Picture the morning the rule comes back into effect. The compliance team tells sales to stop shipping items subject to the U.S. Export Administration Regulations (EAR) to a Chinese customer, because 50% or more of the customer’s equity is held by a parent company on the Entity List. That is what could happen under the 50% rule.

But that is not the end of the legal analysis. What foreign companies often overlook is what stopping those shipments means under Chinese law, and what problems it can create.

Question 1: Will export controls excuse non-performance in China?

Many companies assume that complying with their home country’s export controls is a valid reason not to perform a contract. Under Chinese law, that conclusion does not automatically follow.

A case heard by the Shanghai Maritime Court (the “Shanghai Case”) is instructive in this regard. A Singapore carrier refused to issue a bill of lading because the shipper had been placed on a sanctions list by another country, and then returned the goods to the shipper. The court held that this conduct amounted to assisting in the implementation of a foreign country’s discriminatory restrictive measures against a Chinese company. The conduct violated mandatory provisions of Chinese law and did not exempt the carrier from, or reduce, its liability for breach of contract. The Supreme People’s Court has designated the case as a “typical case.”[3]

Question 2: How serious are the risks under China’s countermeasure rules?

In recent years, China has built a set of rules for responding to foreign restrictive measures. These rules have different legal thresholds and carry different levels of practical risk. For companies assessing the impact of the 50% rule, these Chinese rules can be grouped into four tiers, from most to least relevant.

The first tier is civil litigation. The Anti-Foreign Sanctions Law of the People’s Republic of China (the “AFSL”) provides that no organization or individual may implement or assist in implementing discriminatory restrictive measures taken by a foreign state against Chinese citizens or organizations. Chinese citizens and organizations whose rights are infringed may sue in a Chinese court to stop the infringement and recover damages.[4]

Two cases so far have involved this provision. None of them arose from a supply suspension under the 50% rule, but each is instructive. The Shanghai Case, described above, illustrates that damages are not the only potential remedy. Before judgment, the court issued a maritime injunction ordering the carrier to issue the bill of lading. In a supply dispute, a Chinese plaintiff could likewise seek a court order requiring the supply to be resumed, in addition to damages. In a case before the Nanjing Maritime Court (the “Nanjing Case”), a Swiss company withheld the final contract payment because the Chinese party had been placed on a sanctions list. The Chinese party sued, and the case ended in a court-mediated settlement.[5]

A supply suspension made to comply with U.S. export controls could likewise be found by a Chinese court to constitute implementation of, or assistance in implementing, a foreign state’s discriminatory restrictive measures, and thus to be prohibited under the AFSL.

The second tier is the Unreliable Entity List. A foreign entity placed on the list may be restricted or barred from China-related import and export activities and from investing in China. Its personnel and means of transport may be restricted or barred from entering China. Its personnel’s work permits and stay or residence permits in China may be restricted or revoked. It may also be fined. Where a listed entity is restricted or barred from import and export activities, a Chinese company that needs to conduct such activities with that entity must first apply for and obtain approval.[6] In February 2025, two U.S. companies were added to the list on the grounds that they had violated normal market transaction principles, interrupted normal transactions with Chinese companies, and taken discriminatory measures against Chinese companies.[7]

In addition, the Foreign Trade Law of the People’s Republic of China, as amended with effect from March 1, 2026, now allows the State Council’s foreign trade authority to prohibit or restrict China-related trade in goods, technology, and services with any foreign individual or organization that violates normal market transaction principles by interrupting normal transactions with Chinese individuals or organizations, or that takes discriminatory measures against them, where this seriously harms their lawful rights and interests. No individual or organization may provide agency, freight, express delivery, customs declaration, warehousing, third-party trading platform, or similar services to support, assist, or facilitate the evasion of those measures.[8] In other words, once such measures are in place, service providers in the restricted party’s logistics chain in China may not help it work around them.

The third tier is an industrial and supply chain security investigation. Under the State Council Provisions on Industrial and Supply Chain Security issued in 2026, where a foreign organization violates normal market transaction principles by interrupting transactions, and thereby causes or threatens to cause substantial harm to China’s industrial and supply chain security, the competent authorities may open an investigation and take measures.[9] The threshold is high. An interruption of ordinary supplies would not normally meet that threshold, but the position may be different where supplies in a key sector are difficult to replace. For example, a supplier’s decision to stop shipping a general-purpose product to one customer would rarely be considered to cause “substantial harm” to industrial and supply chain security. By contrast, a suspension involving hard-to-replace equipment, components, materials, or software in a key sector may fall within the scope of an investigation. The 50% rule can reach multiple companies within a corporate group where those companies meet the 50% ownership threshold. Supply suspensions triggered by the same cause could therefore hit several Chinese companies in the same group at once and involve several foreign suppliers simultaneously, which magnifies the impact. If an investigation confirms the harm, the authorities may prohibit or restrict the foreign organization from engaging in China-related import and export activities and from investing in China, prohibit or restrict organizations and individuals in China from transacting or cooperating with it, and restrict its personnel from entering, working, staying, or residing in China. These measures may also apply to organizations that the foreign organization actually controls or helped establish or operate, such as its subsidiaries in China. Organizations and individuals in China must comply with these measures.

The fourth tier involves the designation of improper extraterritorial measures and the issuance of prohibition orders. Under the Regulations of the People’s Republic of China on Countering Improper Extraterritorial Jurisdiction by Foreign States (the “Extraterritorial Jurisdiction Regulations”), the State Council’s legal affairs department (the Ministry of Justice) may designate a foreign measure as an improper extraterritorial measure and publicly announce that designation. Once the designation is announced, no organization or individual may implement or assist in implementing the designated measure. The department may also issue a decision ordering an organization or individual that implements or assists in implementing the measure to cease doing so (a “prohibition order”).[10] In May 2026, the Ministry of Justice issued its first designation announcement. It found that the EU’s practice of requesting information across borders from a Chinese company under the Foreign Subsidies Regulation constituted an improper extraterritorial measure, and announced that no organization or individual may implement or assist in implementing it. In August of the same year, a second designation announcement followed, targeting a similar EU investigative practice.[11] Whether the 50% rule will receive the same designation remains uncertain at this point.

Question 3: Who could be sued, and which assets in China are exposed?

The cases above show three procedural implications.

The range of potential defendants may be wider than expected. In the Shanghai Case, the carrier’s Chinese affiliate was named as a co-defendant.

An offshore arbitration clause does not necessarily keep the dispute offshore. In the Nanjing Case, the contract provided for arbitration in London, but the court treated the case as a tort dispute and accepted jurisdiction. For a defendant with no domicile in China, the presence in China of property that can be attached may itself give a Chinese court a basis for jurisdiction.[12]

Asset preservation can precede both the lawsuit and the judgment. In the Nanjing Case, the court arrested the vessel before the lawsuit was filed. The risk materializes at the preservation stage. It does not wait for an adverse judgment.

Question 4: How can companies reduce legal risks when suspending supply?

Suspending supply is not just a decision. Putting that decision into effect involves a series of steps, including written notices and related communications. Who issues the suspension notice, how it is delivered, and what reason it states can all affect the company’s exposure in China. The notice and related correspondence may later be used as evidence.

These communications should be reviewed under Chinese law before they go out, not after a demand letter arrives.

Question 5: What if you are in a joint venture with a listed party?

For companies in joint ventures with listed parties, the issue goes beyond supply: a listed shareholder’s stake may bring a joint venture itself within the scope of the restrictions. One commonly considered response is to restructure the shareholding so that the listed party’s stake falls below 50%. Whether that restructuring works, and whether it is enough to achieve the intended result, are questions of U.S. law. The focus here, however, is on whether it can be carried out in China, and how long it may take, under Chinese law.

If the restructuring involves a transfer of equity by a Chinese state-owned enterprise, the transfer usually requires approval, an asset appraisal, and a public listing of the equity on a property-rights exchange, and the process takes months.[13] Even if it started now, it would be hard to finish before January 10, 2027, when the extended arrangements, including the suspension, are due to expire. An increase in the foreign party’s stake may also run into foreign investment access restrictions, or require a foreign investment security review and a merger control filing.

Furthermore, reducing the stake alone may not be enough. Under U.S. law, a significant minority stake or other signs of control by a listed party can still raise a red flag. The restructuring is therefore often paired with governance changes and information firewalls, so that the listed shareholder can neither direct the joint venture nor access controlled items and technology. These arrangements require changes to the joint venture contract and articles of association. Their design and implementation must also take account of shareholders’ information rights under Chinese company law and, where employees must be reassigned or their access restricted, Chinese labor law. Implementing these changes will typically require the Chinese shareholder’s consent.

Making the most of the suspension

U.S. law determines what a company must do to comply with U.S. requirements. Chinese law shapes the risks and potential costs of doing so, as well as who should act and how.

There is no settled answer yet on whether suspending supply will give rise to liability in China, but the cases so far show the potential costs can be high. During the previous suspension, many companies treated it as a year-long reprieve from addressing the issue. This time, the suspension has been extended again, but only by about two months, to January 10, 2027. Companies that do business with Chinese companies, particularly those with subsidiaries or assets in China, should use this time to complete their assessment of the Chinese-law risks and available options, in case there is no further extension.

[Notes] 

[1]On the November 2025 suspension, see U.S. Department of Commerce, Bureau of Industry and Security, “One Year Suspension of Expansion of End-User Controls for Affiliates of Certain Listed Entities,” Federal Register, November 12, 2025. The extension was announced by the U.S. Treasury Secretary on September 23, 2026. On September 28, 2026, the head of the Department of American and Oceanian Affairs of China’s Ministry of Commerce (MOFCOM), commenting on the outcomes of the eighth round of China-U.S. economic and trade consultations, confirmed that the Kuala Lumpur joint arrangement had been extended to January 10, 2027. As of this writing, BIS has not published a Federal Register notice formally extending the suspension.

[2]U.S. Department of Commerce, Bureau of Industry and Security, “Expansion of End-User Controls To Cover Affiliates of Certain Listed Entities,” interim final rule, Federal Register, September 30, 2025. The rule covers parties on the Entity List and the Military End-User List, as well as parties on the Specially Designated Nationals and Blocked Persons List that are designated under certain sanctions programs.

[3]A Hong Kong company et al. v. a Singapore shipping company and a shipping (China) company, dispute over a contract for the carriage of goods by sea, Shanghai Maritime Court, (2023) Hu 72 Min Chu No. 1936, selected by the Supreme People’s Court as one of its 2025 typical maritime cases. The court ordered the carrier to compensate more than RMB 4.99 million for the value of the goods, plus interest.

[4]AFSL, Article 12.

[5]See Xinhua Daily (Jiaohuidian News), report of January 27, 2026. According to the report, the parties were a Chinese offshore engineering company and a Swiss marine equipment company under a shipbuilding subcontract, and the withheld final payment exceeded USD 11.86 million. The court arrested a vessel before the suit was filed, and the case was settled through mediation within 39 days. On the London arbitration clause, see Xie Chenxi, Dai Jianing, and Zhang Junyi, “A Preliminary Study of Dispute Resolution Practice under China’s Anti-Sanctions Legal Framework,” Zhong Lun Law Firm, August 14, 2026.

[6]Provisions on the Unreliable Entity List (MOFCOM Order No. 4 of 2020), Articles 10 and 12.

[7]Unreliable Entity List Working Mechanism Announcement No. 4 of 2025, February 4, 2025. The two companies are PVH Corp. and Illumina, Inc.

[8]Foreign Trade Law of the People’s Republic of China, as amended on December 27, 2025, effective March 1, 2026, Article 40.

[9]State Council Provisions on Industrial and Supply Chain Security, State Council Order No. 834, Articles 15 and 16. The investigation procedure is set out in the Measures for Industrial and Supply Chain Security Investigations, MOFCOM Announcement No. 24 of 2026.

[10]Extraterritorial Jurisdiction Regulations, State Council Order No. 835, Articles 3, 6, and 13. Article 14 separately gives injured parties a right to sue.

[11]Ministry of Justice Announcement No. 5, May 15, 2026, concerning the European Commission’s cross-border investigative practice in its Foreign Subsidies Regulation investigation of Nuctech. On August 19, 2026, the Ministry of Justice issued a second designation announcement concerning a similar practice in an EU investigation involving JD.com.

[12]See the Civil Procedure Law of the People’s Republic of China (as amended in 2023), Article 276, on jurisdiction over foreign-related civil disputes. Where a defendant has no domicile in China, a Chinese court may take jurisdiction if property available for attachment is located in China.

[13]Measures for the Supervision and Administration of State-Owned Asset Transactions of Enterprises, SASAC and Ministry of Finance Order No. 32.