| In April 2026, Beijing rolled out two new regulations that raise the cost of doing what foreign companies have been doing for years: trying to comply with Western law and de-risk their supply chains. Equating Supply Chain to National Security State Council Order 834, issued April 7, gives the Chinese government broad authority to penalize any foreign government, organization, or individual whose actions are deemed harmful to China’s national and supply chain security. This is the cherry on top of the sundae that companies have been served in recent years: forced labor rules, sanctions, export controls, and last but not least, tariffs. Previously, the penalty frameworks were activated when a company complied with foreign legislation. The new trigger activates based on commercial behavior alone; Articles 13 and 15 explicitly restrict supply chain investigations conducted inside China, putting due diligence firms in the crossfire, right alongside their clients. Six days later, Decree 835, “Regulations on Countering Foreign Improper Extraterritorial Jurisdiction”, went a step further. By asserting jurisdiction over any act with an “appropriate connection” to China, the decree introduces a new “Malicious Entity List” aimed at companies that comply with US and allied sanctions, and includes what legal experts call “piercing rules”: parent companies and affiliates can be punished for the actions of a subsidiary, even when those actions take place entirely outside China. (US-China Commission China Bulletin, May 5th) Due Diligence vs. Discrimination: the Difference In Perception Companies shifting away from suppliers with potential exposure to Xinjiang-origin inputs, or other ambiguities in their supply chain, are attempting to exercise compliance with US law. For Beijing, however, this is perceived as discrimination, and it will be punished. The toolkit ranges from the Unreliable Entity List (and now its Malicious Entity counterpart) to pulling brands from popular e-commerce platforms and service apps to blocking physical locations’ searchability on Chinese map apps like Baidu and Amap. As geopolitics reshape supply chains, companies are pulling production and sourcing closer to end markets through investing across North America, Europe, and Asia to shorten transit distances and cut reliance on faraway locations. (Global Trade Magazine) The danger of leaning on a single source was laid bare during the COVID-19 pandemic, when the lockdown virtually shut down global production overnight. Diversification also expands operational flexibility and negotiating power. From a business standpoint, it doesn’t just make sense, but also addresses real risks whose avoidance flows straight to the bottom line. Yet China won’t budge. Writing in People’s Daily on April 20, Chairman of National Development and Reform Commission (NDRC), Zheng Shanjie, called for enhancing China’s economic security toolkit and pressed for stronger countermeasures against sanctions and “long-arm jurisdiction.” (PLA Daily, Jamestown) Long-arm jurisdiction refers to countries taking extraterritorial measures that Beijing perceives as an infringement on its sovereignty, national security, and economic interests. China claims authority to impose measures outside its territory if the matter is perceived as harmful to its national security, and is becoming increasingly fearful of anti-China “bandwagoning,” with the US in the lead. Coming amid a fragile US-China trade truce and ahead of an upcoming leadership summit, the signal is clear: Beijing is building leverage for the next round by exerting pressure on foreign companies. This speaks volumes to the structural difference between China and the West, where businesses have powerful lobbying mechanisms, and the government listens to protect US economic prowess and longevity. The Upcoming Trump-Xi Summit Trade will continue to be front and center: expect loosening of rare earths controls and purchasing commitments for US agricultural products to be exchanged for tariff reductions and pauses on the BIS affiliates rule that expanded export restrictions to subsidiaries of Entity List firms. (Brookings) The pauses mean companies with China-affiliate exposure get breathing room they don’t have today. Chinese investment pipelines in the US are the murkier piece. While Trump has largely welcomed factory-building deals, USTR Greer has tamped down expectations of any sweeping bilateral investment deal, signaling the proposed “board of investment” would be a forum for working through individual transactions rather than a framework with predictable rules across the board. Commerce Secretary Lutnick has openly ruled out Chinese investment in autos, signaling that strategic sector investments will get a different answer than the general factory deals. For companies weighing Chinese capital, the messaging varies by sectors: yes on job-creating manufacturing, no on anything strategic; and the verdict will be made on a case-by-case basis. Beyond trade, watch for subtle shifts in US-Taiwan language and any drift toward Beijing’s preferred framing of the relationship, like “mutual respect,” “peaceful coexistence,” “win-win cooperation,” diplomatic phrases that sound benign but encode US acceptance of China’s “core interests.” Conversations on Iran, AI, and arms control will surface but won’t dominate headlines. What matters more is what comes after: a possible Xi state visit to Washington in September, Trump at APEC in Shenzhen in November, and Xi at the G20 in Miami in December. The calendar is full of potential inflection points, and given Decrees 834 and 835, each instance gives Beijing a chance to use its newly gained leverage. (Brookings) Written by Maria Pechurina, MA, CCS, Director of International Trade @ Peacock Tariff Consulting |
