On the evening of 2 May, MOFCOM Announcement No. 21 of 2026 spread quickly across compliance channels. Targeting U.S. SDN designations of five Chinese enterprises including Hengli Petrochemical (Dalian), the announcement issued a blocking order — requiring domestic actors not to recognise, enforce, or comply with the relevant U.S. measures. The text — drawing on four different statutes — does not read like an ordinary press notice.
Foreign-trade and cross-border-payment practitioners reacted with the same questions: does this affect me? My downstream customer has been listed; I have unfinished contracts and unpaid receivables — pause or proceed? I have no business with these five enterprises — am I out of scope? What does a blocking order actually do and not do?
The following uses this order as the entry point to explain China’s blocking framework.
I. What Is a Blocking Order — Starting from a Neglected Basic
Before understanding a blocking order, one must understand a basic distinction: U.S. sanctions come in two flavours — primary sanctions and secondary sanctions.
Primary sanctions target U.S. persons and companies, prohibiting them from doing business with sanctioned parties. There is little international-law controversy with this — the U.S. is regulating its own.
Secondary sanctions are different. The U.S. does not directly prohibit its own nationals; it requires third-country enterprises and citizens (Chinese, EU, Japanese) not to deal with sanctioned parties on pain of being added to the SDN List, having their USD assets frozen, and being cut off from USD clearing. The five Chinese enterprises were sanctioned under Executive Orders 13902 (Iran petroleum) and 13846 (Iran general trade) — both essentially secondary in character.
When Chinese enterprises trade Iranian oil — they are neither in the United States nor U.S. persons. Why should U.S. law govern them? This is the international-law controversy at the heart of secondary sanctions and the space in which a Chinese blocking statute operates.
The legal meaning of a blocking order is eight characters: shall not recognise, enforce, or comply with. In practical terms: within China, U.S. sanctions on the five enterprises have no legal effect; they cannot lawfully justify any Chinese enterprise, bank, logistics company, or agent in refusing to perform contracts, stopping payments, halting shipments, or closing accounts.
II. Not One Statute — A Framework
Some commentary simplifies the blocking order’s authority to the Rules on Counteracting Unjustified Extra-Territorial Application of Foreign Legislation and Other Measures (MOFCOM Order [2021] No. 1) (the “Blocking Rules”) alone. That is inaccurate. The order’s authority is a combination: the National Security Law, the Foreign Relations Law, the Anti-Foreign Sanctions Law and its Implementing Provisions, and the Blocking Rules. These four instruments form China’s basic framework for responding to improper foreign extraterritorial jurisdiction.
The National Security Law operates at the basic-statute level, supplying the sovereign-and-security rationale. The Foreign Relations Law (in force July 2023), Article 33, explicitly authorises counter-measures and restrictive measures against conduct harming Chinese sovereignty, security, or development interests. The AFSL (in force June 2021) is the highest-level national-law instrument and authorises State Council departments to act against foreign organisations and individuals participating in discriminatory restrictive measures. The Blocking Rules are MOFCOM rules — at the departmental-rules tier — but operationally the most concrete instrument.
The relationship is straightforward: superior legislation supplies legality; departmental rules supply operability. By citing all four instruments together, the order signals that it is not a single-department decision but a State-level legal act.
Beyond these four, two further instruments belong in the toolkit: the Provisions on the Unreliable Entity List (targeting specific foreign actors directly) and the Export Control Law (controlling Chinese-origin items). Blocking orders, the Unreliable Entity List, export controls, and the specific counter-measures under the AFSL — these are China’s four cards.
III. What the Blocking Rules Actually Govern: 16 Articles Boiled Down to Five Things
The Blocking Rules contain 16 articles, with a clean skeleton. Reduced to essentials:
1. Report. PRC enterprises and individuals encountering foreign law or measures that prohibit or restrict their normal commercial dealings with third-country parties must report to MOFCOM within 30 days. Failure to report can attract warnings and fines. Many enterprises overlook this — once SDN-listed, they instinctively turn to U.S. counsel and bank liaison and forget the domestic reporting duty.
2. Assessment. A MOFCOM-led working mechanism evaluates whether the foreign law violates international law and the basic norms of international relations, whether it affects China’s sovereignty and security, and whether it harms Chinese subjects’ lawful rights.
3. Blocking order. If improper extraterritoriality is found, MOFCOM may issue a blocking order — the type of order issued on 2 May.
4. Exemption. Chinese subjects with genuine difficulty may apply to MOFCOM in writing for exemption from the order; MOFCOM decides within 30 days. This is the safety valve.
5. Damages. The most under-appreciated provision. Article 9 entitles harmed Chinese parties to sue in PRC courts to recover damages where another party complies with the foreign measure within the scope of the blocking order; where the gain comes from a foreign judgment, Chinese victims may also sue the beneficiary. Article 11 contemplates governmental support where a Chinese subject has suffered major loss as a result of complying with the order.
Strung together: report → assess → order → exempt → damages, with governmental backing. The 2 May order corresponds to step three.
IV. Legal Consequences — Three Categories of Actors
1. The five sanctioned enterprises. They now enjoy two layers of domestic protection: other Chinese actors (banks, logistics, trading partners) may not lawfully refuse performance on the basis of U.S. sanctions; and they may seek governmental support under Article 11 and damages under Article 9 from those who comply with the U.S. sanctions to their detriment.
2. PRC enterprises with business with the five. The most affected group. Examples include: a Chinese bank previously refusing USD settlement for the five on OFAC-compliance grounds — continued refusal now risks breach of the blocking order; logistics, warehousing, transport and insurance companies that suspended cooperation following compliance review face the same recalibration; suppliers and customers invoking sanctions clauses to terminate contracts expose themselves to suit under Article 9.
3. Foreign-invested enterprises (FIEs) in China. The most challenging category. The MOFCOM spokesperson emphasised that the order does not affect China’s protection of FIE rights. That is reassurance for foreign investors. But the order applies equally to FIEs incorporated in China — foreign banks, law firms, logistics companies, trading houses included. They must reconcile parent-company OFAC compliance policies with the new domestic prohibition: comply with U.S. sanctions, breach the Chinese order; comply with the order, face U.S. headquarters and OFAC pressure.
This is the same bind seen in the EU blocking-regulation context. The Article 8 exemption channel is the relief mechanism — but exemptions are not automatic. They require written application, justification, and a 30-day approval process.
V. Can a Blocking Order Really Block U.S. Sanctions?
A natural question: with the order in place, can the five enterprises now run normal USD settlements and use SWIFT? Realistically, no.
The territorial effect of the order is clear: within China, it is binding. But the order cannot directly delist OFAC SDN designations, cannot release blocked assets in the U.S., and cannot compel JPMorgan, Citi or other U.S. banks to accept these enterprises’ USD payments. This is a limitation common to all blocking statutes. EU experience over nearly three decades shows that blocking statutes resolve the legal-evaluation question more readily than the commercial-reality question.
But the order is not useless. It has four practical effects:
- Domestic risk insulation. Within China, sanctioned enterprises are no longer compliance landmines. Domestic counterparties have a clear legal signal that continued business does not breach Chinese law.
- Contract continuity. Counterparties’ contractual rights to terminate on the basis of sanctions clauses are constrained.
- Damages channel. Article 9 provides a litigation tool against those who refuse performance on sanctions grounds. The case law is still thin, but the channel is open.
- National-level political signal. Formally invoking the Blocking Rules — citing four superior instruments — is itself a statement: unilateral secondary jurisdiction is not recognised; reciprocal measures will be taken under Chinese law.
VI. Practical Pointers for Cross-Border Practitioners
Enterprises not on the five-name list may assume the order does not concern them. But several points warrant attention.
1. Reassess sanctions clauses. Many cross-border contracts include sanctions clauses giving one party a termination right where the other is sanctions-listed. Whether such a clause can be invoked against the blocking statute is now genuinely contested. Continuing to invoke the clause to terminate with a domestic counterparty carries the risk of an Article 9 suit.
2. Build an internal escalation framework for OFAC-vs-blocking conflicts. The default compliance logic of multinational companies — if OFAC says no, then no — must now incorporate a second layer: what to do when MOFCOM says yes. The answer is not unilateral choice. It is to evaluate the specific transaction, assess the feasibility of exemption, and, where appropriate, apply.
3. The 30-day reporting obligation is not nominal. Once an enterprise or its counterparty is SDN- or comparably listed, report to MOFCOM within 30 days. Although the penalty regime relies on warnings and rectification orders, breach is a compliance record stain.
4. Track follow-on issuances. MOFCOM has signalled it will continue to monitor improper foreign extraterritorial application closely. More named blocking orders against specific foreign measures and specific enterprises can be expected. Cross-border-trade, payment and logistics participants should monitor MOFCOM announcements continuously.
In nearly five years of operation since the Blocking Rules took effect, this is the first time a named announcement has been issued targeting specific U.S. executive orders and specific enterprises. The significance is institutional rather than narrowly enterprise-specific: a long-textual instrument has become a practically invocable tool. From today, sanctions clauses are no longer a freely usable indemnity shield in the PRC context, and OFAC compliance is no longer a unilateral decision multinationals can make alone. The head-on collision between Chinese law and U.S. law has entered a new round.
Authorities
- National Security Law of the PRC, Article 2.
- Foreign Relations Law of the PRC, Article 33.
- Anti-Foreign Sanctions Law of the PRC, Articles 3, 4, 5, 12.
- Rules on Counteracting Unjustified Extra-Territorial Application of Foreign Legislation and Other Measures (MOFCOM Order [2021] No. 1), Articles 2, 4–9, 11, 13.
- MOFCOM Announcement No. 21 of 2026, Blocking Order on U.S. Iran-Petroleum-Related Sanctions Against Five Chinese Enterprises (2 May 2026).