Understanding China’s sanctions rules

Key measures that make up China’s sanctions framework include the:

• Anti-Foreign Sanctions Law
• Blocking Rules
• Unreliable Entity List

Enacted on June 10, 2021, the China’s Anti-Foreign Sanctions Law (AFSL) allows Chinese authorities to impose retaliatory sanctions on individuals, organizations, and governments perceived to support or implement discriminatory measures against China’s sovereignty, security, or development interests.  Unlike most Chinese trade-related measures, the AFSL is administered by the Ministry of Foreign Affairs.

On March 23, 2025, China significantly expanded this framework by issuing the “Provisions on the Implementation of the Anti-Foreign Sanctions Law.” These new rules: 

• enhance enforcement capabilities
• formalize investigative powers
• introduce non-economic penalties

Under the ASFL, Chinese authorities can impose countermeasures on a broad range of foreign individuals, organizations, and institutions. 

Targets may include:

• those directly involved in or responsible for implementing foreign sanctions or discriminatory actions against Chinese citizens or entities
• entities affiliated with or supporting sanctioned individuals or organizations
• spouses and direct relatives of designated individuals

Sanctions can also be triggered by broader actions that China deems harmful to its national interests, including:

• supporting or facilitating foreign sanctions against Chinese entities
• interfering in China’s internal affairs (such as issues related to Hong Kong, Taiwan, or Xinjiang)
• undermining China’s sovereignty, security, or development goals

The law now treats foreign judicial decisions and enforcement measures as legitimate grounds for retaliation. This means that legal rulings or actions taken abroad, even those issued by independent courts, can result in sanctions from China if they are perceived to adversely affect Chinese interests.

The list of countermeasures has been expanded well beyond commercial or financial penalties. They now include:

• visa denials
• entry bans
• deportation
• visa cancellations
• asset freezes
• property seizures
• investments bans
• export prohibitions
• restrictions on data transfer
• prohibitions on cooperation in sectors such as:
  • education and research
  • law and legal services
  • environmental initiatives
  • culture and entertainment
  • health, tourism, and sports
  • trade and technology

Authorities are now explicitly empowered to:

• conduct investigations and interviews with sanctioned entities or their affiliates
• request information and records
• enforce compliance through administrative penalties

This introduces new reputational and legal risks for foreign nationals present in China.

Chinese citizens and companies affected by foreign sanctions may seek injunctions or compensation through Chinese courts. Sanctioned foreign individuals or entities may apply to suspend or cancel countermeasures if they can demonstrate corrective action, changes in policy and cessation of involvement in the triggering behavior.

A Canadian company, executive, or affiliate could be targeted if they are perceived to support foreign sanctions against Chinese entities, or even by cooperating with sanctioned foreign partners. Appeal rights are entirely at the discretion of Chinese authorities and not subject to independent judicial review.

On January 9, 2021, with approval from the State Council, China’s Ministry of Commerce (MOFCOM) issued the Rules for Blocking the Improper Extraterritorial Application of Foreign Laws and Measures, commonly referred to as the Blocking Rules. This is another legal mechanism in China’s growing toolkit to counteract foreign laws that extend beyond their borders and affect Chinese commercial interests.

For Canadian companies, understanding the Blocking Rules is important for managing compliance risks. It is especially important for companies with complex global supply chains or operations involving U.S. and Chinese partners.

Canadian businesses operating in China, working with Chinese suppliers or customers, or subject to U.S. or EU sanctions may face conflicting legal requirements. For example, following foreign sanctions could violate China’s Blocking Rules, while ignoring those sanctions could result in penalties from the country that imposed them.

The Blocking Rules are designed to shield Chinese entities from foreign laws that:

• have extraterritorial effect
• violate international law or international norms
• unjustifiably restrict normal economic and trade relations between Chinese parties and third countries

Essentially, the rules aim to push back against foreign regulations that China perceives as interfering with its trade and commercial sovereignty.

The Blocking Rules apply to foreign laws and measures that limit or prohibit Chinese entities from engaging in normal economic activities with third countries or regions. This may include restrictions on:

• supplying or sourcing goods and services
• participating in:
  • contracts
  • investments
  • joint ventures
• engaging in lawful trade with third-country businesses affected by another nation’s sanctions or regulations

Chinese entities affected by such foreign laws must report to MOFCOM within 30 days of becoming aware that their trade or economic activity with a third party is being restricted. They must also use MOFCOM’s designated channels for submitting relevant information. Failure to report may result in regulatory penalties, including fines and administrative sanctions.

MOFCOM may issue blocking orders that prohibit Chinese parties from complying with designated foreign laws or measures. Key provisions include:

• Blocking orders: Mandate that Chinese parties do not comply with specific foreign measures
• Exemptions: Chinese parties may apply for an exemption from a blocking order under certain conditions
• Confidentiality protections: Information submitted during the process is protected by law
• Penalties: Non-compliance with a blocking order may result in legal or administrative consequences

The Blocking Rules permit Chinese entities to file lawsuits in Chinese courts and seek compensation for damages incurred by a foreign party’s compliance with an extraterritorial law. This opens the possibility of civil litigation in China against third parties (including foreign businesses) if their actions are based on laws deemed improper by Chinese authorities.

In 2020, China launched the regulations on the Unreliable Entity List. 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.

Companies exposed to China's Unreliable Entity List should:

• conduct enhanced due diligence
• review contracts for risk mitigation clauses
• engage local legal counsel to navigate compliance risks

Monitoring regulatory developments closely is essential to minimize legal and operational disruption.

The measure is administered by 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
• 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