On May 2, 2026, China’s Ministry of Commerce (“MOFCOM”) issued its first-ever blocking order (the “Blocking Order”) under the Rules on Counteracting Unjustified Extra-territorial Application of Foreign Legislation and Other Measures (the “Counteracting Rules”). The Blocking Order concerns U.S. sanctions imposed on five Chinese companies, in connection with alleged Iranian oil transactions.

The Blocking Order provides that the relevant U.S. sanctions measures — including SDN designation, asset freezes, and transaction prohibitions imposed on five Chinese companies pursuant to Executive Orders 13902 and 13846 — “shall not be recognized, enforced, or complied with”.

This marks the first formal application of the Counteracting Rules since their adoption in 2021 and represents an important development in China’s evolving legal framework addressing foreign extraterritorial measures.

Why Was the Counteracting Rules Mechanism Activated Now?

For years, U.S. sanctions have had significant practical impact on Chinese companies because of the central role of the U.S. financial system and the broad reach of U.S. secondary sanctions. Once designated, affected companies often face immediate termination of commercial relationships by suppliers, customers, banks, and logistics providers worldwide.

China’s latest move appears intended both to respond to increasing sanctions pressure and to signal that certain foreign sanctions measures will encounter legal pushback.

The timing is notable. The U.S. has significantly intensified sanctions targeting Chinese entities allegedly involved in Iranian oil trade since last year, extending beyond smaller trading companies to major refiners, ports, shipping operators, and logistics providers. Among the five companies designated, the sanctions imposed on HengLi Petrochemical (Dalian) Refinery Co., Ltd. (“Hengli Refinery”) drew particular attention given the company’s importance within China’s petrochemical industry and supply chain. As one of China’s largest refining and petrochemical groups, Hengli Refinery maintains extensive upstream and downstream commercial relationships both domestically and internationally. As a result, the U.S. sanctions measures againstHengli Refinery were widely viewed as having the potential to create broader market and supply chain disruption.

More importantly, concerns had already begun to emerge that U.S. sanctions pressure could expand further into the financial sector. Reports in April 2026 that Chinese banks could face secondary sanctions exposure in connection with Iran-related transactions likely heightened regulatory sensitivity in China, particularly given the systemic implications that financial-sector sanctions could have for a much broader range of domestic and multinational businesses operating in or with China.

At the same time, China had already spent several years developing both the legal regime and practical enforcement experience necessary to respond to foreign sanctions measures. In addition to earlier legislation such as the Anti-Foreign Sanctions Law and the Counteracting Rules themselves, China in recent years has increasingly expanded the application of sanctions-related countermeasures and regulatory tools in practice. More recently, the issuance of the Regulations on Countering Improper Extraterritorial Jurisdiction by Foreign States further signaled continued institutional development in this area.

Against this backdrop, MOFCOM’s decision to formally invoke the Counteracting Rules appears less like an isolated response and more like part of a broader transition from legislative framework-building to actual implementation.

What Does the Blocking Order Actually Do?

The current order is relatively narrow in scope. Specifically, it does not invalidate U.S. sanctions laws generally, nor does it reject Executive Orders 13902 or 13846 in their entirety. Rather, it blocks compliance with the specific sanctions measures imposed on the five named Chinese companies, including SDN designation, asset freezes, and transaction prohibitions.

Under the Counteracting Rules, parties subject to the Blocking Order are prohibited from recognizing, enforcing, or complying with the covered foreign sanctions measures unless they obtain an exemption from MOFCOM. TheCounteracting Rules also contemplate several possible legal consequences for non-compliance with the Blocking Order, including:

• administrative penalties;
• civil litigation exposure in China; and
• difficulties relying on sanctions-based defenses before Chinese courts.

The Blocking Order therefore introduces a new layer of legal and compliance risk for businesses operating in China, particularly where sanctions-related decisions affect Chinese counterparties or activities conducted within China.

Who May Be Affected?

The Blocking Order is especially relevant for multinational companies with operations in China, including Chinese subsidiaries and branches of foreign companies.

Although neither the Counteracting Rules nor the Blocking Order expressly define the territorial scope of the obligations, the overall structure of the regime suggests that the primary focus is on conduct occurring within China and on entities operating in the Chinese market. From the perspective of PRC regulators, China-based subsidiaries and branches of multinational companies remain subject to PRC law even where their parent companies are simultaneously subject to U.S. or other foreign sanctions regimes.

Key Compliance Questions for Multinational Companies

1. Does this create a direct conflict of laws?

Potentially, yes — particularly for multinational companies that must comply with U.S. sanctions requirements while also operating in China.

That said, the Blocking Order does not compell companies to transact with the sanctioned entities, nor does it eliminate ordinary commercial discretion. Companies may still make business decisions based on commercial, operational, financing, insurance, or broader compliance considerations. The key issue is whether specific actions could be viewed under PRC law as implementing or complying with the blocked foreign sanctions measures.

In practice, many companies will likely continue conducting case-by-case, risk-based assessments that take into account sanctions exposure, commercial risk, operational feasibility, financing constraints, and broader regulatory considerations across China and other multiple jurisdictions.

2. Can multinational companies continue following global sanctions policies?

Yes, but companies operating in China should expect increased scrutiny regarding how global sanctions and compliance policies are implemented locally.

Multinational companies operating in China remain subject to a globalized regulatory environment, including sanctions and export control requirements imposed by multiple jurisdictions. In our view, the Counteracting Rules and the Blocking Order should not be understood as seeking to fundamentally change this commercial and regulatory reality.

However, foreign laws and regulatory measures are not without limits in their application within China. The focus of the current PRC framework is more on establishing boundaries regarding how certain foreign measures may be implemented within China.

This may become particularly relevant in areas such as:

• termination of contracts with Chinese counterparties;
• suspension of payments or services;
• compliance-related representations and warranties;
• screening procedures involving Chinese entities; and
• internal group compliance directives implemented by China-based affiliates.

Relationship with China’s New Anti-Extraterritoriality Regulations

The Blocking Order also provides an early indication of how China may coordinate different anti-sanctions tools going forward.

The Counteracting Rules mainly target foreign measures that restrict Chinese entities from engaging in normal business with third countries or parties — a framework commonly associated with secondary sanctions.

By contrast, the newly issued Regulations on Countering Improper Extraterritorial Jurisdiction appear broader and could potentially cover a wider range of foreign enforcement actions, including data access requests, long-arm jurisdiction claims, and other regulatory measures viewed by China as exceeding accepted jurisdictional limits.

Together, these rules suggest that multinational companies should prepare for a more complex legal environment in which sanctions compliance and China regulatory compliance increasingly intersect.

Looking Ahead

At a practical level, MOFCOM’s first Blocking Order is unlikely to immediately change how multinational companies approach sanctions compliance. Many companies will continue balancing competing legal obligations and commercial risks on a case-by-case basis.

Nevertheless, the Blocking Order is significant because it demonstrates that China is increasingly willing to operationalize its anti-extraterritoriality framework rather than leaving it primarily at the legislative or policy level.

For multinational companies, the practical challenge will be managing competing regulatory expectations across multiple jurisdictions while maintaining commercially workable compliance structures.

Businesses with substantial operations, counterparties, supply chains, or financing exposure in China may therefore wish to reassess whether their existing sanctions compliance frameworks adequately account for PRC legal risks. In particular, companies may consider reviewing:

• China-related sanctions escalation procedures;
• contractual protections and termination rights;
• localization of compliance decision-making;
• interactions between global compliance policies and PRC law requirements; and
• protocols for handling counterparties subject to foreign sanctions.

As geopolitical tensions and competing regulatory regimes continue to evolve, the interaction between foreign sanctions compliance obligations and China’s countermeasures framework is likely to become an increasingly important issue for multinational businesses operating in or with China.