Developments of China’s Counter-Sanctions Regime in 2026

Over recent months, Chinese[1] authorities have actively expanded China’s counter-sanctions toolkit through additional regulations and enforcement actions. In April 2026, China’s State Council instituted two new regulations to broaden restrictions on foreign legal actions that have extraterritorial effect in China (“Counter-Extraterritorial Jurisdiction Regulation”) and limit information gathering on Chinese supply chains (“Supply Chain Regulation”). In May 2026, the Ministry of Commerce (“MOFCOM”) issued its first-ever blocking order under the 2021 Blocking Rules, prohibiting implementation of U.S. Specially Designated Nationals (“SDN”) designations against five Chinese “teapot refineries” by any parties in China. In the same month, the Ministry of Justice (“MOJ”) announced its determination that the EU Commission’s demands for “extensive and unnecessary” records located in China in connection with an anticompetition investigation constituted an improper exercise of extraterritorial jurisdiction. This year, multiple Chinese courts have accepted civil suit filings by Chinese companies against foreign business partners for damages under the Anti-Foreign Sanctions Law (“AFSL”). Multinationals seeking to balance these risks against compliance with foreign sanctions should consider the risk mitigation strategies discussed below.

I. Recent Developments in China’s Counter-Sanctions Toolkits

As early as 2020–2021, China started building a multi-layered legal framework, providing general principles in countering foreign sanctions. The foundational instruments are described in the chart below.

In 2026, China further expanded this framework through two new State Council regulations[5] described below.

II. Recent Enforcement Actions and Private Lawsuits

A. MOFCOM’s First Blocking Order: U.S. Sanctions on Teapot Refineries

On May 2, 2026, MOFCOM issued the first-ever blocking order (the “Blocking Order”) under the Blocking Rules since its establishment in January 2021. This Blocking Order applies to five Chinese “teapot refineries” that the U.S. Office of Foreign Assets Control (“OFAC”) had designated as SDNs between March 2025 and April 2026 for alleged purchase and refinery of Iranian crude oil. The Blocking Order prohibits implementation of OFAC’s sanctions measures against these five Chinese oil refinery companies.

The Blocking Order creates a genuine two-way compliance conflict for banks, insurers, and business counterparties with operations in China. Freezing assets, cutting off supplies, or refusing to transact with the five companies as OFAC now requires would expose parties in China to penalties under Chinese law. Under Article 13 of the Blocking Rules, MOFCOM may issue warnings, corrective orders, and/or impose fines (in amounts not specified in the Blocking Rules) on Chinese entities or individuals that fail to comply with a blocking order. Additionally, the Blocking Order targets specific OFAC designations under the Iran sanctions program. This tailored scope shows China’s effort to focus its regulatory actions on high-stakes international concerns.

According to media reports, following his May 2026 state visit to China, U.S. President Donald J. Trump indicated that he was considering lifting the sanctions against the five “teapot refineries.”

B. MOJ’s First Non‑Assistance Order: EU Foreign Subsidies Regulation (“FSR”) Probe

On May 15, 2026, MOFCOM and MOJ jointly blocked an EU cross-border investigation in China—for the first time under the Counter-Extraterritorial Jurisdiction Regulation—determining that the EU’s investigative steps in China constituted an improper exercise of extraterritorial jurisdiction[9] The determination arose from the EU’s FSR probe into Nuctech, a Chinese state-affiliated manufacturer of security inspection and cargo-scanning equipment. Under the FSR, the European Commission may open a formal investigation into whether a company has received foreign government subsidies that allegedly distort competition in the EU’s market; if the Commission finds a distortion, it may impose remedies or block the company from EU public procurements and mergers. In January 2025, MOFCOM and MOJ concluded that the FSR investigations into Nuctech and other Chinese companies constituted trade and investment barriers and urged the EU to correct its course.[10] When the Commission instead escalated its investigation—reportedly requiring Chinese banks to disclose extensive information located in China—MOFCOM and MOJ prohibited all persons and entities within China from assisting the EU’s probe, citing the need to safeguard China’s “sovereignty, security, and development interests.”

While the AFSL and the Blocking Rules respond to foreign commercial sanctions, the underlying matter here was an EU subsidy investigation with no sanctions dimension, and there is no public report that the EU had imposed any finalized FSR decision imposing remedial measures or penalties against Nuctech. Through the decision, China has signaled that the regulators would intervene at an early stage. A company’s response to a foreign authority’s demand for records or information from China may itself impose regulatory risks under Chinese laws.

C. Private Lawsuits Under the AFSL Principles

1. Haiyue Cases (February–March 2026)

Haiyue Energy Group Co., Ltd. (“Haiyue”), a Chinese state-controlled company, reported that in July 2023,[11] it wired approximately US$40 million to a Hong Kong entity, China Oil and Petroleum Co. (“COPC”), through two U.S. correspondent banks for oil purchases. However, the two banks never completed the wire transfers. In February 2024, OFAC designated COPC as an SDN, alleging it acted as a front for Iran’s Islamic Revolutionary Guard Corps. In May 2024, the two banks notified Haiyue via SWIFT messages that the funds had been “released to OFAC” or frozen “pursuant to OFAC directives.”

In February and March 2026, Haiyue brought two separate civil actions[12] in the Beijing and Shanghai Financial Courts against the Chinese subsidiaries of both U.S. banks, seeking damages of approximately US$40 million plus interest. Haiyue’s complaints assert that the banks’ implementations of OFAC sanctions amount to assisting in “discriminatory restrictive measures” against a Chinese enterprise, invoking principles underlying the AFSL and the Blocking Rules. Two courts in Beijing and Shanghai agreed to adjudicate the lawsuits; both cases are now pending. Note in these cases, Haiyue is not sanctioned by OFAC. They involve a Chinese plaintiff that was harmed by the implementation of foreign sanctions measures and sought to protect its commercial interests under the AFSL principles.

2. Wingtech Case (May 2026)

In May 2026, Chinese semiconductor company Wingtech sued its Dutch subsidiary Nexperia and its senior executives in a Chinese court.[13] Wingtech is seeking restoration of full control over Nexperia and approximately US$1.2 billion (RMB 8 billion) in damages for alleged irreparable losses caused by the Dutch government’s restrictive measures. This lawsuit arose from a series of geopolitical events between the two nations.

• On September 30, 2025, the Dutch Minister of Economic Affairs invoked the Dutch Goods Availability Act of 1952 against Nexperia,[14] citing threats to European economic security due to alleged improper transfer of Nexperia’s production capacity to an unnamed foreign entity owned by the then-CEO and not connected to Nexperia, which would empower the Dutch Minister of Economic Affairs to block decisions deemed harmful to Nexperia’s production capacity in the EU’s supply chain.
• Nexperia reported that on October 4, 2025,[15] MOFCOM prohibited Nexperia China and its subcontractors from exporting certain finished components and sub-assemblies manufactured in China, causing supply chain concerns for the European automobile industry.
• On October 7, 2025, the Dutch Enterprise Chamber of the Amsterdam Court of Appeal (the “Dutch Enterprise Chamber”) suspended Nexperia’s then-CEO with a Chinese background and placed substantially all of Wingtech’s voting rights under an independent administrator appointed by the Dutch Enterprise Chamber.[16]
• In November 2025, the Dutch Minister of Economic Affairs suspended its September 2025 order based on the progress in trade negotiations with the Chinese government.[17]
• In February 2026, the Dutch Enterprise Chamber ordered an investigation into Nexperia’s operations as Wingtech was designated on the U.S. Entity List for export restrictions, and Nexperia itself might be subject to U.S. export controls.[18]

In its May 2026 civil suit complaint, Wingtech invoked the AFSL and sought additional relief alongside damages: (i) a judicial declaration that the defendants implemented discriminatory measures of the Dutch authorities; and (ii) an order requiring defendants to facilitate termination of the Dutch Enterprise Chamber proceedings and the Dutch Minister of Economic Affairs’s order or, failing that, to transfer 100% of Nexperia’s shares back to Wingtech.[19]

III. Practical Risk Mitigation Strategies for China‑Facing Business

1. Map High‑Risk Conflict Scenarios in Advance. By business line and counterparty, identify where U.S., EU, or other foreign sanctions or regulatory demands could require actions (e.g., stopping payments, freezing funds, producing information located in China) that may be perceived as discriminatory action by Chinese regulators. Assess how business operations might be affected and any compliance risks under Chinese laws before implementing such actions.
2. Review Corporate and Contractual Arrangements for Dual-Compliance Flexibility. Review agreements with counterparties that have a China nexus to confirm that potential counter-sanctions exposure is adequately addressed through appropriate corporate structures and contractual arrangements, e.g., governing law, dispute resolution, force majeure provisions, and/or other termination options.
3. Handle Foreign-Regulator Information Demands with Caution. Before responding to a foreign authority’s request for information or cooperation, assess the request under the Counter-Extraterritorial Jurisdiction Regulation, the Supply Chain Regulation, and other potentially applicable Chinese laws (e.g., data export and state secret rules).
4. Monitor High-Stakes International Disputes. So far, Chinese regulators have focused their actions on high-stakes international disputes (e.g., U.S. sanctions against Iran and the EU’s FSR probes), or sensitive sectors that are deemed to involve significant national interest (e.g., AI technology). Accordingly, multinational corporations should monitor such matters that would more likely fall in China’s heightened national interest review scrutiny.

Morrison Foerster frequently works with financial institutions and multinational corporations across sectors to devise bespoke strategies for mitigating sanctions and counter-sanctions risk in the course of China operations and supply chain diligence. Our team would be happy to discuss how we may be able to further assist your organization.

As further explained in the Terms / Notices linked below, the information provided herein is not legal advice. Any information concerning the People’s Republic of China (PRC) is not an opinion on, determination on, or certification of the application of PRC law. We are not licensed to practice PRC law.

[1] For the purpose of this article, “China” or “Chinese” refers to Mainland China and excludes the regions of Hong Kong, Macau, and Taiwan.

[2] 《不可靠实体清单规定》

[3] 《反外国制裁法》

[4] 《阻断外国法律与措施不当域外适用办法》

[5] Relatedly, on June 1, 2026, China’s State Council published the Regulations on Outbound Investment. While the regulations focused primarily on outbound investment control, they also include countermeasures and penalties for foreign investment and trade restrictions deemed discriminatory against Chinese entities. For further detail on the these regulations, see our separate client alert “China’s ODI Rules Just Changed—Here’s What It Means for Cross-Border Tech Transactions”

[6] 《反外国不当域外管辖条例》

[7] For further details, see our client alert “China Issues New Regulations Countering Foreign States’ Extraterritorial Restrictive Measures”

[8] 《国务院关于产业链供应链安全的规定》

[9] 《司法部发布关于欧盟外国补贴调查相关做法构成不当域外管辖的公告》

[10] 《商务部公告2025年第3号 商务部关于就欧盟依据《外国补贴条例》对中国企业调查中采取的相关做法进行贸易投资壁垒调查最终结论的公告》

[11] 《海越能源集团股份有限公司重大诉讼公告》 at https://pdf.dfcfw.com/pdf/H2_AN202602271820104769_1.pdf?1772215275000.pdf and https://pdf.dfcfw.com/pdf/H2_AN202603061820340028_1.pdf?1772811113000.pdf.

[12] Id.

[13] 《闻泰科技股份有限公司重大诉讼公告》

[14] Letter to the Parliament on the invoked Goods Availability Act

[15] Update on Company Developments

[16] Id. Also see October 7, 2025 judgement of the Dutch Enterprise Chamber (in Dutch)

[17] Update on invoking Goods Availability Act

[18] See February 11, 2026 judgment of the Dutch Enterprise Chamber (in Dutch)

[19] 《闻泰科技股份有限公司重大诉讼公告》