Insights

Operationalizing the People Republic of China (“PRC”)’s Anti-Foreign Sanctions Regime: Legal Framework and Compliance Challenges

Insight Article 31 July 2026 31 July 2026
Asia Pacific
Regulatory movement

Introduction

In May 2026, the Chinese authorities took two landmark measures that signalled a shift in the PRC’s anti-foreign sanctions regime - from a framework primarily focused on legislative development to that of active enforcement and implementation.

On 2 May 2026, the Ministry of Commerce of the PRC issued Announcement No. 21 of 2026, invoking for the first time the Rules on Counteracting Unjustified Extra-Territorial Application of Foreign Legislation and Other Measures¹ (the “Blocking Rules”). The Announcement declared that certain U.S. sanctions targeting Iranian oil transactions involving five Chinese companies shall not be recognised, enforced, or complied with.

Shortly thereafter, on 15 May 2026, the Ministry of Justice issued Announcement No. 5 of 2026, identifying certain EU investigative measures under the Foreign Subsidies Regulation in the EU’s investigation of Nuctech as unjustified extraterritorial jurisdiction, prohibiting any organization or individual from complying with or assisting in such measures.

Taken together, these developments demonstrate that China is moving beyond building its counter-sanctions legal framework, and has now entered a phase of practical and active enforcement. This article examines the implications of these blocking orders and recent judicial practice. It also explores potential compliance mechanisms that multinational enterprises may consider in response to such developments.

Practical compliance dilemmas for multinationals

Multinational enterprises now face substantive legal conflicts in relation to sanctions compliance. Foreign sanctions laws may require multinational companies and financial institutions to stop payments, terminate contracts, refuse services, or otherwise avoid dealings in compliance with U.S., EU, UK or other sanctions regimes. PRC laws, however, may characterize the same action as implementing or assisting a foreign discriminatory restrictive measure, triggering liability under the Anti-Foreign Sanctions Law (“AFSL”) and with that, civil claims, administrative penalties, or countermeasures. Where the multinational enterprise or financial institution has a subsidiary in the PRC which is considered a PRC legal person, such subsidiary would be expected to comply with PRC anti-sanctions, blocking and supply-chain rules.

These may create internal conflicts. If group compliance policies require the PRC subsidiary to refuse transactions solely because of foreign unilateral sanctions, the PRC entity may face PRC legal exposure in the form of administrative consequences, including restrictions on government procurement, tendering, import/export, services, cross-border data or personal-information transfer, and on entry/residence of the relevant personnel.

Contractual drafting in PRC-related transactions is another high-risk area. A clause allowing one party to suspend performance, refuse payment, terminate, or withhold documents solely because a PRC counterparty is sanctioned by a foreign state may be regarded as implementing a foreign discriminatory restrictive measure, which may carry consequences under PRC laws. The Nanjing case (described below) is especially relevant for payment defaults and performance suspensions of relevant contracts.

Legal framework

The PRC’s legal framework on countermeasures is built upon numerous layers of legislation, including:

National Security Law of the People’s Republic of China² issued on 1 July 2015;
Anti-Foreign Sanctions Law of the People’s Republic of China³ issued on 10 June 2021 (the “AFSL”); and
Law on Foreign Relations of the People’s Republic of China⁴ issued on 28 June 2023.

Among these, Article 12 of the AFSL is particularly significant: it prohibits implementing or assisting foreign discriminatory restrictive measures and establishes a statutory civil cause of action in tort, enabling affected parties to seek injunctive relief and damages in PRC courts. Article 15 further broadens the law’s reach by extending the AFSL’s application extraterritorially to any conduct compromising the PRC’s sovereignty, security, or development interests.

The overarching statutory framework of the AFSL is supplemented by specific administrative regulations and departmental rules issued by the State Council and its ministries, including:

Rules on Counteracting Unjustified Extraterritorial Application of Foreign Legislation and Other Measures issued on 9 January 2021 (Order No. 1 [2021] of the Ministry of Commerce, namely the aforesaid “Blocking Rules”);
Provisions on the Implementation of the Anti-Foreign Sanctions Law of the People’s Republic of China⁵ issued on 23 March 2025 (Order No. 803 of the State Council, the “Order No.803”);
Provisions of the State Council on the Security of Industrial and Supply Chains⁶ issued on 31 March 2026 (Order No. 834 of the State Council, the “Order No.834”);
Regulations of the People’s Republic of China on Countering Unjustified Extraterritorial Jurisdiction⁷ issued on 7 April 2026 (Order No. 835 of the State Council, the “Order No.835”).

These rules introduce mechanisms such as prohibitions on unauthorised supply-chain investigations (Order No. 834, Art. 13), targeted investigations against discriminatory supply-chain disruptions (Order No. 834, Art. 15), orders to prohibit execution regarding inappropriate foreign extraterritorial measures (Order No.835, Art. 13) and civil litigation rights for affected PRC parties (Blocking Rules, Art. 9) etc.

Judical practice

Recent judicial developments demonstrate that PRC courts are actively and robustly applying domestic anti-sanctions laws/regulations to protect PRC enterprises from the effects of foreign sanctions on them.

In a landmark case handled by the Nanjing Maritime Court - Case No. (2024) Su 72 Min Chu No. 2157; People’s Courts Case Database Ref: 2025-10-6-504-001 (the Nanjing case), a Chinese offshore engineering company sought judicial relief after a foreign counterparty (Company S) was unable to make a payment of USD 11.86 million for a vessel module construction project, on the basis that the Chinese company was placed on a third country’s sanctions list.

Despite a contractual agreement to refer disputes to foreign arbitration, the Chinese plaintiff filed a tortious claim in the Nanjing Maritime Court under the AFSL and, as a precursor, successfully obtained an order for a pre-litigation ship arrest as security over the withheld payment.

Faced with the ship arrest and a lawsuit relating to the legal implications of complying with foreign unilateral sanctions under Chinese law, Company S applied for a payment license from the foreign sanctions authority and provided security to have the arrest lifted. Through court-facilitated mediation, the parties reached a settlement quite promptly thereafter.

In another notable decision by the Shanghai Maritime Court, a foreign shipping company refused to issue a bill of lading after goods had already been loaded on the basis that the Chinese shipper had been targeted by foreign sanctions. The Chinese company applied for and successfully obtained a maritime mandatory injunction from the Shanghai Maritime Court. The Court reaffirmed the statutory principle that a carrier is under an absolute obligation to issue a bill of lading upon the shipper's request once the goods have been received or loaded. It rejected the foreign company’s reliance on the foreign sanctions and ordered the foreign carrier to immediately issue and deliver the original bill of lading.

These two precedent-setting cases yield several key takeaways for multinational corporations navigating the complex interplay between global trade sanctions and PRC law.

First, the suspension of contractual performance or the withholding of deliverables based solely on foreign unilateral sanctions may be legally characterized by PRC Courts as actively "assisting discriminatory restrictive measures," triggering liability under PRC laws.

Second, PRC Courts are willing to assert jurisdiction over these disputes, even in situations where the underlying commercial contracts may contain explicit foreign governing law and foreign arbitration clauses.

Finally, these developments confirm that the AFSL provides an independent, statutory cause of action based on tort where implementing or assisting foreign discriminatory restrictive measure causes loss and harm to PRC parties. By framing the foreign party’s compliance with external sanctions as a civil tortious act rather than a contractual breach, PRC plaintiffs may potentially bypass contractual dispute resolution clauses, bringing foreign defendants directly under the jurisdiction of PRC Courts.

It is interesting to note that on 22 May 2026, the Intermediate People’s Court of Dongguan City, Guangdong Province, accepted a case where a listed company invoked the AFSL as a basis for a claim of up to RMB 8 billion against overseas entities and foreign senior executives. We will continue to monitor these developments and provide timely commentary on the same.

Compliance mechanisms in response to developments

Given the recent developments, enterprises dealing with sanctioned or potentially sanctioned entities will need to consider a structured compliance strategy. We set out a few practical recommendations below.

Upgrade Internal Compliance Infrastructure

A strong compliance system is the foundation for managing cross-border risks.

Pre-transaction screening (KYC): Before entering into any deal, companies must thoroughly vet counterparties and ultimate beneficial owners. This helps identify exposure to sanctions lists early and avoid inadvertent violations.
Dynamic monitoring: Enterprises should establish systems that continuously track updates to U.S./EU sanctions lists and Chinese blocking orders. Real-time alerts are important to ensure that businesses are able to adjust operations quickly.
Evidentiary management: Documenting internal decisions appropriately is critical. Records of due diligence, monitoring, and internal approvals may be relied on as evidence in both foreign and Chinese proceedings.

Draft Safer Contract Clauses

Contractual language is also crucial.

Avoid blanket sanctions clauses: Clauses that mandate compliance with any foreign sanctions may be deemed unlawful in the PRC.
Balanced risk allocation: Parties may wish to consider incorporating mutual notice obligations, mitigation measures, and alternative performance options in the event of foreign sanctions prohibiting performance of the parties’ obligations. For example, mitigation provisions may be worded so as to require parties to exert their best efforts to seek exemptions under either the foreign sanctions legislation or the PRC blocking rules if a conflict arises. These may mitigate the risk of falling afoul of PRC anti-sanctions laws.

Risk Assessment

Multinational enterprises with operations in the PRC may consider engaging counsel in their home jurisdictions as well as Chinese counsel to assess and mitigate their exposure to competing sanctions and anti-sanctions regimes.

Foreign counsel: Foreign counsel can assist in mapping the enterprise’s global business footprint, sanctions compliance obligations and potential exposure to foreign sanctions measures, while coordinating with Chinese counsel to identify areas of conflict with the PRC anti-sanctions laws.
Chinese counsel: Chinese counsel can in turn provide jurisdiction-specific advice on the applicability of anti-sanctions laws such as the AFSL and Blocking Rules, assess the risk of enforcement action, and advise on the availability of exemptions, waivers or other relief in relation to prohibition orders or conflicting legal obligations.

A coordinated cross-border approach can be helpful to multinational enterprises in navigating the increasing risk of being caught between competing sanctions and anti-sanctions legal regimes. Clyde & Co’s China team works with colleagues across our international network, including our APAC Regulatory and Investigations team, to assist our clients in assessing and managing these risks and provide practical guidance on managing enforcement risk and licence / exemption applications to the relevant authorities.

Maintain Appropriate Documentation

Appropriately maintained contemporaneous records may assist in demonstrating the bona fide basis for an enterprise’s decision making, and may help mitigate the risk associated with allegations that it has improperly facilitated foreign sanctions measures.

Conclusion

As the PRC’s efforts to counter foreign sanctions (and their extraterritorial application) in the PRC move from legislative groundwork to active enforcement, multinational enterprises are likely to face growing conflicts arising from competing legal obligations across jurisdictions. Navigating the tension between foreign sanctions regimes and China’s blocking and anti-sanctions regimes will become an increasingly critical challenge for enterprises with China-related operations.
For more information and practical implications of the AFSL and other Chinese anti-sanctions laws, please reach out to the following contacts at the Clyde & Co team.

¹阻断外国法律与措施不当域外适用办法，中华人民共和国商务部令2021年第1号

² 中华人民共和国国家安全法

³ 中华人民共和国反外国制裁法

⁴中华人民共和国对外关系法

⁵实施《中华人民共和国反外国制裁法》的规定，中华人民共和国国务院第803号令

⁶ 国务院关于产业链供应链安全的规定, 中华人民共和国国务院第834号令

⁷ 中华人民共和国反外国不当域外管辖条例，中华人民共和国国务院第835号令