NARRATIVE: China arms itself with a legal arsenal to surveil global supply chains

Two decrees, one unambiguous message

In the span of a few weeks across the spring and summer of 2026, China enacted and put into force a legislative arsenal that fundamentally alters the risk landscape for foreign companies operating in — or simply connected to — the Chinese economy. On March 31, 2026, the State Council published Decree 834 — the Regulations on Industrial and Supply Chain Security. On April 7, 2026, it published Decree 835 — the Regulations on Countering Foreign Extraterritorial Jurisdiction. Both took effect immediately. On June 24, 2026, the Ministry of Commerce released the implementing rules for Decree 834 — a 22-article document spelling out the scope, content, procedures, and remedies of supply chain security investigations.

These texts are not routine bureaucracy. They represent a deliberate — and offensive — response from Beijing to a decade of Western pressure: American export controls on semiconductors, European investigations into Chinese subsidies, attempts to "decouple" supply chains. What China is building is its own version of the long legal arm — the same instrument that the United States and the European Union have wielded for decades to project their law beyond their borders. The difference: Beijing is deploying it with the full weight of an $18 trillion economy.

I read these decrees and I think about what they mean for a European small business with suppliers in China — or an American company that sells products there. These texts are not abstract. They create real powers of investigation, sanction, and counter-measure. The global economy just became a considerably more complicated playing field. And most corporate leaders have not yet fully grasped that.

The scope of the new industrial security investigations

Decree 834 authorizes the Chinese Ministry of Commerce to open investigations into industrial security threats — a deliberately broad notion, not defined in any restrictive way in the text. These investigations can target foreign companies whose activities are deemed capable of threatening the resilience or security of Chinese industrial supply chains. The implementing rules published on June 24, 2026 clarify the procedures: investigation timelines, response rights, the nature of possible remedies. But international legal observers, notably the firm Linklaters, note that the definition of "industrial security threat" remains wide enough to allow for discretionary application.

The potential geographic reach is troubling for foreign businesses. A company that decides to reduce its dependence on Chinese suppliers — an entirely ordinary risk management decision — could theoretically be considered as creating a "supply chain security threat" by disrupting Chinese industrial networks. If that interpretation were adopted by Chinese authorities, it would transform normal commercial decisions into legal risks under Chinese law.

Supply chain "decoupling" is officially the West's economic policy — reducing strategic dependence on China in critical sectors: semiconductors, batteries, rare earths, pharmaceuticals. Decree 834 and its implementing rules turn that policy into a legal risk for the companies that apply it. This is an asymmetric and effective counter-move. Beijing doesn't need to ban decoupling — it just needs to make it expensive.

The first application: the European investigation into Nuctech

Decree 835 responds directly to a long-standing irritant: American and European laws with extraterritorial reach — particularly U.S. sanctions against companies that trade with sanctioned entities, and European investigations into foreign subsidies — that affect Chinese companies without going through Chinese law. Decree 835 gives the Chinese government tools to identify these "improper" extraterritorial applications of foreign law, publish blacklists, and take retaliatory measures.

That text was applied without delay. On May 15, 2026, the Chinese Ministry of Justice issued its first formal determination under Decree 835: the European Commission's investigation into subsidies granted to Nuctech — a state-linked Chinese security equipment company — constitutes an "improper extraterritorial application of foreign law." This formal determination sends an explicit signal: Beijing is ready to deploy its legal arsenal against legitimate European regulatory investigations. And this is only the beginning.

The European Commission has been investigating Nuctech for years — a company that supplies scanning equipment to European airports, with documented ties to the Chinese state and potentially to military entities. That China would label this investigation an "improper" application of foreign law is an audacious reversal of the burden of proof. It is Beijing telling Brussels how it may regulate its own market. The EU must hold its ground.

A retaliation lever against foreign companies and individuals

Alongside Decrees 834 and 835, China has also put in place a legislative framework allowing state prosecutors to pursue foreign entities that cause harm to Chinese national interests. This mechanism extends Chinese criminal and civil jurisdiction to actors who are not necessarily on Chinese soil — an extraterritorial logic analogous to the one Beijing denounces in its adversaries. International legal experts note that this provision could be applied against journalists, academics, consultants, or business executives who produce analyses or commercial decisions deemed harmful to Chinese interests.

The intended chilling effect is obvious. If an American risk analyst publishes a report recommending that clients reduce their exposure to Chinese semiconductor suppliers, could that analyst theoretically face prosecution under this framework? The legal answer is nuanced — enforcement options are limited if the person never sets foot in China or in a country with extradition agreements. But the chilling effect on research and analysis is real, and has been documented in other extraterritoriality contexts.

The power to prosecute foreign entities for "harm to national interests" — a notion as vague as it is sweeping — is a tool of intimidation as much as a legal instrument. Its usefulness does not require obtaining convictions to be effective. It only needs to create uncertainty. And uncertainty, in international business, is costly.

U.S. sanctions, European investigations, technological decoupling

To understand these texts, they must be placed in context. Since 2018 and the start of the Sino-American trade war under the Trump administration, followed by the Biden administration's advanced semiconductor export controls, China has faced constant and growing pressure from its main Western trading partners. The European Union has stepped up its investigations into Chinese subsidies, blocked mergers involving Chinese companies, and launched inquiries into Chinese electric vehicles and solar panels. The United States has expanded lists of Chinese entities subject to export restrictions.

In this context, Decrees 834 and 835 are not passive defensive measures — they are a legal counter-offensive. Beijing is saying implicitly: "If you use your laws to restrict our companies, we will use our laws to protect our supply chains and restrict yours." This is the logic of asymmetric reciprocity — China cannot quite replicate American financial sanctions, but it can create equivalent legal risks in the commercial and industrial domain.

I am not presenting these decrees as a one-sided Chinese injustice. For decades, the United States and the European Union have used their law as a foreign policy instrument — with considerable effects on Chinese companies. Beijing is simply applying the same logic in reverse. What is troubling is not the reciprocity. It is the escalation that reciprocity implies for companies that operate in both worlds.

Who is exposed and how

The Western companies most exposed to these new texts are those with significant operations in China — manufacturing, research, distribution — while simultaneously maintaining activities in sectors subject to U.S. or European export controls. A semiconductor company that sells to Chinese customers while subject to U.S. export controls finds itself in a potential double risk zone: risk of U.S. sanctions if it sells too much, risk of Chinese investigation if it sells too little or decides to exit. This "double exposure" situation is new and has no established precedent.

Logistics and transportation companies are also affected. The interdependence of global supply chains means that almost any decision to reorganize logistics involves China — whether in component supply, final assembly, or distribution. The firm Linklaters notes in its analysis of Decrees 834 and 835 that both texts "elevate counter-measures to the level of China's highest legislative authority" and "introduce new enforcement powers" — giving them stronger institutional legitimacy than previous regulatory measures.

The international business lawyers I follow are already advising their clients to assess their exposure to Decrees 834 and 835. This is not panic — it is prudent risk management. What concerns me more is the number of companies that have not yet done that exercise. Ignorance of this law provides no protection against its effects.

When multilateral rules no longer apply

One of the most troubling aspects of this evolution is the marginalization of the World Trade Organization (WTO) as an arbiter of trade disputes. The WTO was designed for a world where the principal commercial actors — the United States, the European Union, Japan — shared a fundamental interest in a rules-based trade order. That world no longer exists. Trump's United States imposed sweeping unilateral tariffs. China developed its own extraterritorial tools with Decrees 834 and 835. The EU uses its Foreign Subsidies Regulation as an industrial policy instrument. Everyone plays their own game — and companies pay the price of this fragmentation.

The WTO's dispute settlement mechanism — already weakened by the U.S. blockade of Appellate Body appointments since 2019 — is incapable of addressing these new instruments at the pace they are being deployed. This institutional vacuum benefits those with the most powerful legal arsenals. China, with Decrees 834 and 835, has just significantly reinforced its own. The question for the West: does it want to restore a multilateral framework, or continue playing the game of unilateral reciprocity? China is prepared to play that game for a very long time. The West has voters to convince at every election cycle.

I write this article and I think about all the debates on "economic defense" in Europe. Those debates seemed theoretical. They were not. Beijing has just demonstrated that China uses law as a commercial weapon. The West has ground to recover — not by replicating the same methods, but by understanding precisely what it is facing.

The Nuctech precedent: a test of European resolve

The first application of Decree 835 against the European Commission's investigation into Nuctech is a textbook case. Nuctech supplies security equipment to European airports and ports — critical infrastructure that several governments have flagged as concerning given the company's documented ties to the Chinese state. The European investigation was legitimate under the Foreign Subsidies Regulation. The Chinese determination of May 15, 2026 is an attempt to block it by labeling it an improper extraterritorial application of foreign law. The EU must hold its ground — conceding would signal that its regulatory tools can be neutralized by Chinese legal pressure.

For European companies operating in China, this precedent illustrates the cross-cutting risk: exposed simultaneously to the regulations of their own government and to Chinese counter-measures. Linklaters notes that Decrees 834 and 835 "have already been applied" — they are active tools, not theoretical threats. China is testing their reach in real time, with direct consequences for Western companies and regulators. Vigilance is required, now.

What these decrees reveal about Beijing's strategy

Beyond the legal details, these texts send a clear strategic signal: China will not remain passive in the face of Western attempts to restructure global supply chains to reduce dependence on it. It has economic, legal, and political tools to complicate, slow, and penalize those restructurings. The publication of implementing rules on June 24, 2026 — precisely as discussions about technological decoupling accelerate in the West — is no coincidence of timing.

What the international commercial world must understand is that the global economy is now a legally contested space to a degree unseen since the Second World War. The rules of multilateral trade — those of the World Trade Organization — are being systematically circumvented by all the major players. It is not only China that is challenging the liberal trade order: Trump's United States is doing so with its unilateral tariffs. The difference is that China now has tools to strike back with precision — not just counter-tariffs, but targeted investigations, prosecutions, and blacklists.

I sometimes wonder whether Western business leaders and politicians have fully internalized what it means to "decouple" supply chains that took thirty years to build. This is not a spreadsheet decision. It is a major geopolitical reconfiguration, with real economic costs and now explicit legal risks on the other side. China has just made that point with two decrees and twenty-two articles. The message is clear.

Two options facing China's legal arsenal

Faced with this Chinese legal arsenal, Western democracies have two options: regulatory escalation — replicating with their own even more constraining measures — or negotiating a framework of mutually acceptable rules for supply chain investigations and foreign investment. The first option carries the risk of a legal spiral that fragments global trade further. The second requires political will that seems, for now, to be absent in a context of intense geopolitical rivalry.

What is certain is that the era of naive globalization — where companies could operate in authoritarian economies without accounting for political and legal risks — is over. Decrees 834 and 835 are the most recent proof. What Beijing built in 2026 is not a legal wall against the outside world. It is a platform for intervening in the functioning of the global economy. And that platform is now active.

I write this article and I think of all the debates about economic defense that I have followed for years. Those debates seemed theoretical. They were not. Beijing has just demonstrated that China uses law as a commercial weapon. The West has ground to recover — not by replicating the same methods, but by understanding precisely what it is facing.

By Maxime Marquette, columnist

Editorial stance

I am not a journalist but a columnist and analyst. My expertise lies in observing and analysing the geopolitical, economic and strategic dynamics that shape our world. My work is to take political strategies apart, to understand global economic movements, to put the decisions of international actors in context and to offer analytical perspectives on the changes that are redefining our societies.

I do not claim the cold objectivity of traditional journalism, which stops at reporting facts. I claim analytical clarity, rigorous interpretation and a deep understanding of the complex issues that concern us all. My role is to give meaning to the facts, to place them in their historical and strategic context, and to offer a critical reading of events.

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