The Jurisdictional Shift: Navigating China’s New Framework on Countering Foreign Extraterritoriality

Introduction In April 2026, the State Council of the People’s Republic of China (PRC) promulgated two pivotal instruments: the Regulations on the Security of Industrial and Supply Chains (Decree No. 834) and the Regulations on Countering Foreign Improper Extraterritorial Jurisdiction (Decree No. 835). For multinational corporations (MNCs) and foreign professionals, these decrees represent a fundamental shift from defensive measures to a systematic, multi-agency legal framework. Understanding the practical implications of “Appropriate Connection” (适当联系) and the restrictions on supply chain investigations is now a critical component of corporate governance in the region.

Analysis: The Strategic Reconfiguration of Compliance

1. The Doctrine of “Appropriate Connection” Decree 835 (Article 4) introduces a cornerstone clause that allows Chinese authorities to exercise jurisdiction over offshore conduct provided there is an “appropriate connection” (适当联系) to the PRC. Unlike previous instruments that focused primarily on blocking foreign sanctions, this new standard grants significant flexibility to regulators. In practice, an offshore board decision regarding compliance with foreign sanctions could now trigger regulatory exposure in China if it is deemed to have a sufficient nexus with Chinese interests. This necessitates a more nuanced approach to global compliance policies, ensuring that decisions made at headquarters do not inadvertently violate PRC domestic law.
2. Expansion of the “Malicious Entity List” and Piercing Rules The introduction of the “Malicious Entity List” (恶意实体清单) marks a significant escalation. It targets not only those who implement foreign improper measures but also those who “promote” (推动) them. This broader definition could encompass advocacy or advisory roles. Furthermore, the new “piercing” rules allow countermeasures to be extended to entities “actually controlled by or participated in establishing or operating” by a listed entity. For complex corporate structures, this creates a “contagion risk” where a designation against a parent company could legally impact its Chinese subsidiaries or joint ventures.
3. Supply Chain Security and Information Restrictions Decree 834 (Article 13) specifically restricts investigations and information collection activities related to industrial and supply chains by foreign entities within China. This creates a direct conflict with international due diligence requirements, such as the EU Corporate Sustainability Due Diligence Directive (CSDDD) or the US Uyghur Forced Labor Prevention Act (UFLPA). Foreign firms must now navigate a narrow corridor between fulfilling international transparency obligations and complying with Chinese restrictions on data collection that may be deemed a threat to national supply chain security.

Practical Guidance: 5 Strategic Implementation Steps

To mitigate risk under this sensitive new framework, firms should consider the following actions:

1. Jurisdictional Nexus Audit: Review global compliance decisions to identify any “appropriate connection” to China that could trigger Decree 835.
2. Supply Chain Protocol Review: Assess how supply chain data is collected and shared. Ensure that due diligence processes do not inadvertently violate restrictions on “unauthorised information collection”.
3. Entity Risk Mapping: Conduct a “piercing rule” analysis of your corporate structure to identify potential vulnerabilities if a related entity is designated.
4. Reporting and Transparency: Establish internal protocols for reporting foreign regulatory pressures to the relevant Chinese authorities (e.g., MOFCOM) to demonstrate good faith and seek guidance.
5. Crisis Simulation: Perform “what-if” scenarios for potential designations, focusing on the legal and operational firewalls between international headquarters and Chinese operations.

Conclusion The 2026 framework codifies a more assertive jurisdictional stance by the PRC. For the international business community, the challenge lies in balancing global compliance mandates with a highly specific and sensitive domestic legal environment. Precision in legal drafting and a proactive approach to regulatory dialogue are the most effective tools for maintaining operational stability.

Call to Action General Counsel and Compliance Officers should immediately initiate a comprehensive review of their “China-Nexus” decision-making processes. Aligning internal policies with the new reality of “Appropriate Connection” is no longer optional—it is a strategic necessity.