China’s New Supply Chain Security Rules Raise the Risks for Foreign Companies

On April 7, 2026, China turned supply chain decisions into national security decisions. The regulations took effect the same day. No transition period.

These regulations, issued as State Council Order No. 834, give Chinese authorities a formal mechanism to investigate and punish foreign governments, organizations, companies, and individuals whose conduct is deemed harmful to China’s industrial or supply chain security.

For companies already navigating U.S. tariffs, export controls, forced labor rules, and sanctions, this creates a conflict-of-laws problem where a careless procurement email can cause a foreign executive to be banned from leaving China

The Trap Is Legal Asymmetry

What a U.S. compliance officer calls due diligence, a Chinese regulator may call discrimination. What a European customer calls forced labor compliance, China may call interference with normal commercial transactions. What a board calls China risk reduction, Beijing may call politically motivated supply chain disruption.

A company complying with the Uyghur Forced Labor Prevention Act may stop using a supplier with unclear Xinjiang exposure. Washington calls that mandatory compliance. Beijing may call it discrimination.

PVH shows how quickly this can move from compliance to punishment. In February 2025, China added PVH Corp., the parent company of Calvin Klein and Tommy Hilfiger, and Illumina to its Unreliable Entity List. Beijing’s allegation was that both companies had terminated normal transactions with Chinese entities and adopted discriminatory measures against them.

PVH was not accused of espionage. It was accused of making sourcing and business decisions China considered discriminatory. That is the new exposure.

H&M is the earlier version of the same story. In 2021, H&M became a target in China after a prior statement about not sourcing cotton from Xinjiang resurfaced. The company was removed from major Chinese e-commerce and service apps, and Chinese map apps blocked H&M searches.

H&M had done what Western compliance required. It responded to forced labor concerns and disclosed its sourcing policy. What it had not done was account for how that statement would read in Beijing two years later, at a moment of maximum political friction.

What happened to H&M through state media, nationalist pressure, and commercial retaliation can now happen through investigation, restriction, and legal sanction.

The Pincer Movement

Order No. 834 did not arrive alone. On April 13, 2026, China issued State Council Decree No. 835, a separate regulation aimed at countering what China views as unlawful foreign extraterritorial jurisdiction measures. Those rules also took effect immediately.

On one side, U.S. law, including the UFLPA, may require companies to investigate supply chains, trace inputs, reject goods, or stop using certain suppliers. On the other side, China may treat those same actions as discriminatory, politically motivated, or harmful to Chinese industrial and supply chain security.

U.S. law and Western customers increasingly demand transparency. China may treat that transparency as cooperation with foreign pressure. Western customers demand forced labor compliance. Chinese suppliers may view those requests as sensitive or dangerous.

Say yes to one legal system, and you may create exposure under another.

That conflict does not get solved in theory. It gets solved, or made worse, in procurement files, audit questionnaires, supplier termination letters, customs records, board decks, and emails. The companies most exposed are those with significant China operations that also face serious UFLPA or sanctions compliance obligations, because they cannot fully satisfy either side without creating exposure on the other.

The Rules Have Teeth

The rules cover foreign governments and international organizations that impose restrictions China considers discriminatory. They also reach foreign organizations and individuals whose conduct is viewed as disrupting normal transactions with Chinese entities, applying discriminatory measures, or causing or threatening substantial harm to China’s industrial or supply chain security.

If Chinese authorities find a violation, they can restrict trade, investment, cooperation, market access, and other business activity. Individuals can face restrictions on entry, work, or residence in China. And their investigation tools are broad. Chinese Authorities may question personnel, review and copy corporate records, and require cooperation from parties under investigation.

An “investigation” is not just a document request. It can become a freeze on business operations, a demand for internal communications, and a reason your regional head cannot board a flight home.

And if you don’t think Beijing is capable of these sorts of actions, take it from me, they are.

I Have Seen Exit Bans Up Close

I have personally dealt with more than two dozen China exit-ban matters. In some, the person knew exactly why they were being blocked from leaving. In others, the situation was murkier: people inside China feared they had already been flagged, while people outside China feared that flying to China could mean not being able to fly back out.

The common thread was almost never espionage or a dramatic criminal charge. Most of the time it was a business dispute, an unpaid debt, or a falling-out with a Chinese partner. Ordinary commercial friction, dressed up as a national security matter.

That experience matters here because China’s new supply chain rules create more ways for commercial disputes to be recast as national security problems.

Why Beijing Is Doing This

China views these rules as a proportionate response to U.S. sanctions, export controls, tariffs, forced labor laws, investment restrictions, and allied “de-risking” policies. Beijing does not view those measures as neutral compliance rules. It sees them as part of a broader effort to weaken China’s industrial position, and Order No. 834 gives China a legal framework for pushing back.

Your Supplier Has Its Own Risk

A Chinese supplier receiving your forced labor questionnaire may not read it the way your compliance team wrote it. A request to disclose sub-supplier information, labor practices, origin details, employee information, or production flows may look to that supplier like a request to cooperate with a foreign investigation into sensitive Chinese supply chain issues.

A Chinese factory that feels threatened by a foreign buyer’s audit, termination, or data request may have incentives to report the issue to local authorities rather than cooperate quietly.

Foreign companies may still need the information. U.S. law, customer contracts, and internal compliance rules may require it. But the Chinese counterparty may now have legal and political reasons to resist providing it.

The practical consequence is that a questionnaire your compliance team considers routine may land on the desk of a supplier who now has a legal reason to call a government official instead of answering it. Ponder that for a moment. 

The Emails Are the Problem

A sloppy email can become the blueprint a Chinese regulator uses to build a case against you.

“Get out of China” is not the same as “shift production because of tariff exposure, customer delivery requirements, quality concerns, and concentration risk.”

“Stop using Chinese suppliers” is not the same as “review suppliers based on documented compliance, pricing, reliability, and origin-verification criteria.”

“Xinjiang problem” is not the same as “unable to verify supply chain inputs to the level required by applicable U.S. import law and customer contractual obligations.”

The underlying facts may be identical. What changes is whether a Chinese regulator, reading your procurement files, sees a business decision or a political act.

A sloppy email creates legal risk. It creates the narrative someone else uses to tell your story. Think long and hard before you write anything to or from China.

Audits Are No Longer Routine

The regulations also raise the stakes for audits, supplier reviews, investigations, and supply chain mapping inside China.

The Mintz Group case was the warning shot. In March 2023, Chinese authorities raided the Beijing office of Mintz Group, a U.S. due diligence firm, and detained five local staff members. Mintz said it had received no advance notice or official legal notice of a case against it.

China later fined Mintz $1.5 million – not for espionage, not for fraud, but for conducting “foreign-related statistical investigations” without the required approval. The work looked like the kind of due diligence foreign companies hire firms to perform every day. China treated it as illegal.

Due diligence is not prohibited in China. But information-gathering that touches sensitive supply chain, labor, market, or business-information questions can be reframed as an illegal foreign investigation, and the people doing the work, not just the company that hired them, may bear the consequences.

Companies should not assume that activities that were routine five years ago remain low-risk today. Forced labor audits, ESG reviews, supplier questionnaires, employee interviews, sub-supplier tracing, data transfers, and third-party investigations can all become sensitive if they touch on issues China views as national security, industrial policy, sanctions, or foreign pressure.

And let’s get real here. Some favored foreign companies will be able to do things that disfavored foreign companies cannot.

Some Companies Will Get More Room Than Others

Some foreign companies will get more room than others. That is how China works.

A company that employs large numbers of people in China, pays substantial taxes, supplies a strategic industry, or helps a local government hit its economic targets will usually get more patience than a company China views as expendable. A foreign company selling into China’s domestic market may be treated differently from one that uses China mostly as an export platform.

The same is true politically. A company that aligns with China’s industrial policy, localizes operations, keeps stable relationships with Chinese suppliers, and avoids public political positioning is usually in a better position. A company that talks loudly about “getting out of China,” abruptly terminates Chinese suppliers, conducts aggressive audits, extracts sensitive data, or becomes a useful political example is in a worse one.

Two foreign companies can make similar supply chain decisions and get very different reactions. The law may be the same on paper, but enforcement risk often turns on how the company is viewed, who it has angered, what sector it operates in, and whether officials see it as useful, neutral, or hostile.

Nationality matters too. A Russian company will usually be viewed differently from an American company. A Belarusian national will usually be viewed differently from a Chinese-American. These distinctions may not appear in the written rules, but they matter in the real world.

The question is not just, “Are we allowed to do this?” The better question is, “How will this look in China, who might object, and how much political or commercial protection do we actually have if they do?” If you do not know the answers, find someone who does.

Diversify Quietly, With Documentation

The regulations are too broad for any company to claim it is completely safe. But there is a meaningful difference between a company that diversifies quietly, on documented commercial grounds, and one that announces a China exit strategy in a press release.

Keep China production for the China market while moving some export production elsewhere, and you have a more defensible commercial story. Abruptly exit Chinese suppliers while citing geopolitical pressure, and you have a harder one.

A company that records objective supplier criteria, tariff exposure, logistics concerns, quality issues, customer requirements, and legal obligations is in a better position than one that relies on vague references to “China risk.”

What Companies Should Do Now

The goal is not to avoid all China risk. That is impossible. The goal is to make sure that if your decisions are ever reviewed the record shows a company that you acted on legitimate business and legal grounds, not one that stumbled into a geopolitical argument it never meant to make.

Review the paper trail. Look at procurement files, supplier termination notices, board materials, compliance memos, customer communications, and public statements. Where you find casual references to decoupling, exiting China, or “Xinjiang problems,” understand that those documents exist and may be read by people who will not view them charitably. You can control what you write from here forward.

Restructure how you audit. Forced labor reviews, ESG audits, supplier questionnaires, and origin-verification requests should be reviewed for China risk before they are sent. The issue is not only what you ask. It is who asks it, how it is phrased, what data is collected, where the data goes, and whether the process can be characterized as a foreign-directed investigation. Talk with the companies you use for your audits. Make sure they understand what is at stake, and if they don’t, hire someone who does.

Take exit-ban risk seriously. If you have executives or employees in China, do not send additional personnel into the country during an active supplier dispute, audit, investigation, or termination without a deliberate decision at the right level. Regional leadership should understand that being physically present in China changes the risk. The time for an exit-ban strategy is before anyone gets on a plane to China, not after they are stopped at the airport.

Prepare for conflict-of-laws decisions. Companies operating between U.S., EU, and Chinese legal regimes should assume they will face situations where satisfying one jurisdiction creates exposure in another. Those decisions should be made deliberately, not through scattered emails between procurement and compliance.

How Harris Sliwoski Can Help

If your company is caught between U.S. or EU compliance obligations and China’s new supply chain security rules, or if you have personnel in China and need to assess exit-ban risk before anyone gets on a plane, we can help.

The time to assess these risks is before a supplier termination, before a sensitive audit, and before your executives or employees travel to China. Once a dispute has triggered government attention, the options have narrowed.

The Reality Check

Diversification is still legal. Reducing dependence on China is still possible. Companies can still move production, change suppliers, comply with U.S. law, and respond to customer requirements. It is more important than ever to reduce your China footprint the right way. See How to Leave China AND Survive.

The companies most at risk are the ones leaving China carelessly, loudly, or with a bad paper trail.