Can China Force Your Business to Ignore Western Sanctions?

Key Points

• China's 2021 Blocking Rules, Anti-Foreign Sanctions Law, and two new State Council regulations issued in April 2026 together give Chinese authorities the power to order businesses to disregard foreign sanctions, freeze assets, and pursue civil claims against anyone who complies with Western restrictions.
• On 2 May 2026, China's Ministry of Commerce issued its first blocking order under the 2021 Rules, prohibiting compliance with US OFAC sanctions targeting five Chinese petrochemical companies. The shift from dormant legislation to active enforcement is now complete.
• Chinese subsidiaries of UK and foreign companies are caught directly by the order. They face administrative fines and civil litigation risk if they continue to comply with the blocked US measures.
• In 2024, the Nanjing Maritime Court established a live private cause of action under China's Anti-Foreign Sanctions Law, with a sanctioned Chinese manufacturer successfully suing a Swiss counterparty that had suspended payments to comply with US OFAC designations.
• UK businesses with Chinese operations, supply chains, or counterparties face a genuine conflict: complying with UK and US sanctions may attract Chinese regulatory penalties, while ignoring those obligations may amount to a criminal offence at home under the Sanctions and Anti-Money Laundering Act 2018.

China can now lawfully order your business to ignore Western sanctions.

On 2 May 2026, China’s Ministry of Commerce (MOFCOM) issued its first formal China blocking order, prohibiting recognition, enforcement, and compliance with US sanctions imposed on five Chinese petrochemical companies. What was once a theoretical tension between competing legal regimes is a live conflict of law that every business with Chinese exposure must address.

The blocking order activates a counter-sanctions initiative that China has been building since 2020. The legal toolkit extends from the Unreliable Entity List system and the 2021 Blocking Rules through the Anti-Foreign Sanctions Law (AFSL) and its March 2025 implementing regulations to two sweeping State Council decrees issued in April 2026. Taken together, these measures expose multinational companies to regulatory penalties in China for doing precisely what UK, US, and EU sanctions law requires of them.

UK companies that continue to deal with Chinese counterparties designated on Western sanctions lists risk civil and criminal exposure under the Sanctions and Anti-Money Laundering Act 2018 (SAMLA) and its associated regulations. Those that cut off designated Chinese counterparties in compliance with those obligations may now face fines and civil litigation in China. For businesses operating in both jurisdictions, expert legal advice should be urgently sought.

China’s Counter-Sanctions Framework

China’s legislative response to Western sanctions began in earnest on 9 January 2021, when MOFCOM issued Order No. 1 of 2021, which was published on its English-language website. The Rules authorise MOFCOM to issue prohibition orders where foreign legislation is applied extraterritorially in breach of international law. Any Chinese citizen, legal person, or organisation subject to a prohibition order must report the relevant foreign restriction to MOFCOM within 30 days and may not accept, execute, or observe it unless an exemption is granted. For over five years, the Rules sat dormant.

The National People’s Congress passed the Anti-Foreign Sanctions Law (AFSL) in June 2021. The AFSL goes further than the Blocking Rules by establishing a positive list of countermeasures that Chinese authorities may impose on foreign individuals and organisations deemed to have applied discriminatory sanctions against Chinese citizens or entities. Those countermeasures include asset freezes, visa cancellations, restrictions on business activities in China, and prohibitions on transactions with Chinese parties. Article 12 of the AFSL creates a private right of action: Chinese citizens and organisations may sue in Chinese courts any party that implements foreign sanctions against them and seek compensation for any losses caused.

The March 2025 implementing regulations under the AFSL filled in the operational detail that the broad 2021 statute had left open. The regulations expanded the categories of assets subject to freezing and seizure to include bank deposits, securities, fund shares, equity interests, intellectual property, and accounts receivable. They extended the prohibited activity fields to cover education, legal services, environmental protection, tourism, and health. For a multinational operating across any of those sectors, the compliance exposure widened considerably.

In April 2026, two further State Council decrees were issued. The Regulations on Industrial and Supply Chain Security (Decree No. 834), signed by Premier Li Qiang on 7 April 2026 with immediate effect, establish a coordinated mechanism across more than fifteen Chinese government agencies to monitor supply chain risks and impose countermeasures where foreign states, organisations, or individuals disrupt or discriminate against China’s industrial supply chains. The Regulations on Countering Improper Extraterritorial Jurisdiction by Foreign States (Decree No. 835), issued on 13 April 2026, create a Malicious Entity List for foreign parties that promote or implement extraterritorial measures. Authorised countermeasures under Decree No. 835 include entry bans, asset seizures, investment restrictions, and fines. Both decrees took effect immediately, with no transition period.

The 2 May 2026 blocking order drew these threads together. Under MOFCOM Announcement No. 21 of 2026, MOFCOM invoked the 2021 Blocking Rules following a working mechanism assessment confirming that US sanctions imposed under Executive Orders 13846 and 13902 on five Chinese petrochemical companies constituted improper extraterritorial application of foreign law. The five companies are:

• Hengli Petrochemical (Dalian) Refining and Chemical Co. Ltd.,
• Shandong Shouguang Luqing Petrochemical Co. Ltd.,
• Shandong Jincheng Petrochemical Group Co. Ltd.,
• Hebei Xinhai Chemical Group Co. Ltd., and
• Shandong Shengxing Chemical Co. Ltd.

Chinese subsidiaries of foreign companies are caught. A foreign national employed as an executive of a Chinese subsidiary is not, because the Blocking Rules apply to Chinese citizens, legal persons, and other organisations rather than to individual foreign nationals. For businesses considering how to structure their internal compliance response, that distinction matters. Specialist advice on sanctions compliance for businesses with China exposure is now urgently required.

The Nanjing Maritime Court Case

The first judicial enforcement action against the AFSL occurred in late 2024 ((2024) Su 72 Min Chu 2157, translated in Chinese as（2024）苏72民初2157号民事调解书). A shipbuilding subcontract between an unnamed Shandong-based Chinese manufacturer and a Swiss marine equipment company, valued at approximately US$19.45 million, was used as the vehicle. The Swiss firm had made initial payments totalling more than US$7 million. In June 2024, it suspended the remaining instalment of approximately RMB 83.9 million (around US$11.86 million) after the Chinese counterparty was placed on OFAC’s Specially Designated Nationals (SDN) list. The suspension was expressly grounded in sanctions compliance obligations.

The Chinese company filed a request with the Nanjing Maritime Court to seize a vessel owned by the Swiss company. The court granted the preliminary injunction in September 2024. The Chinese manufacturer then filed suit in October 2024 under Article 12 of the AFSL, asserting a tort claim for losses arising from the Swiss company’s decision to comply with US sanctions. The Swiss company applied to OFAC, obtained a specific payment licence, and deposited approximately US$14 million with the court as a counter-guarantee to secure the vessel’s release. The Nanjing Maritime Court facilitated a mediated settlement in November 2024.

The Supreme People’s Court highlighted the case in its March 2025 work report to the National People’s Congress as the first civil action brought under the AFSL. The case report, published on China’s People’s Court Case Database, confirmed that the court recharacterised the dispute from a contractual to a tortious claim to fit Article 12’s private right of action. The precedent confirms that Chinese courts are prepared to hear claims against foreign parties that implement blocked US sanctions and thereby cause losses to Chinese citizens or organisations. Private litigation can move faster than state enforcement, and Chinese companies are already alert to the mechanism.

Practical Implications for UK Businesses

UK businesses must comply with the Sanctions and Anti-Money Laundering Act 2018 (SAMLA), which requires compliance with designations on the UK Sanctions List maintained by the Foreign, Commonwealth and Development Office (FCDO). The UK’s February 2026 Russia sanctions package, its largest since the full-scale invasion of Ukraine, included Chinese companies supplying dual-use goods and technology to Russia’s military-industrial complex. OFSI enforces those obligations on a strict liability basis: a civil monetary penalty can be imposed without proof that the business knew a breach had occurred.

The May 2026 blocking order concerns US, not UK, sanctions. The five designated Chinese petrochemical companies appear on the OFAC SDN list under US executive orders relating to Iran. OFAC designations do not automatically bind UK businesses, but, as I point out to my clients, secondary sanctions exposure, the risk of losing access to the US dollar clearing system, and US correspondent banking relationships create strong commercial reasons for compliance. US Secretary of State Marco Rubio confirmed on 6 May 2026 that any entity honouring payments to the five blocked companies, including foreign financial institutions, would face secondary sanctions designation. A UK bank or trader that makes a payment to comply with China’s blocking order, therefore, risks being cut off from the US financial system.

In my opinion, there is no straightforward resolution at present. Compliance with the blocking order exposes a business to the risk of OFAC secondary sanctions. Compliance with OFAC exposes the Chinese subsidiary to Chinese administrative penalties and Article 12 civil litigation. Each transaction involving the five named companies requires individual analysis: what currency is used, is there a US nexus, and does OFAC’s reach actually extend to this specific payment?

Practical steps for UK businesses with Chinese exposure include the following:

• Review whether any counterparties in your Chinese supply chain are among the five named petrochemical companies or their affiliates. Dealings with those entities now engage both OFAC exposure (for US-dollar transactions or US-nexus activities) and Chinese regulatory obligations under the blocking order.
• Avoid blanket compliance policies that automatically block all transactions with SDN-listed entities. The blocking order specifically targets overcompliance: each transaction should be assessed individually against the actual scope of the applicable OFAC executive order.
• Assess whether a MOFCOM exemption or an OFAC-specific licence can reduce the dilemma. Article 8 of the 2021 Blocking Rules permits Chinese citizens, legal persons, and organisations to apply to MOFCOM for an exemption within 30 days of the prohibition taking effect. MOFCOM has 30 days to respond or must act promptly in urgent circumstances. An OFAC-specific licence can separately authorise an otherwise restricted transaction. Neither route eliminates the underlying conflict between two sovereign legal systems, but both can reduce immediate exposure.
• Audit Chinese subsidiary compliance policies. A Chinese subsidiary of a UK company is legally required to comply with the blocking order. UK parent companies and UK nationals acting in their personal capacity as foreign individuals are not directly bound. Uniform group-wide compliance policies may need to be restructured along jurisdictional lines.
• Take specialist legal advice before acting. With criminal exposure under SAMLA at home and civil and administrative exposure in China, in my experience, this requires sanctions litigation and compliance legal expertise, not a unilateral decision by a compliance team.

Policy Direction and the Expanding Toolkit

The 2 May 2026 blocking order is part of a wider pattern. On 24 April 2026, one week before the order was issued, MOFCOM added seven EU defence and aerospace entities to China’s export control restricted list, prohibiting the export of dual-use items to those companies. The stated basis was arms sales to Taiwan; the timing, coming directly after the EU’s twentieth Russia sanctions package targeted Chinese entities, makes the sequence clear. The April 2026 supply chain and extraterritoriality regulations carry the same logic: they translate existing policy objectives into binding administrative law, enforceable by a coordinated apparatus of more than fifteen government agencies.

The breadth of Decree No. 834 deserves specific attention. Its supply chain disruption provisions can capture commercial decisions that appear to have nothing to do with state conduct. Terminating a Chinese supplier to comply with the EU’s Corporate Sustainability Due Diligence Directive or the US Uyghur Forced Labor Prevention Act may engage the Regulations if that termination disrupts a supply chain that the Chinese state regards as protected. Providing documents in foreign litigation that involve a Chinese subsidiary may also engage the prohibition on supply chain investigations conducted in violation of Chinese law.

Decree No. 835’s Malicious Entity List adds a separate exposure. It can catch lobbyists, think tanks, and professional advisers who assist in the implementation of extraterritorial measures. The outer edges of that provision are not yet tested in the courts. What is clear is that the direction of travel is consistent: China is converting its counter-sanctions architecture from a declaratory framework into an operational enforcement regime.

Frequently Asked Questions

Does China’s blocking order apply directly to UK companies?

The 2 May 2026 blocking order applies to Chinese citizens, legal persons, and other organisations, which include Chinese subsidiaries of UK companies. UK parent companies incorporated in England and Wales, and UK nationals acting in their personal capacity as foreign individuals without a Chinese legal presence, are not directly subject to the order. They may, however, face indirect exposure through their Chinese subsidiaries and through US secondary sanctions pressure if they comply with the blocking order.

What is the risk of simply doing nothing?

Doing nothing is itself a compliance decision with exposure on both sides. A Chinese subsidiary that continues to transact with the five named petrochemical companies without a blocking order analysis may breach OFAC sanctions where there is a US nexus. Ceasing those transactions in compliance with OFAC, without first applying for a MOFCOM exemption, exposes the subsidiary to Chinese administrative penalties and Article 12 civil litigation. There is no passive position that avoids exposure in both jurisdictions simultaneously.

Can a MOFCOM exemption resolve the conflict?

A MOFCOM exemption can authorise non-compliance with the blocking order where a genuine justification is provided, but it does not constitute an OFAC licence and does not resolve US sanctions exposure independently. A business that obtains a MOFCOM exemption to continue complying with OFAC measures still needs to assess its OFAC position on its own terms. MOFCOM has 30 days to decide an exemption application, or must act promptly in urgent cases.

Is the Nanjing Maritime Court case binding on Chinese courts?

The Nanjing case has been highlighted by the Supreme People’s Court as the first civil action brought under the AFSL and included in the People’s Court Casebooks as persuasive authority for courts nationwide. No full judgment on the merits was issued because the parties settled. Courts retain discretion in how they characterise similar claims. The case, however, confirms that the private cause of action under Article 12 is operational and that at least one Maritime Court is willing to grant preliminary asset-freezing orders on that basis.

How does the blocking order affect contracts governed by English law?

A Chinese subsidiary bound by a contract governed by English law remains subject to Chinese mandatory law, including the Blocking Rules, as a matter of Chinese public policy. Chinese courts will not enforce contractual provisions that require a subsidiary to comply with blocked foreign sanctions and may treat such provisions as void under Chinese mandatory law. A foreign court ruling that enforces blocked OFAC sanctions is unlikely to be recognised in China. For contracts with Chinese law-governing clauses or Chinese arbitration seats, the Blocking Rules now constitute mandatory applicable law that overrides contractual sanctions-compliance provisions.

This article provides general information about Chinese counter-sanctions law as of May 2026. It does not constitute legal advice for any specific situation. The law in this area is developing rapidly. Businesses affected by China’s blocking order or the wider counter-sanctions framework should take specialist legal advice from a qualified solicitor with experience in both UK sanctions law and Chinese regulatory compliance.

To discuss your position, contact Eldwick Law on +44 (0) 203 972 8469 or at mail@eldwicklaw.com.