The Legal Architecture
Introduction
Most compliance frameworks are built around a single core assumption: that your legal obligations point in the same direction. You identify the applicable sanctions regime, map your exposure, and structure your controls accordingly. The framework may be complex and its implementation may be difficult. But there a general permission or prohibition.
China’s blocking regulations break that assumption entirely- Western companies operating in that environment must navigate across what precisely the local regulations block and what the US wants to restrict. And all of this because the US cannot afford to impose wide restrictions on the Chinese economy due to its dependancy on imports and trade, along with the impact such measures may have on its allies.
Over an eighteen-month period between 2020 and 2021, the People’s Republic of China enacted a suite of legislative and regulatory instruments designed to counter the extraterritorial application of foreign sanctions and export controls — the large majority of which originate in the United States. The effect for any multinational business with operations, counterparties, or financial flows touching both jurisdictions is a compliance environment with no equivalent. Because of the scale of the Chinese economy and the amount of economic power of the US, the environment created within China is unique in the sense of its need to satisfy regulatory expectations on both sides. Giving effect to certain US sanctions measures can constitute a violation of Chinese law. Failing to give effect to them can constitute a violation of US law. The conflict is not incidental — in a number of scenarios, it is structural and irresolvable at the entity level without deliberate jurisdictional architecture.
This article — the first of two parts — sets out the legal framework underpinning China’s blocking regime: how it came to exist, which instruments comprise it, and what each one does. Part 2 examines the compliance dilemma that framework creates in practice, including the first live enforcement conflict triggered by MOFCOM’s Prohibition Order of May 2026.
Background & Trigger
The legislative architecture China constructed between 2020 and 2021 did not emerge in isolation. It was a direct and deliberate response to a series of US enforcement and export control actions that Beijing concluded posed an existential threat to Chinese commercial and strategic interests. To understand why these instruments exist, it is necessary to understand what preceded them.
The ZTE Moment
The first significant warning came in 2016, when the US Department of Commerce’s Bureau of Industry and Security (BIS) added ZTE Corporation — one of China’s largest telecommunications companies — to its Entity List following an investigation into unlicensed exports of US-origin goods to Iran and North Korea. At the time, ZTE was a company of considerable scale: its full-year revenue for 2016 reached RMB 101.2 billion (approximately USD 15 billion), with its products and services sold to over 500 operators in more than 160 countries. In the smartphone market, it held a top-four position in the United States and was ranked fifth in Europe. It was not a peripheral player — it was a flagship of China’s technology sector.
The underlying violations were serious. ZTE had illegally shipped telecommunications equipment to Iran and North Korea, conspiring to evade the US embargo on Iran between 2010 and 2016 in order to supply, build, operate, and service large-scale telecommunications networks there using US-origin equipment and software. ZTE shipped approximately USD 32 million of US-origin items to Iran without obtaining the required export licences, and made 283 separate shipments of controlled items to North Korea. The concealment operation was elaborate: ZTE established a dedicated internal team to destroy and sanitise data relating to the Iran business on a nightly basis, and required team members to sign non-disclosure agreements covering their activities.
ZTE entered into a settlement agreement in March 2017, agreeing to combined civil and criminal penalties and forfeiture of USD 1.19 billion — at the time the largest penalty ever imposed in a US export control case. The settlement should have ended the matter. It did not.
BIS subsequently uncovered that ZTE had violated the settlement agreement by making false statements during the settlement negotiations in 2016, and continued to do so during the probationary period in 2017. In April 2018, BIS activated the suspended denial order — effectively cutting ZTE off from the US components, software, and technology on which its products depended. The commercial consequences were immediate and severe. Analysts estimated that the six-week period during which ZTE was unable to operate could cost the company USD 2 billion in lost revenue. The eventual resolution required ZTE to pay a further USD 1 billion penalty, place USD 400 million in escrow, and retain an external compliance coordinator answerable to BIS for a period of ten years. To fund its recovery, ZTE was forced to draw on approximately USD 11 billion in emergency credit lines from Chinese state-owned banks.
In Beijing, the lesson was unmistakable: a Chinese national champion generating over USD 15 billion in annual revenue, operating across 160 countries, could be brought to its knees by a single US administrative decision. The vulnerability was structural, not incidental.
The Huawei Inflection Point
If ZTE was a warning, Huawei was the moment the warning became policy. By the time of its Entity List designation, Huawei was substantially larger and more strategically significant than ZTE. In 2018, Huawei rose to become the world’s No. 2 smartphone vendor by shipments, surpassing Apple for the first time — and was widely expected to challenge Samsung for the top position within a year or two. Its 2019 annual revenues reached CNY 891 billion (approximately USD 123 billion), making it one of the largest technology companies in the world by turnover. Beyond smartphones, Huawei was the dominant global supplier of telecommunications infrastructure, with a commanding position in the emerging 5G equipment market — a sector then understood to be central to the next generation of global digital infrastructure.
On 16 May 2019, BIS added Huawei Technologies Co., Ltd. and sixty-eight of its non-US affiliates, located across twenty-six countries, to the Entity List on the basis that there was reasonable cause to believe Huawei had been involved in activities contrary to the national security or foreign policy interests of the United States. The practical effect was immediate and sweeping: exports, reexports, and transfers to Huawei and its listed affiliates of any item subject to the Export Administration Regulations now required prior BIS licensing, even for non-sensitive EAR99 items — ordinary commodity products that would otherwise require no licence at all.
Unlike ZTE, Huawei could not resolve its position through penalties and compliance undertakings. The designation was rooted in national security determinations, and it was followed by successive rounds of tightening — most significantly, amendments to the Foreign-Produced Direct Product Rule designed to prevent Huawei from sourcing advanced semiconductors from non-US manufacturers that nonetheless used US equipment or design software in their production processes. The cumulative impact was severe: Huawei’s revenue declined by nearly 29% in 2021 as its consumer business was cut off from Google services and advanced chipsets, and its global smartphone market share collapsed from a peak of 17.6% in 2019 to under 8% by the end of 2021.
A Pattern of Escalation
Huawei was not an isolated case. Through 2020 and into 2021, the US steadily expanded the perimeter of restrictions on Chinese entities. Semiconductor Manufacturer International Corporation (SMIC), China’s most advanced chipmaker, was added to the Entity List in December 2020. CNOOC, one of China’s three major state-owned energy companies, was designated by the Department of Defense as a Chinese Military Company under Section 1237 of the National Defense Authorization Act. Separately, coordinated multilateral sanctions by the US, EU, UK, and Canada targeting Chinese officials in connection with the treatment of Uyghurs in Xinjiang — followed by measures relating to Hong Kong’s autonomy — signalled to Beijing that Western sanctions and export control regimes were increasingly being deployed as instruments of political leverage rather than purely security-driven enforcement tools.
Beijing’s Decision to Legislate
The cumulative effect of this period shaped a clear conclusion in Beijing: that passive diplomatic objection was insufficient, and that China needed its own counter-architecture — legislation capable of imposing direct legal consequences on entities that gave effect to foreign measures against Chinese persons and interests. The result was a suite of four instruments enacted in rapid succession between September 2020 and June 2021, discussed in the sections that follow.
Understanding the Regulators: MOFCOM and the NPC Standing Committee
China’s blocking architecture was built by two distinct bodies, and understanding who they are matters — because their place in the legal hierarchy directly determines the weight, reach, and enforceability of the instruments they produce.
The Ministry of Commerce (MOFCOM)
China’s Ministry of Commerce was established in March 2003 as part of a broader institutional reorganisation conducted by the State Council — China’s top administrative body — and was formed largely on the basis of the former Ministry of Foreign Trade and Economic Cooperation, while also incorporating the functions of the State Economic and Trade Commission and the State Development Planning Commission. Its creation was itself a response to external pressure: forming the ministry was a move to help meet commitments China made when joining the World Trade Organization in December 2001, designed to match similar government structures in the United States and Europe.
As a cabinet-level executive agency sitting within the State Council, MOFCOM is responsible for formulating and implementing policy across domestic and foreign trade, foreign direct investment, and international economic cooperation. For compliance practitioners, the most important feature of MOFCOM is its authority to issue binding administrative orders and regulations on trade-related matters without requiring a full legislative process through the national legislature. When MOFCOM acts, it acts quickly — and its instruments, while subordinate to statute, carry genuine enforcement weight. The Unreliable Entity List regulations and the 2021 Blocking Rules are both MOFCOM instruments.
The National People’s Congress Standing Committee (NPC-SC)
The NPC-SC operates at an altogether different level of the legal hierarchy. The National People’s Congress is China’s national legislature — its closest functional equivalent to a parliament, though the political structure is fundamentally different from most Western models. A total of 2,977 deputies were elected to the 14th NPC, making it the largest legislative organ in the world. However, with a body of that size, the full NPC meets in session only once a year, typically for around two weeks.
The Standing Committee is its permanent body. With around 170 members, the NPC-SC enacts the vast majority of China’s national laws and routinely conducts oversight of other governmental bodies. It is China’s de facto national legislature during the approximately 350 days per year when the full NPC is not in session. When the NPC-SC passes legislation, it is statute — sitting above ministerial orders in the legal hierarchy, with broader scope and greater capacity for extraterritorial application. The Export Control Law and the Anti-Foreign Sanctions Law are both NPC-SC products.
Why the Distinction Matters
For compliance practitioners, this distinction is not merely academic. It shapes how each instrument can be challenged, amended, or interpreted — and it signals the weight Beijing attaches to each measure. MOFCOM orders are administrative instruments: responsive, targeted, and relatively fast to produce. NPC-SC statutes are national law: they carry constitutional authority and, once enacted, require a full legislative process to amend or repeal.
Moving from a MOFCOM administrative order to NPC-SC statute in the space of eighteen months — as Beijing did between the Blocking Rules of January 2021 and the Anti-Foreign Sanctions Law of June 2021 — was a deliberate escalation in legal architecture. It was not merely a policy response. It was a signal that China’s counter-measures framework had become a permanent feature of its legal landscape.
The Legal Framework
Between September 2020 and June 2021, China enacted four instruments in rapid succession. Each performs a distinct function within a coordinated counter-architecture. The table below provides an orientation before each instrument is examined in turn.
| Instrument | Date | Issuing Body |
| Provisions on the Unreliable Entity List (UEL) | 19 September 2020 | MOFCOM |
| Export Control Law (ECL) | 17 Oct 2020 (in force 1 Dec 2020) | NPC Standing Committee |
| Blocking Rules | 9 January 2021 | MOFCOM |
| Anti-Foreign Sanctions Law (AFSL) | 10 June 2021 | NPC Standing Committee |
The Unreliable Entity List (UEL) — September 2020
On 19 September 2020, upon approval of the State Council, MOFCOM released the Provisions on the Unreliable Entity List, establishing a framework under which punitive measures may be imposed on designated foreign entities — including companies, other organisations, or individuals — for conduct contrary to China’s national interests. MOFCOM had first signalled the UEL’s existence in May 2019, the same month Huawei was added to the US Entity List — the timing was not coincidental.
The UEL system targets foreign entities that endanger China’s national sovereignty, security, or development interests, or that suspend normal transactions with, or apply discriminatory measures against, Chinese enterprises, organisations, or individuals in violation of normal market transaction principles. Designated entities face restrictions or prohibitions on trade and investment activity in China, fines, and restrictions on the entry of relevant personnel.
In function, the UEL is China’s offensive counterpart to the US Entity List — a list-based mechanism for designating foreign actors whose conduct is deemed harmful. Importantly, as of the time of writing, no entity has been formally placed on the UEL, which reflects the instrument’s role as a deterrent and legal framework rather than an active enforcement tool in frequent use.
The Export Control Law (ECL) — October 2020
On 17 October 2020, the NPC Standing Committee passed the Export Control Law, which took effect on 1 December 2020. The ECL establishes China’s first comprehensive framework for restricting exports of military and dual-use products and technology for national security and public policy reasons.
The ECL matters for two reasons beyond its face value as an export control statute. First, it consolidates China’s previously fragmented export control regime — which had been scattered across ministerial regulations of varying legal authority — into a single national-level law with NPC-SC statutory weight. Second, and more significantly for our purposes, the ECL provides that organisations and individuals outside China will be held accountable for breaking export control regulations or harming Chinese national security or interests, giving the law extraterritorial reach to penalise overseas companies with respect to the re-export of Chinese-origin controlled items. Additionally, China may adopt retaliatory measures against countries or regions that endanger Chinese national security or interests by abusing their own export control measures — a formal legal basis for tit-for-tat export control responses.
The Blocking Rules — January 2021
MOFCOM Order No. 1 of 2021 — the Blocking Rules — is the instrument that most directly affects the day-to-day compliance decisions of businesses operating across Chinese and Western jurisdictions. It is deliberately modelled on the EU Blocking Statute, and MOFCOM acknowledged as much explicitly in accompanying press materials at the time of promulgation.
On 9 January 2021, MOFCOM issued the Rules on Counteracting Unjustified Extraterritorial Application of Foreign Legislation and Other Measures, which came into effect the same day. The Blocking Rules establish China’s first sanctions blocking regime to counteract the impact of foreign sanctions on Chinese persons.
The Blocking Rules operate through four key mechanisms:
Reporting obligation. Article 5 requires Chinese parties — defined as Chinese citizens, legal persons, or other organisations — to report to MOFCOM within 30 days of becoming subject to an extraterritorial measure that restricts their normal economic activities with third-country parties. Critically, the definition of Chinese parties extends to foreign companies’ subsidiaries incorporated under Chinese law — meaning multinational firms with Chinese subsidiaries are captured by this obligation. Failure to report carries administrative penalties including warnings and fines under Article 13.
Prohibition Orders. The Blocking Rules create an interagency Task Force headed by MOFCOM which assesses whether a particular extraterritorial application of foreign law is unjustified and, if so, may issue a Prohibition Order prohibiting Chinese parties from complying with it. The issuance of a Prohibition Order transforms the compliance conflict from theoretical to concrete: a Chinese-incorporated entity subject to both a US OFAC obligation and a MOFCOM Prohibition Order covering the same transaction has no legally compliant path available at the entity level.
Exemption mechanism. Article 8 provides a mechanism through which a Chinese party may apply for an exemption from a Prohibition Order in specific circumstances — a safety valve comparable to that available under the EU Blocking Statute. However, the process for obtaining exemptions remains underdeveloped in practice, with limited published guidance on timelines or criteria.
Civil clawback — Article 9. This is the provision that has drawn the most attention from compliance practitioners globally. Where any party complies with an extraterritorial measure covered by a Prohibition Order and causes harm to a Chinese party, Article 9 enables the latter to initiate civil claims against the former in Chinese courts. Critically, the parties who could face such a claim are not expressly limited to Chinese parties or even parties located in China — this theory of liability potentially extends to companies in third countries that, for example, cease doing business with a Chinese party in order to comply with US sanctions.
In plain terms: a non-Chinese company that terminates a contract with a Chinese counterparty to comply with OFAC obligations could face a civil damages claim in a Chinese court under Article 9 of the Blocking Rules. The enforceability of such judgments outside China remains limited, but the litigation risk and reputational exposure are real — particularly for businesses with assets or operations within China’s jurisdiction.
The Anti-Foreign Sanctions Law (AFSL) — June 2021
The AFSL is the most legally significant instrument in the framework. Where the Blocking Rules are MOFCOM administrative rules, the AFSL is statute — enacted by the NPC-SC and therefore sitting at the apex of China’s domestic legal hierarchy below the Constitution itself. Its passage through the NPC-SC was notably accelerated: the law was adopted just two days after it was made public to be under initial deliberations, passing on its second reading rather than the customary three — an unusual legislative move that indicated the Chinese government’s eagerness to establish the legal basis at statute level in response to intensifying foreign sanctions.
The AFSL achieves two things simultaneously. First, it creates a formal statutory foundation for China’s counter-sanctions framework, elevating and consolidating the measures previously developed through MOFCOM instruments. Second, it extends both the reach and the legal weight of those measures significantly.
The Counter List. The AFSL authorises Chinese authorities to designate individuals and organisations involved in creating, deciding upon, or implementing foreign sanctions against Chinese citizens or entities onto a Counter List. Targets of the AFSL include foreign officials who enact China-related sanctions, and individuals and companies that comply with those sanctions, anywhere in the world. Countermeasures available against Counter List designees include visa denial, asset seizure and freezing within China, and prohibition of transactions with Chinese entities.
Article 12 — the extraterritorial prohibition. This is the provision of widest compliance significance. Article 12 provides that organisations and individuals must not implement or assist in the implementation of discriminatory restrictive measures employed by foreign nations against Chinese citizens or organisations. Where organisations and individuals violate this provision and infringe upon the lawful rights and interests of Chinese citizens or organisations, those citizens and organisations may initiate litigation in the people’s courts, requesting that the infringement cease and that losses be compensated. The language — ‘organisations and individuals’ without geographic qualification — is deliberately broad and appears to potentially apply to overseas organisations and individuals, though enforcement outside China’s jurisdiction remains subject to significant practical limitations.
No appeal. Article 7 of the AFSL provides that decisions on designation and associated countermeasures are final — designated parties cannot file for administrative reconsideration or appeal, and the law provides no mechanism for designated parties to apply for exclusion or exemption from countermeasures. This is a deliberate structural choice: it mirrors the non-negotiable quality of OFAC SDN designations, while removing the procedural safeguards available to targets of Western sanctions regimes.
2025 Implementation Regulations. In March 2025, China’s State Council issued Implementation Regulations for the AFSL, effective immediately, which clarified the 2021 law and expanded China’s legal toolkit, including broadened asset seizure powers and expanded definitions of covered conduct. The framework is therefore not static — it continues to develop, and practitioners should monitor it on an ongoing basis.
This article is for informational purposes only and does not constitute legal or compliance advice. Always consult a qualified professional.
Part 2 — Caught Between OFAC and Beijing: The Practical Implications of China’s Blocking Framework — examines what this framework means in practice, including MOFCOM’s first live Prohibition Order issued in May 2026 against OFAC designations of five Chinese refineries.
References
Where official primary source texts are available in English, these are cited directly. Law firm client alerts are cited as analytical commentary on primary sources.
Background & Trigger — ZTE
1. ZTE Corporation, Full-Year 2016 Results Announcement, March 2017. PR Newswire. prnewswire.com
2. US Department of Justice, ZTE Corporation Agrees to Plead Guilty, March 2017. justice.gov
3. US Department of the Treasury, OFAC, ZTE Corporation Settlement Agreement, March 2017. ofac.treasury.gov
4. US Department of Commerce, BIS, ZTE Denial Order, April 2018. commerce.gov
5. Baker McKenzie, Commerce Department Terminates ZTE Denial Order, Global Sanctions and Export Controls Blog, 2018. sanctionsnews.bakermckenzie.com
6. Arms Control Association, ZTE Fined for Sanctions Evasion, Arms Control Today, March/April 2017. armscontrol.org
7. Wiley Law, ZTE Export Privileges to Be Reinstated, June 2018. wiley.law
8. Foley Hoag, BIS Imposes Denial of Export Privileges Against ZTE, April 2018. foleyhoag.com
Background & Trigger — Huawei
9. US Department of Commerce, BIS, Addition of Entities to the Entity List, Federal Register Vol. 84, No. 98, 21 May 2019 (effective 16 May 2019). federalregister.gov
10. Covington & Burling, Commerce Department Adds Huawei and 68 Affiliates to Entity List, 17 May 2019. cov.com
11. Huawei Technologies Co., Ltd., Annual Report 2019
12. electroiq.com, Huawei Statistics By Market Share, Revenue and Facts, citing Huawei annual reports and Canalys data. electroiq.com
13. CNBC, Chinese Telecom Giant Huawei Revenue Surges Despite US Sanctions, February 2025. cnbc.com
Understanding the Regulators
14. South China Morning Post, Explainer: What Is MOFCOM and What Is It Responsible For?, 5 September 2021. scmp.com
15. NPC Observer, FAQs: National People’s Congress and Its Standing Committee. npcobserver.com
16. National People’s Congress of the People’s Republic of China, NPC Structure (official website). en.npc.gov.cn
17. Congressional-Executive Commission on China (CECC), China’s State Organizational Structure. cecc.gov
18. Library of Congress, Law Library of Congress, National Parliaments: China. loc.gov
Unreliable Entity List
19. MOFCOM, Provisions on the Unreliable Entity List (Order No. 4 of 2020), 19 September 2020. english.mofcom.gov.cn
20. Library of Congress, Global Legal Monitor, China: Government Releases Provisions on Unreliable Entity List Regime, 9 October 2020. loc.gov
21. WilmerHale, China’s MOFCOM Promulgated the Provisions on the Unreliable Entities List, September 2020. wilmerhale.com
22. Hogan Lovells, China Reveals the Provisions on Unreliability Entity List, September 2020. hoganlovells.com
Export Control Law
23. NPC Standing Committee, Export Control Law of the People’s Republic of China, promulgated 17 October 2020, in force 1 December 2020. npc.gov.cn
24. DLA Piper, China’s New Export Control Law, October 2020. dlapiper.com
25. WilmerHale, China’s New Export Control Law, 21 October 2020. wilmerhale.com
Blocking Rules
26. MOFCOM, Rules on Counteracting Unjustified Extra-Territorial Application of Foreign Legislation and Other Measures (Order No. 1 of 2021), 9 January 2021. english.mofcom.gov.cn
27. Morrison Foerster, New Blocking Rules by China’s MOFCOM, January 2021. mofo.com
28. Gibson Dunn, China’s ‘Blocking Statute’, January 2021. gibsondunn.com
29. WilmerHale, China Issues Blocking Rules to Counter Foreign Sanctions, 21 January 2021. wilmerhale.com
30. Clifford Chance, China Issues ‘Blocking Statute’, January 2021. cliffordchance.com
31. Pillsbury Winthrop, China Publishes Blocking Legislation, January 2021. pillsburylaw.com
Anti-Foreign Sanctions Law
32. NPC Standing Committee, Anti-Foreign Sanctions Law of the People’s Republic of China, promulgated and in force 10 June 2021. npc.gov.cn
33. China Law Translate, Law of the PRC on Countering Foreign Sanctions, June 2021. chinalawtranslate.com
34. Hogan Lovells, China Passes the Anti-Foreign Sanctions Law, June 2021. hoganlovells.com
35. Morrison Foerster, China’s New Anti-Foreign Sanctions Law, 30 June 2021. mofo.com
36. Akin Gump, The New PRC Anti-Foreign Sanctions Law, July 2021. akingump.com
37. Herbert Smith Freehills, China Enacts Anti-Foreign Sanctions Law, June 2021. hsfkramer.com
38. Jones Day, China Enacts Law to Counter Foreign Sanctions, June 2021. jonesday.com
39. Perkins Coie, China Passes New Law to Counter Foreign Sanctions, July 2021. perkinscoie.com
40. Hughes Hubbard & Reed, China’s Anti-Foreign Sanctions Law Gets Teeth: Understanding the 2025 Implementation Regulations, April 2025. hugheshubbard.com
