Note: On 2 May 2026, the Ministry of Commerce, relying on the Rules on Counteracting Unjustified Extraterritorial Application of Foreign Laws and Measures (implemented in 2021, the “Blocking Rules”), issued Announcement No. 21 of 2026. In response to U.S. sanctions placing five Chinese petrochemical companies, including Hengli Petrochemical, on the Specially Designated Nationals (SDN) List over alleged oil transactions involving Iran, China issued its first blocking order.
This is the first practical activation of the Blocking Rules in their five years of existence. It signals a shift in China’s foreign-related rule of law from “passive response” to “proactive confirmation of rights” and has rule-level implications for cross-border trade, shipping, finance, insurance and logistics.
01 The core of the event: one order and three “must nots”
The Ministry of Commerce’s order is clear and firm. Its key message is:
Must not recognise, must not enforce and must not comply
The U.S. measures imposed under relevant executive orders on five Chinese enterprises on the grounds of Iranian oil transactions—including placement on the SDN List, asset freezes and a comprehensive transaction ban—do not automatically take effect within China’s legal jurisdiction.
- Targeted entities: Hengli Petrochemical (Dalian) Refining, Shandong Shouguang Luqing Petrochemical, Shandong Jincheng Petrochemical, Hebei Xinhai Chemical and Shandong Shengxing Chemical, five enterprises in total
- Sanctions involved: the U.S. OFAC SDN List, asset freezes and a comprehensive transaction ban
- China’s response: directly deny the effect of those sanctions within the Chinese legal order, rather than impose a simple reciprocal countermeasure
02 Milestone significance: more than “counteraction”—a confirmation of legal rights
This is not an ordinary trade retaliation. It is a landmark implementation of China’s foreign-related rule of law.
1. The Blocking Rules have moved from a “reserve tool” to an “operational weapon”
After remaining largely “available but unused” since their introduction in 2021, the first substantive blocking order means that China has begun to systematically deny the legality and enforceability of unilateral extraterritorial sanctions within China.
2. Not reciprocal sanctions, but “domestic invalidation”
China did not impose sanctions on U.S. institutions or individuals. Instead, it made clear that:
- U.S. sanctions may take effect in the United States, but they are not recognised or enforced in China.
- The jurisdictional boundary is defined through the rule of law.
3. Third parties are constrained: banks, shipping companies, insurers and customers
No entity—including foreign-funded financial institutions, international shipping companies and cross-border service providers—may rely on “compliance with U.S. sanctions” as a reason to:
- Unilaterally suspend a contract or refuse payment
- Refuse settlement, shipping or insurance services
- Seize, freeze or restrict the disposal of assets of Chinese enterprises in China
Violations may result in administrative penalties, civil damages and litigation liability.
03 Most important: direct impact on enterprises
1. The five sanctioned enterprises: their domestic operations remain fundamentally protected
- Banks in China may not suspend or withdraw loans or freeze accounts solely on the basis of the U.S. SDN List.
- Domestic counterparties, ports, warehouses and logistics providers may not unilaterally terminate contracts.
- Domestic assets, equity interests and real estate may not be improperly restricted from disposal.
2. All cross-border enterprises: a new compliance red line
- When foreign unilateral or secondary sanctions demand that a transaction be stopped, enterprises must not comply blindly. They must first assess whether the matter falls within the scope of China’s blocking rules.
- Blindly implementing foreign sanctions may violate Chinese law and give rise to liability for damages.
3. Finance, shipping and insurance: “dual compliance” is mandatory
International service providers must satisfy both:
- Compliance requirements in the foreign host jurisdiction
- China’s blocking and counter-sanctions rules
Following U.S. sanctions while ignoring China’s order may expose the provider to legal risks in China.
04 One table explains China’s “toolbox” for foreign-related rule of law
For ease of reference, the main legal tools can be summarised as follows:
| Legal tool | Core function | Typical scenarios |
|---|---|---|
| Anti-Foreign Sanctions Law | Reciprocal countermeasures against discriminatory measures | Sanctions, restrictions or discriminatory measures directly targeting China |
| Rules on Counteracting Unjustified Extraterritorial Application of Foreign Laws and Measures | Countering improper extraterritorial jurisdiction | Broad long-arm jurisdiction, cross-border enforcement, judgments and investigations |
| Blocking Rules (activated in this case) | Preventing foreign sanctions from taking effect in China | Secondary sanctions, the SDN List and attempts to prohibit normal trade with third countries |
| Export Control Law and other supporting laws | Supporting framework | Full-chain support for trade, investment, data and supply chains |
- Anti-Foreign Sanctions Law: You sanction me; I counter-sanction you.
- Rules on Counteracting Unjustified Extraterritorial Application: You exceed your jurisdiction; I stop you.
- Blocking Rules: You impose unilateral sanctions; I prevent them from taking effect in my territory.
The three instruments operate progressively and form a coordinated framework.
05 Compliance recommendations: adjustments enterprises should make immediately
- Conduct an immediate review: determine whether the business involves high-sanctions-risk trade involving Iran, Russia or other jurisdictions.
- Add a “blocking order applies” clause to relevant contracts, making clear that a party’s refusal to be bound by foreign unilateral sanctions does not itself constitute a breach.
- If an international bank, shipping company or insurer requests to “refuse service”, require it to provide the legal basis. It may not suspend service solely by citing “U.S. sanctions”.
- If supply, shipping or accounts have already been suspended or frozen, the affected party may rely on China’s blocking order to seek continued performance and compensation for losses.
- Establish a dual-compliance review mechanism that checks both foreign sanctions requirements and China’s blocking and counter-sanctions requirements.
Conclusion
The first blocking order sends a strong signal:
China will no longer allow foreign unilateral sanctions to “take effect automatically across borders”. Through its domestic legal order, it is defining jurisdictional boundaries and protecting the lawful operating rights of enterprises.
For cross-border enterprises, the old compliance logic is outdated:
The era of following only European and U.S. rules while ignoring Chinese rules is over.
Global trade compliance is entering a new phase of parallel multi-jurisdictional rules, two-way constraints and precise confirmation of rights.
Understanding the rules, respecting the boundaries and preserving evidence are essential to operating safely amid complex geopolitical and regulatory competition.
- This article is compiled from official policies, customs announcements and publicly available trade data released in May 2026. It is provided for policy interpretation and practical reference only and does not constitute legal advice, customs-operation guidance or investment advice. The classification of goods, origin determinations, quota eligibility, quarantine access and other specific matters must follow the official requirements of the competent customs authorities, the Tariff Commission and inspection and quarantine authorities.
- For advice on Singapore corporate governance structures, tax-compliance optimisation or other specific matters, please contact the Zhongxin Legal News professional team.
This article is general information and not legal advice. Specific matters require assessment by appropriately qualified professionals.