver goods worth over RMB 4.99 million and returned them to Shanghai based on foreign sanctions imposed on a domestic consignor. The Shanghai Maritime Court held that such conduct violated the mandatory provisions of the PRC Anti-Foreign Sanctions Law and constituted a fundamental breach of contract, even though the governing law of the bill of lading was Singaporean. The court ordered the Singaporean shipping company to compensate the Hong Kong company for its losses and confirmed that foreign sanctions cannot be relied upon as a defence for refusing to perform contractual obligations under PRC law.

Legal implications: This is a typical case in which a PRC court expressly confirmed the mandatory application of the PRC Anti-Foreign Sanctions Law despite the parties’ choice of a foreign governing law. The decision suggests that selecting foreign law as the governing law of a contract will not prevent the application of the PRC Anti-Foreign Sanctions Law where the relevant conduct falls within its scope. Overseas entities should exercise caution when declining to transact with, or provide services to, Chinese entities on the basis of foreign sanctions even where the relevant contract is governed by non-PRC law. 

Companies operating in or engaging in China should consider the legal developments listed above and reevaluate their compliance strategies and market entry plans. 

For more information on how any of these developments could affect your China-based investment, contact your CMS client partner or the CME experts who contributed to this article.