Understanding China’s unreliable entity list: risks for Canadian companies

On September 19, 2020, China officially launched the Regulations on the Unreliable Entity List (“Regulations”). Developed as a countermeasure to foreign restrictions on Chinese firms, the list targets companies and organizations that disrupt business with Chinese entities for non-commercial or politically motivated reasons.

The measure is administered by the Ministry of Commerce (MOFCOM).

According to the Regulations, the Unreliable Entity List was established to:

1. counter foreign actions that block, delay, or cut off supplies, technologies, or services to Chinese companies without legitimate commercial reasons
2. safeguard the lawful rights and interests of Chinese enterprises
3. uphold China’s national security and market economy principles

Foreign companies, organizations, or individuals may be added to the Unreliable Entity List based on factors such as taking discriminatory actions against Chinese entities, violating market economy rules or threatening or undermining China’s national security or development interests. MOFCOM assesses the nature, extent, and consequences of these actions before designating an entity as "unreliable."

Once a company or organization is placed on the Unreliable Entity List, it may face a range of penalties, including:

• restrictions or bans on import/export activities
• limits on investment in China
• denial of licenses or approvals for operations in China
• prohibition on entry for personnel associated with the listed entity
• revocation of work permits or residency qualifications
• fines and other administrative sanctions