China has a new regulation on supply chain security that establishes a formal legal framework for monitoring risks, protecting key sectors, and responding to foreign measures perceived as threatening China’s supply chain security.
The rules, titled the Provisions on Industrial and Supply Chain Security (国务院关于产业链供应链安全的规定, link in Chinese), took effect immediately upon issuance on March 31 and were published by the State Council on April 7.
The new regulations are designed to prevent risks and enhance the security of supply chains, according to a press release (link in Chinese) from the Ministry of Justice, with priority given to key sectors that are "critical to economic and social stability and national security."
The strategy is two-pronged: Addressing prominent issues and establishing a work mechanism for supply chain security, while authorizing countermeasures and extraterritorial application when facing measures and conduct that jeopardize the security of China's supply chains.
The Provisions
The Provisions place supply chain security within China's broader national security framework and require government coordination across agencies, including commerce, industry, foreign affairs, public security, state security, finance, customs, market regulation and cyberspace authorities.
A central feature of the regulations is the establishment of a dynamic list of "key sectors" whose supply chains warrant special protection.
For these sectors, authorities will work to strengthen information sharing, establish risk monitoring, risk prevention, and emergency response mechanisms, and build reserve capacity through stockpiles and other means, to "ensure the stable and continuous production and circulation of raw materials, technologies, equipment, and products."
The regulations also urge Chinese enterprises to diversify supply sources and move toward "high-level technological independence" for the sake of risk prevention.
Countermeasures
The most consequential provisions concern foreign conduct. The regulations authorize Chinese authorities to investigate foreign governments and international organizations that take discriminatory or restrictive measures against China’s supply chains, or implement or assist in implementing actions to impair the security of China’s supply chains.
In response to such actions, the government may impose measures including but not limited to bans or restrictions on imports and exports, or levying special fees.
Organizations and individuals that directly or indirectly participate in the formulation, decision-making, or implementation of the concerned measures may also be sanctioned pursuant to China’s Anti-Foreign Sanctions Law.
Furthermore, investigations may be conducted into foreign companies and individuals, if they violate market principles and interrupt trade with Chinese entities, causing substantial injury or threats to the security of China’s supply chains.
Sanctions may include restrictions on trade, investment, border entry, and residency rights, which can be extended to affiliated entities controlled or operated by the offending foreign entities.
Information collection
In a move that could impact global due diligence firms and consultancies, Article 13 explicitly forbids any organization or individual from conducting "investigations or information collection activities" related to supply chains that violate Chinese law.
An official from the Ministry of Justice stated that this measure is intended to address the "illegal collection of supply chain information" seen in recent years, a likely reference to foreign audits of Chinese supplier networks and labor practices in sensitive sectors.
The provision aims to further protect "information security" of China’s supply chains, according to the official.
Broader implications
The Justice official noted that the new rules fill a legislative gap because China lacked dedicated legislation on supply chain security, even though it has partly been covered by laws on national security, foreign relations, anti-foreign sanctions and foreign trade.
"This is about filling a legislative gap," the official said, underscoring that a number of countries have successively taken measures, through legislation or other actions, to safeguard the security of their domestic supply chains.
For example, Executive Order 14017, signed by President Biden in 2021, serves as the foundation for the U.S. supply chain strategy and aims to secure and strengthen supply chains in four sectors: chips, batteries, minerals, and pharma, with China as the clear target. Later, Executive Order 14123 was issued in 2024, further expanding the scope to cover more sectors and institutionalizing the White House Council on Supply Chain Resilience for long-term structural economic security.
Last month, China's Ministry of Commerce launched a trade barrier investigation targeting U.S. policies perceived to disrupt global supply chains.
Essentially, the Provisions formalize a legal basis and a more comprehensive tool kit for China to respond to perceived supply-chain risks at a time when it faces more trade scrutiny and on-shoring/friend-shoring efforts from trading partners.