China’s first blocking response to foreign sanctions: What you need to know

On 2 May 2026, the PRC Ministry of Commerce (“MOFCOM”) issued a prohibition order (the “Prohibition Order”) pursuant to the Rules of Counteracting Unjustified Extra-territorial Application of Foreign Legislation and Other Measures issued in 2021 (the “Blocking Rules”), ¹ in response to US designations against five Chinese oil refineries. This marks the first time China has formally invoked the Blocking Rules to counter the extra-territorial reach of foreign sanctions affecting Chinese entities.

Companies with international operations, particularly those operating in or connected with the PRC, may find themselves caught between a rock and a hard place when navigating conflicting global sanctions obligations. This briefing seeks to address some of the pressing questions arising from this development.

What is being blocked?

The Blocking Rules, introduced in 2021, provide the legal basis for China to impose countermeasures against foreign legislation or measures that are determined to unjustifiably prohibit or restrict Chinese entities or individuals from engaging in normal economic and trade activities with third countries.  Foreign measures so determined may be specified and blocked by way of an administrative prohibition order.

Currently, the Prohibition Order names five Chinese companies² that were recently designated as Specially Designated Nationals (“SDNs”) under US Executive Orders 13902 and 13846.  It imposes an obligation on Chinese citizens, legal persons and other organisations ‘not to recognise, enforce or comply with’ the restrictive measures to which the designated companies would otherwise be subject, including asset freezes and prohibitions on financial dealings.

As at the date of writing, no other sanctions imposed by foreign sanctions regimes have been ordered as blocked.

To whom does the block apply?

The obligation to comply with the Prohibition Order applies to Chinese citizens and entities, including PRC incorporated subsidiaries of foreign companies.  It is generally understood that offshore entities engaging in activities wholly outside PRC territory are unlikely to be the primary subjects of enforcement by PRC authorities for non compliance, although the position may be different where conduct produces effects within China or involves PRC based counterparties.

How is the block expected to work in practice?

‘Any’ entity perceived as complying with blocked foreign sanctions may be exposed to the risk of damages claims brought by Chinese entities or individuals who suffer losses as a result of such compliance. Decisions relating to existing contractual arrangements, such as terminating relationships, refusing payment or suspending performance solely or primarily on the basis of blocked US sanctions, could fall within the scope of the Prohibition Order and give rise to civil litigation risk.  Any judgment obtained may, in principle, be enforced against the foreign company’s assets in China, if any, and may also have practical implications for its operating subsidiaries and entities in China.

This sits alongside newly introduced powers under the Regulations on Countering Foreign Improper Extraterritorial Jurisdiction (enacted in April 2026), which authorise competent authorities to take further action against companies identified as implementing, or assisting in the implementation of, blocked foreign sanctions.

Given very limited official guidance, the enforcement consequences contemplated under the PRC blocking framework are likely to introduce additional uncertainty for MNCs navigating simultaneous obligations under US, PRC and other sanctions regimes.  An assessment of whether a particular business decision or activity, including any sanctions compliance requirement one imposes on its counterparties, could be characterised as recognising, enforcing or complying with blocked foreign sanctions (thereby in breach of the Prohibition Order), will necessarily be a question of fact.

How to stay ahead of the curve?

Some view this first blocking response as a sign that the PRC authorities may, in certain circumstances, be more willing to deploy the Blocking Rules as part of their sanctions and foreign policy framework.  While the deployment of China’s sanctions tools is defined to be reactive in nature, it is necessarily shaped by national and foreign policy considerations. Without much crystal ball gazing, it would not be surprising if future prohibition orders were to evolve from designation-based blocks towards broader blocks addressing sectoral or thematic sanctions, particularly those affecting Chinese industry players in strategically sensitive sectors.

As the Prohibition Order takes effect immediately, we have seen MNCs react to this development swiftly, albeit to varying degrees depending on risk appetite and commercial realities.  As initial steps to manage sanctions compliance risks, organisation may wish to consider:

• Reviewing existing relationships involving the five named Chinese refineries including their affiliates (and, looking ahead, other entities identified in future Prohibition Orders), if any, and escalating any proposed unilateral suspension or termination actions for sanctions review
• Ensuring the Blocking Rules and other applicable blocking legislation are appropriately reflected into the organisation’s sanctions compliance framework, including internal compliance policies, guidelines, and training materials
• Assessing and strengthening contractual sanctions clauses, including exit mechanisms, to preserve flexibility in the event of conflicts of law
• Maintaining robust records of transactions, counterparty communications and banking correspondence, as well as internal decision-making processes in response to sanctions alerts, in anticipation of possible regulatory enquiries and/or civil proceedings
• Providing refresher training to Legal & Compliance, Business teams and other personnel in high-risk positions
• Staying alert to further regulatory developments, including additional prohibition orders or implementing guidance, and seeking specialist legal advice where material sanctions conflicts or enforcement risk may arise

For further guidance on this development, please get in touch with a member of Eversheds Sutherland’s Competition, Trade & Foreign Investment team.

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[1] See the Prohibition Order here.
[2] The five Chinese companies are: (i) Hengli Petrochemical Dalian Refinery Co., Ltd.; (ii) Shandong Shouguang Luqing Petrochemical Co., Ltd.; (iii) Shandong Jincheng Petrochemical Group Co., Ltd.; (iv) Hebei Xinhai Chemical Group Co., Ltd.; and (v) Shandong Shengxing Chemical Co., Ltd..