China: Counter-sanctions and EU due diligence obligations

Why should I read this?

If your business operates across the EU and China, you may now face an increasing risk of misalignment between legal and regulatory obligations. For example, certain EU law requirements (such as those around sanctions compliance and supply chain due diligence) could, in some circumstances, be seen in China as “unjustifiable” or “improper” extraterritorial measures. This may give rise to regulatory risk, including investigations or restrictions on business activities in China. China has strengthened its counter sanctions regime, meaning that compliance activities (including audits, data gathering and internal investigations) may require careful handling to make sure they are consistent with local legal and regulatory requirements.

Under China's counter-sanctions laws, foreign companies and individuals determined to have acted to the detriment of China’s national security could be exposed to the risk of designation. Depending on the scope of each designation, this can include asset freezes, transaction bans and restrictions on access to the Chinese market.

At the same time, efforts to limit or adjust due diligence activities in China to manage local regulatory considerations may create challenges in meeting EU expectations. Chinese rules place constraints on foreign-led investigations and information gathering across supply chains (for example, ESG audits, environmental reporting or carbon footprint mapping), which may be needed under frameworks such as the EU’s Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD). Limiting or adjusting these activities could leave companies without the evidence they need, potentially increasing exposure to enforcement action by EU regulators.

More broadly, global compliance policies designed around EU or US expectations may not always align fully with local legal and regulatory conditions in China, requiring careful coordination between headquarters and local teams.

The key issue is how expectations across jurisdictions interact in practice. This does not mean that due diligence activities are problematic in China. Rather, it emphasizes that how you act, explain and document your decisions matters, including the rationale provided for them. Where actions are framed primarily by reference to EU or US regulatory requirements, this may increase regulatory sensitivity in some contexts, compared to approaches supported by commercial or operational rationale.

What are the relevant Chinese laws?

Since 2021, China has built a legal framework to respond to foreign sanctions. Authorities can impose “countermeasures” (such as asset freezes or transaction bans) against foreign parties seen as implementing or assisting foreign sanctions targeting Chinese interests. These powers sit across several instruments, including the Anti Foreign Sanctions Law and its implementing rules and the Provisions on the Unreliable Entity List. Several bodies can act, including MOFCOM, the Ministry of Foreign Affairs and the Taiwan Affairs Office. Separately, Chinese companies have a right to bring damages claims against parties regarded as implementing or assisting in the implementation of discriminatory restrictive measures.

MOFCOM’s Blocking Rules (issued in 2021) and Decree 835 (effective April 13, 2026) go further by allowing authorities to ban Chinese entities from complying with certain foreign sanctions where specific prohibition orders apply, and by introducing a sanctions list to designate foreign entities that engage in such conduct.

We have seen recent developments in China’s sanctions and blocking framework, including Decree 834 (effective April 7, 2026) which is aimed at strengthening the security of industries and supply chains in China’s “key sectors”. As well as reiterating the legal basis on which countermeasures can be introduced in response to foreign measures deemed discriminatory, the Decree apparently adds regulatory risk to “information collection” activities in China. To the extent any audit or due diligence may reasonably be associated with China’s key industries and supply chains, a compliance review would be advisable.

Why does this matter for companies with supply chains in China?

EU sustainability and compliance regulations impose a range of obligations on companies operating in or into the EU, including supply chain due diligence (e.g. under the CSDDD) and extensive sustainability reporting (e.g. under the CSRD). These regimes typically require companies to collect and assess information from suppliers, including on human rights, environmental impacts and emissions. This becomes more complex where China is involved, given its central role in global supply chains.

Where a supply chain has a China nexus, companies may face direct tension between EU requirements and Chinese restrictions, as activities expected under EU frameworks (such as ESG audits, supplier questionnaires and the collection of Scope 2 and Scope 3 emissions data under the CSRD) may be characterized under China’s Decree 834 as prohibited “information collection” by foreign entities.

For example, if an EU-based manufacturer requests detailed ESG or emissions data from a Chinese supplier to meet its obligations under the CSRD or CSDDD, that supplier may be unwilling or unable to respond due to regulatory risk under Chinese law. The result is a structural compliance gap: the EU company faces potential exposure for incomplete due diligence or reporting, while the supplier faces legal risk in cooperating with the request.

What should you do?

Steps to take to reduce exposure include:

• Review your compliance policies, recognising that a single global compliance policy may not work for China and will need to be tailored for it.
• Assess the legal risk under the relevant Chinese rules before taking action involving a Chinese counterparty and make sure any decision can be justified on ordinary commercial grounds.
• Carry out due diligence, mapping where your business connects with China, such as across suppliers, customers, joint ventures, data flows, etc., so you understand where the exposure sits. Review your due diligence processes for all activities relating to China.
• Check your contracts for whether standard clauses on sanctions, compliance obligations, audit rights and termination provisions may need to be narrowed or adapted for China.
• Assess relevant reporting and tracking obligations under EU legislation to avoid over-compliance.
• Consider other relevant EU obligations. For example, the EU Deforestation Regulation requires traceability and origin data. Those requests can overlap with the kind of supply-chain scrutiny that Chinese rules are sensitive to.
• Expect the position to evolve as the framework is still developing. Further measures and guidance are likely to require adaptation over time.

Looking ahead

We are already seeing regulatory action. On May 2, 2026, MOFCOM issued its first ever blocking order, targeting US sanctions on five Chinese oil refineries. This was shortly followed by a blocking order prohibiting cooperation with “cross border investigative measures” taken by the European Commission under its Foreign Subsidies Regulation probe into a company. Some have viewed these developments as a sign that China may be more willing to make use of its blocking powers as part of its sanctions and foreign policy framework.

We might expect further blocking orders and enforcement actions as US and EU sanctions and due diligence requirements expand. On the EU side, the CSDDD and related instruments will only increase the scope and depth of what companies are required to do.

Further resources:

• Home - Global Sanctions Guide
• EU Tightens Control Over Critical Raw Materials