China will set up a sweeping new mechanism to ensure the security of its supply chains, targeting espionage and allowing Beijing to retaliate against foreign entities if they impose curbs on trade, according to a directive released by the State Council on April 7.

The new rules give government agencies the authority to start security probes against foreign nations and international organizations if they “adopt discriminatory bans” and other similar measures against China, or if they carry out actions that harm the security of the country’s supply chains. 

The regulations, signed by Premier Li Qiang, also allow the government to target foreign organizations and individuals if they suspend normal trade with China in violation of market rules.

“This formalizes China’s shift from seeing supply chains as only economic to treating them as a national security asset,” said Cameron Johnson, senior partner at consultancy Tidalwave Solutions.

Early Warning

Retaliatory measures include banning the import or export of goods, technologies and services, as well as charging special fees. Foreign entities and individuals could also be barred from entering, investing and transacting in China.

China will also establish an early-warning system for supply chain security, whereby agencies assess the stability of supply for raw materials, technologies, equipment and products in key sectors, and identify risks in a timely manner.

The provisions also contain a pledge to target “information collection activities” on supply chains within China that violate its laws and regulations, without elaborating.

“Part of the intent is clearly to provide another legal basis for officials to respond to foreign sanctions, export controls or other restrictions on China,” said Christopher Beddor, deputy China research director at Gavekal Dragonomics. “It’s part of a broader build-out of laws and regulations that has been underway for years.”