A Three-Variable Test for Sanctions, Export Control, and Other China

Daniel Casares-Lauritsen , Chief Operating Officer and Head of Corporate Business Development at First Law International (FLI) co-authored this article.

China’s counter-sanctions, export control, and economic statecraft framework has moved from statute to enforcement. The Anti-Foreign Sanctions Law (AFSL), the Unreliable Entity List, and the blocking and control regulations built out since 2020 sat largely dormant for years; that changed in 2026, when a Chinese court held that compliance with a foreign restrictive measure is no defense to breach of contract, the Supreme People’s Court (SPC) published the case as a model for lower courts, and China’s Ministry of Commerce (MOFCOM) issued its first blocking order. The exposure is not uniform. Civil liability concentrates where a company acts beyond a clearly identified foreign legal obligation and China can reach relevant assets, operations, or personnel. Administrative retaliation follows a third variable, political salience, which the first two do not predict.

That leaves multinational companies with a China nexus in the middle. The same transaction can be legally required in Washington or Brussels and legally punished in Beijing, and neither side accepts the other’s law as an excuse. Exposure is not limited to companies dealing directly with a sanctioned Chinese party: carriers, banks, and suppliers several tiers removed, along with their Hong Kong and third-country affiliates, have already been reached.

The three variables below (compulsion gap, footprint, and political salience) are a practical filter for locating where real risk sits, not a formula that replaces judgment. What follows maps the toolkit (Section II) and the enforcement record so far (Section III), works through the three variables (Sections IV to VI), covers the U.S. side of the conflict (Section VII), and sets out concrete options for managing exposure (Section VIII), closing with the developments most likely to change this analysis (Section IX).

II. The Toolkit, by Function

Listing China’s instruments statute by statute obscures what matters: namely, what each one does to a foreign company. 1

Function 1 produces the case law (Sections III to V). Functions 2 and 3 produce most regulatory risk (Sections VI and VIII). Function 4 belongs on the watch list until November.

III. What the Chinese Courts Have Actually Done

Four matters test how far Chinese courts will enforce the AFSL against foreign parties.

Three features of the two decided cases that client alerts underweight. Haiyue and Wingtech are still pending, so neither has a comparable record yet to parse. First, the Shanghai carrier was not Chinese, and neither was the plaintiff; the nexus was cargo loaded in Shanghai, a PRC booking agent, and a listed PRC parent. Every carrier and forwarder moving China-origin goods clears that bar daily. Second, the Nanjing defendant got out with an OFAC license, not a legal victory. Third, the Shanghai court's ruling on mandatory rules was not the only basis for its decision; it also voided the contract's clauses as unnegotiated boilerplate. That gives defense counsel a technical argument: the mandatory-rule language was not essential to the outcome, so it is not binding on future courts. The argument may satisfy an academic audience. It is a poor basis for advising a client to rely on a foreign choice-of-law clause, now that the SPC has elevated this case as a model for other courts to follow.

A note on originality. It is tempting to treat the AFSL as uniquely aggressive. It is not: Washington is poorly placed to call this novel, since the antiboycott rules at 15 C.F.R. Part 760 have penalized U.S. persons for complying with foreign boycotts since 1977. The symmetry is satisfying and legally useless, since neither OFAC’s nor BIS’s penalty guidelines recognize foreign compulsion as a defense.

A note on originality. It is tempting to treat the AFSL as uniquely aggressive. It is not: Washington is poorly placed to call this novel, since the antiboycott rules at 15 C.F.R. Part 760 have penalized U.S. persons for complying with foreign boycotts since 1977. The symmetry is satisfying and legally useless, since neither OFAC’s nor BIS’s penalty guidelines recognize foreign compulsion as a defense.

Figure 1. Compliance Toolkit

IV. Variable One: The Compulsion Gap

Ask two questions, separately and in order:

What, specifically, does foreign law require of this entity for this transaction?

What did we actually do?

The distance between the answers is where AFSL claims are cheapest to bring and hardest to defend. A refusal grounded in an identified prohibition, applied no more broadly than that prohibition, is a position. A refusal grounded in internal risk appetite is, in a Chinese courtroom, a breach with a policy document attached.

In Shanghai, Entity List license requirements attach to items subject to the EAR, not to a listed company’s name on a manifest. The destinations and the shipper’s refusal to identify end users were real red flags. But the reported record indicates the return was mandated by the carrier’s internal compliance program, not an identified U.S. prohibition binding a non-U.S. carrier, and it came after loading and arrival.

The table below applies that test to six recurring fact patterns, and shows what a defensible posture looks like in each:

V. Variable Two: The Footprint

A PRC judgment is only as relevant as what it can reach. Nanjing worked because a vessel was in port.

VI. Variable Three: Political Salience

The first two variables predict civil liability brought by a private plaintiff in a Chinese court. They do not predict administrative retaliation, such as an Unreliable Entity List designation, which needs no plaintiff at all and follows politics rather than the details of a transaction. MOFCOM added PVH Group and Illumina to the Unreliable Entity List on the same day Beijing announced retaliation against new U.S. tariffs, and AFSL countermeasures against U.S. defense suppliers have tracked Taiwan arms sales with near-mechanical regularity. A well-documented transaction offers no protection here.

Combining the variables. Compulsion gap and footprint locate civil risk; salience is a multiplier on everything.

Put simply, each variable is a question to ask before acting, not after. The compulsion gap asks how far conduct exceeded an identified foreign obligation. Footprint asks what China can actually reach. Salience asks whether the matter is likely to draw state rather than private attention. None of this replaces legal judgment. It flags, before the decision is made, which transactions need it.

VII. The Comity Calculus Just Changed

U.S. courts have long discounted PRC blocking and secrecy objections to discovery and subpoenas, partly because actual PRC enforcement looked speculative in comity balancing. The 2026 record, including a blocking order, an order barring assistance to a foreign regulator, and a published liability judgment, supplies the hardship evidence those courts found missing. Build that record when a request arrives, not after a contempt motion.

VIII. Controls That Are Not Simply “Monitor Developments”

The variables above locate where the real risk sits. These nine controls are what a defensible compliance program actually does it, once a transaction crosses from routine risk into a genuine conflict of laws.

IX. What Would Change This Analysis

This framework reflects the current enforcement record, not a fixed end state. A small number of pending cases, regulatory expirations, and first-use enforcement actions could materially change where the principal risks lie and how companies should calibrate their controls.

None of that has happened yet. What already has is worth sizing accurately.

The enforcement record remains limited: one mediated vessel-arrest matter, one first-instance award of roughly RMB 5 million, and two pending suits. SPC typical cases are curated signals of judicial policy, not evidence of a broad litigation wave. The significance lies less in current case volume than in the fact that the legal mechanisms now exist, have been used, and are being incorporated into judicial and administrative practice. The appropriate response is therefore neither complacency nor overreaction, but tighter discipline around when foreign restrictions are legally compelled, how broadly they are implemented, and where China can realistically enforce against the company.

The practical implication is not that multinational companies should retreat from sanctions compliance or treat every China-related restriction as a conflict-of-laws event. It is that foreign restrictive measures should not be treated as self-executing across the enterprise. Companies should identify the legal obligation actually binding the relevant entity, distinguish that obligation from internal risk appetite, assess what assets, operations, or personnel China can realistically reach, and escalate where political salience materially changes the risk. A short set of triggers, built from compulsion gap, footprint, transaction stage, and known Chinese countermeasure exposure, can make that discipline operational: routine matters proceed, and only the combinations that indicate real conflict stop for legal review. The objective is not to eliminate the conflict, but to avoid creating unnecessary exposure through over-compliance, poor sequencing, or action taken without a clearly documented legal basis.

This paper is provided for general informational purposes only. It does not constitute legal advice, does not address any reader’s specific facts or circumstances, and does not create an attorney-client relationship. It addresses U.S. law and describes PRC measures for risk-assessment purposes; it is not advice on PRC or Hong Kong law. Readers should consult qualified counsel, including locally qualified PRC or Hong Kong counsel where relevant, before acting on any matter discussed here.

Terms used in shorthand throughout this paper:

Principal instruments: Anti-Foreign Sanctions Law (2021) and Implementing Regulations (2025); MOFCOM Blocking Rules (Order No. 1 of 2021) and Blocking Order (May 2, 2026); Unreliable Entity List Provisions (MOFCOM Order No. 4 of 2020); Export Control Law (2020) and Regulations on Export Control of Dual-Use Items (2024); State Council Regulation on Countering Foreign States’ Unlawful Extraterritorial Jurisdiction and Provisions on Industrial Chain and Supply Chain Security (Apr. 2026); Regulations on Outbound Investment (June 2026); Data Security Law (2021); Personal Information Protection Law (2021); International Criminal Judicial Assistance Law (2018); Securities Law (2019 rev.); Foreign Relations Law (2023); Foreign State Immunity Law (2023); Ministry of Justice announcement (May 15, 2026).

Nanjing Maritime Court civil mediation (November 19, 2024), later included in the SPC People’s Court Casebook and cited in the SPC Work Report (March 8, 2025). The mediation agreement is not public. The designation was part of OFAC’s June 12, 2024 action under E.O. 14071.

SPC, 2025 National Maritime Trial Typical Cases (June 24, 2026); Shanghai Maritime Court, (2023) Hu 72 Min Chu No. 1936. The judgment is anonymized; party identities and clause details reported in commentary derive partly from outside sources.

Law on the Application of Laws to Foreign-Related Civil Relations (2010), art. 4.

Haiyue Energy Group litigation announcements (Feb. 27 and Mar. 6, 2026); Wingtech Technology litigation announcement (May 22, 2026).

See, James, Luke. 2026. “Chinese Court Freezes $318 Million in Nexperia Assets as Wingtech Presses to Regain Control - Dutch Chipmaker Says Seizures Won’t Affect Day-to-Day Operations.” Tom’s Hardware. September 2026.

15 C.F.R. §§ 734.3, 744.11. Destination-based controls (e.g., § 744.21) and OFAC programs may apply independently depending on item, end user, and U.S. nexus. None were adjudicated.

Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance (Cap. 645), in force Jan. 29, 2024.

The AFSL is not listed in Annex III to the Basic Law; a 2021 NPCSC proposal to add it was deferred. Confirm status at publication.

MOFCOM Unreliable Entity List Working Mechanism announcements (Feb. 4, 2025); Ministry of Foreign Affairs countermeasure decisions under the AFSL (2024 to 2025).

Societe Nationale Industrielle Aerospatiale v. U.S. District Court , 482 U.S. 522 (1987); In re Sealed Case , 932 F.3d 915 (D.C. Cir. 2019). Aerospatiale established the comity balancing test that U.S. courts still use today.

MOFCOM Announcement No. 70 of 2025; BIS final rule suspending the Affiliates Rule until November 9, 2026. MOFCOM Announcement No. 61 (covering overseas-related rare earth items) and Announcement No. 62 (covering rare-earth-related technologies), along with joint MOFCOM/GAC Announcements 55–58, were paused starting November 7, 2025.