China’s New Supply Chain Security Regulations: Key Takeaways for Companies With China Operations or China-Linked Supply Chains

On April 7, 2026, China’s Regulations on Industrial and Supply Chain Security (the Regulations)¹ — the country’s first dedicated regulations addressing industrial and supply chain security — came into effect. The Regulations establish a new legal framework that enables Chinese authorities to monitor and scrutinize conduct that disrupts, or is perceived to threaten, China’s industrial and supply chain security.

The Regulations should be viewed as part of China’s broader legal toolkit for protecting national interests and responding to foreign sanctions, export controls, and other trade restrictions. They complement other existing measures, including the Anti-Foreign Sanctions Law, Export Control Law, Ministry of Commerce Blocking Rules, and the recently issued State Council Regulations on Countering Improper Foreign Extraterritorial Jurisdiction.² Taken together, these measures increase the likelihood that multinational companies will face conflict-of-laws challenges, where compliance with one set of laws exposes them to liability under another.

The message is clear: decisions involving Chinese counterparties, China-based operations, or China-related supply chains can no longer be treated as “business as usual.”

What the Regulations Do

The Regulations create four principal risk areas:

1. Companies operating in key sectors can expect increased government oversight. 

The Regulations contemplate that Chinese authorities will identify “key sectors” and establish monitoring, early warning, and emergency response mechanisms to address industrial and supply-chain security risks. Although the specific sectors have not yet been designated, broader policy signals suggest a focus on strategic technologies and critical industrial inputs, including integrated circuits, industrial machine tools, high-end equipment, basic software, advanced materials, and biomanufacturing.³ 

Companies operating in, supplying to, or otherwise supporting these sectors should anticipate greater scrutiny of supply chain arrangements and increased regulatory engagement.

2. Scaling back China-linked business activities may attract scrutiny.

The Regulations do not prohibit ordinary business dealings or decisions based on considerations such as cost, quality, performance, or commercial strategy. However, risk may arise where a company’s actions are viewed as causing, or threatening to cause, substantial harm to China’s industrial or supply-chain security or as discriminating against Chinese counterparties.

This risk may be particularly acute where decisions to suspend, terminate, or decline business with Chinese counterparties are linked to foreign sanctions, export controls, supply chain, or trade compliance regimes or internal policies that specifically target China or Chinese entities. As a result, decisions such as exiting the China market, replacing suppliers, terminating customers, or suspending services may now require assessment not only from trade compliance perspectives but also through a China countermeasures lens.

3. Supply chain diligence in China requires greater care and guardrails.

The Regulations restrict certain investigative and information-gathering activities relating to industrial and supply chains in China when conducted in violation of Chinese law. This does not mean that routine know-your-customer reviews, onboarding diligence, or transaction-specific compliance assessments are prohibited. Such activities should generally remain defensible when they are proportionate, necessary, and conducted as part of ordinary compliance processes.

The Regulations do, however, increase sensitivity around broad or intrusive information-gathering involving Chinese industrial or supply chains, particularly where those efforts are tied to foreign legal or regulatory requirements. Activities such as detailed supply chain mapping; environmental, social, and governance audits; forced-labor inquiries; sourcing queries; production-capacity assessments; facility audits; or data collection undertaken for foreign regulatory purposes may require more careful scoping and review.

The framing and purpose of the requests may also matter. A neutral, transaction-specific diligence request is one thing; a China-focused supply chain investigation designed primarily to satisfy a foreign restriction may be viewed quite differently by Chinese authorities.

4. China-based entities and individuals may be required to implement countermeasures.

The Regulations impose a broad obligation on China-based entities and individuals to implement countermeasures adopted under the regime. Noncompliance can carry serious consequences, including restrictions on access to government procurement, bidding, import and export operations and international services, cross-border transfers of data or personal information, and even entry into, stay in, or residence in China.

For multinational companies, this requirement may place China subsidiaries and local personnel in difficult positions when Chinese countermeasures conflict with legal or regulatory obligations imposed elsewhere in the corporate group. Notably, while the companion Regulations on Countering Improper Foreign Extraterritorial Jurisdiction provide a limited mechanism through which Chinese citizens or organizations may seek approval to comply with certain foreign extraterritorial measures, that mechanism remains untested.⁴

The Compliance Challenge: Conflict-of-Laws Risks Are Increasingly Real

For many multinational companies, the most pressing concern posed by the Regulations is their potential to create complex conflict-of-laws scenarios when combined with China’s broader countermeasures framework.

A wide range of activities that may ordinarily be viewed as routine business practices, including supply chain restructuring, third-party due diligence, transfers of operational data, or cooperation with foreign regulatory investigations, may now create additional risks under Chinese law.

Companies with China operations or China-linked supply chains should consider reviewing

• trade compliance and third-party diligence policies and procedures, particularly those that expressly target China or Chinese counterparties
• contractual provisions that relate to the termination, suspension, and restriction of relationships with Chinese counterparties
• supply-chain diligence and other related information-gathering activities within China
• cross-border data flows involving industrial or supply chain information from China
• procedures for identifying and addressing potential conflict-of-laws issues involving both Chinese and foreign legal regimes

As China continues to expand its legal framework for protecting industrial and supply chain security, companies should expect increasing scrutiny of decisions affecting China-related operations and supply chains. Proactive assessment of these risks — and the potential tensions among competing legal obligations — will be important to navigate these evolving compliance issues.

 

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¹ Guowuyuan Guanyu Chanyelian Gongyinglian Anquan de Guiding (国务院关于产业链供应链安全的规定) [State Council Provisions on Industrial and Supply Chain Security] (promulgated by the State Council, Mar. 31, 2026, effective Apr. 7, 2026), State Council Decree No. 834, translated in China Law Translate, https://www.chinalawtranslate.com/en/-State-Council-Provisions-on-Industrial-and-Supply-Chain-Security/; China Issues Regulations on Industrial, Supply Chain Security, Xinhua (Apr. 7, 2026), https://english.www.gov.cn/policies/latestreleases/202604/07/content_WS69d5038cc6d00ca5f9a0a460.html.

² Zhonghua Renmin Gongheguo Fan Waiguo Zhicai Fa (中华人民共和国反外国制裁法) [Law of the People’s Republic of China (PRC) on Countering Foreign Sanctions] (promulgated by the Standing Committee of the National People’s Congress, Jun. 10, 2021, effective Jun. 10, 2021), translated in China Law Translate, https://www.chinalawtranslate.com/en/counteringforeignsanctions/; Zhonghua Renmin Gongheguo Chukou Guanzhi Fa (中华人民共和国出口管制法) [Export Control Law of the PRC] (promulgated by the Standing Committee of the National People’s Congress, Oct. 17, 2020, effective Dec. 1, 2020), Order of the President of the PRC, 13th Term, No. 58, translated in China Law Translate, https://www.chinalawtranslate.com/en/export-control/; Ministry of Commerce of the PRC Order No. 1 of 2021 on Rules on Counteracting Unjustified Extra-territorial Application of Foreign Legislation and Other Measures (Jan. 9, 2021), https://english.mofcom.gov.cn/Policies/GeneralPolicies/art/2021/art_98677d0ed28b41b9adeff27b00c9d001.html; Zhonghua Renmin Gongheguo Fan Waiguo Budang Yuwai Guanxia Tiaoli (中华人民共和国反外国不当域外管辖条例) [PRC Regulations on Countering Improper Extraterritorial Jurisdiction by Foreign States] (promulgated by the State Council, Apr. 7, 2026, effective Apr. 13, 2026), State Council Decree No. 835, translated in China Law Translate, https://www.chinalawtranslate.com/en/counter-long-arm/.

³ Recommendations of the Central Committee of the Communist Party of China for Formulating the 15th Five-Year Plan for National Economic and Social Development (adopted at the Fourth Plenary Session of the 20th Central Committee of the Communist Party of China, October 23, 2025) at 12, https://english.www.gov.cn/news/202510/28/content_WS6900adb9c6d00ca5f9a07216.html.

⁴ PRC Regulations on Countering Improper Extraterritorial Jurisdiction by Foreign States, supra note 2, art. 6.

Sidley Law Clerk Micah D. Stewart contributed to this Update.