More Attention on Supply Chain Security
In April 2026, the State Council issued “Regulations on the Security of Industrial and Supply Chains” (国务院关于产业链供应链安全的规定). This is China’s first legislative document explicitly dedicated to the security of supply chains, with the purpose of preventing risks and improving resilience. Even though supply chain stipulations can already be found in other legislative documents, the new regulation now more specifically targets this matter as a stand-alone document, showing heightened attention on the topic.
Decisive New Features of the Regulation
- The topic of supply chain security is now positioned higher than before at the level of the State Council, involving 15+ ministries. This signals a more centralized and streamlined approach to security reviews.
- An enhanced monitoring system with early warning and emergency response mechanisms aims at strengthening resilience against supply chain disruptions and trade-related risks.
- A new catalogue of key sectors will be set up by the relevant departments of the State Council and constantly adapted to ensure a stable supply of raw materials, technologies, equipment and other (not further defined) products.
- The anti-sanction aspect should block (perceived) interventions from foreign countries, entities or individuals into supply chains - here building upon the existing anti-foreign sanctions framework.
Potential Impact on Companies
- Foreign companies operating in critical strategic sectors may face potential scrutiny. This may involve more compliance costs and the potential exposure of sensitive commercial data.
- Foreign companies’ local partners along the value chain may face enhanced oversight. This could translate into delays in supply or longer export control procedures.
- While potential scrutiny can apply to both foreign and local companies when involved in critical value chains, foreign companies may additionally be in the spotlight for the regulations’ anti-sanction's aspect: When a foreign company stops a business transactions with a Chinese partner (if it is, for example, following an export restriction of a foreign country), this could be deemed as a “discriminatory act” harming value chains.
- In this case, other companies could be prohibited from doing business with this foreign company and could face restrictions themselves if they continue to do so (e.g. restrictions on public procurement). Hence, this could potentially make local partners more hesitant to cooperate with foreign companies, particularly in cooperations involving sensitive data or compliance-related activities.
AHK Perspective
The regulation in the first place further specifies the direction of the current five-year plan, which not only places high importance on supply chain security but also on upgrading supply chain. High-quality and intelligent supply chains are also picked up by this regulation, showing that the security of supply chains is also tied to their upgrading.
Additionally, the adoption of the regulation may surely be triggered by the current geopolitical situation, especially the recent history of raw materials and tech controls. For rare earths, the authorities might aim to achieve better control not only through customs procedures but also further up the supply chain. For German companies this could well involve further delays of export control licenses when their local suppliers in China are under enhanced scrutiny.
Also, foreign companies need to be aware of the anti-sanctions aspect. The Anti-Sanctions Law itself has been added to China’s trade(defense) toolbox as early as 2021. Back then, it has raised concerns of German companies who have been implementing supply chain due diligence with their Chinese suppliers, being potentially accused of implementing a German law in China and, for instance, for interrupting a relationship to a Chinese supplier on the grounds of the German law’s sustainability stipulations. Until today, this concern remains virtually theoretical for the large majority of German companies.
In contrast, the regulation clearly targets key supply chains involving raw materials and technologies. The most obvious example nowadays would be export restrictions from a foreign country which prompt a foreign company to stop a business transaction with or abandon a relationship to a Chinese customer. The potential consequences would be restrictions on their import, export, and/or investment activities.
What is a point of concern for companies is that Chinese customers themselves, who increasingly have the security of their own supply chains in mind, could increasingly be worried on the grounds of this regulation to do business with foreign companies. They might also face the potential risk of investigations, leading to an anticipated prohibition to conduct business with the respective foreign partner.
All these concerns are not entirely new to foreign companies operating in China but are now more explicitly put into a single, new legislative basis, elevating to whole topic onto a nationwide political level. Therefore, German companies, especially those engaged in key sectors, should closely monitor these developments, review their compliance frameworks, prepare for longer checks for export approvals and proactively engage with local partners to mitigate operational and legal risks.
At the same time, German companies will hopefully see positive effects of the regulation in terms of more resilient supply chains in China and a more stable supply of raw materials and intermediate products.