World
China and the West: decoupling
Updated 3d ago
2/5
The strategic de-risking of Western economies from China has escalated into a reciprocal regulatory conflict, where China's new legal countermeasures directly target corporate compliance with Western policies, forcing a more complex and adversarial reassessment of economic dependencies.
The US implemented a third export control package on China's chip sector and introduced a bill to control allied semiconductor equipment exports, deepening the regulatory conflict.
State of play
The EU-China trade conflict is now defined by active legal enforcement, with China operationalizing its new legal architecture to directly counter Western de-risking efforts. Chinese authorities have invoked the Regulations on Countering Foreign Improper Extraterritorial Jurisdiction to block an EU probe into a Chinese company, marking a shift from targeted countersanctions to a broader blocking regime. Concurrently, new supply chain security rules empower regulators to penalize foreign firms that relocate production or reduce purchases from Chinese suppliers, treating compliance with Western de-risking as a violation. This comprehensive multi-agency countersanctions system creates a deepening compliance trap, forcing companies to navigate directly conflicting US, EU, and Chinese regulations and consider parallel IT and compliance architectures.
European automakers are bracing for potential Chinese retaliation following EU EV tariffs, with Beijing signaling further investigations into EU-made products. Technical talks continue, but the activation of these blocking statutes narrows the diplomatic off-ramp, as China warns the EU against 'overstretching' de-risking measures. Brussels continues to advance its Economic Security Strategy, including tighter outbound investment screening and coordinated export controls, which China interprets as 'decoupling in disguise'. China's Foreign Relations Law, which entered into force in July 2023, provides a legal umbrella for these counter-measures, reinforcing the systematic nature of Beijing's response.
China's Legal Framework
China is further prioritizing legal and export-control tools to safeguard critical technology amid Western semiconductor and EV curbs. Its commerce ministry stated in early 2026 that key priorities include strengthening legal frameworks, improving export controls, and enhancing risk-prevention to protect supply-chain resilience and national security. This includes expanded export controls on rare earths and advanced lithium-ion battery materials, requirements that chip foundries use at least 50% domestically made equipment for capacity expansions, and rules mandating domestic AI chips in state-funded data centers. The new 'Malicious Entity List' introduced under the Regulations on Countering Foreign Improper Extraterritorial Jurisdiction can target foreign companies and individuals promoting or implementing foreign sanctions against Chinese interests, extending extraterritorial reach to parent companies for actions of overseas subsidiaries. Chinese regulators have also increased informal and formal use of the Anti-Foreign Sanctions Law to deter Western export-control compliance, particularly in sensitive technology sectors. China's new Tariff Law, effective December 1, codifies Beijing's ability to apply reciprocal duties against trading partners. China has reinforced its mechanism to counter "unjust" extraterritorial laws, obliging firms to report within 30 days when foreign rules constrain their dealings with third countries. Internal guidance from China's Ministry of Commerce indicates that companies reducing supplies to Chinese firms due to US or EU export controls could be targeted under the Industrial and Supply Chain Security regulations, creating direct conflicts of law for multinationals. China is also reviewing its foreign trade law to harden the legal basis for retaliatory tariffs and export restrictions, explicitly authorizing bans or limits on foreign entities deemed a threat to China's sovereignty or security. China's Anti-Foreign Sanctions Law now includes detailed implementing regulations, empowering authorities to sanction foreign entities and individuals enforcing "discriminatory" measures, particularly in technology and legal services, allowing for asset freezes and business prohibitions. China expanded its export controls on dual-use items to Japan, blacklisting 20 additional companies and research bodies, drawing a sharp protest from Tokyo. China has also broadened its export controls on rare earth materials and tightened rules on semiconductor manufacturing, requiring chipmakers to use at least 50% domestically produced equipment when expanding capacity, explicitly aiming for a self-reliant semiconductor supply chain. New outbound investment regulations, effective July 1, allow Beijing to reverse completed overseas deals and penalize foreign firms whose home countries restrict Chinese investment, covering cross-border transactions involving Chinese capital, technology, and data. China is consolidating its economic coercion toolkit, focusing on semiconductors, rare earths, and critical technologies to counter Western export controls, even during a trade truce with the US. Since early July 2026, Chinese regulators have moved to operational enforcement of their countermeasures against Western semiconductor export controls, opening investigations into foreign chipmakers that reduced sales to Chinese clients. China's tight export licensing for indium phosphide (InP) since February 2025 is increasingly constraining Western plans to expand AI-grade data centers, limiting approvals for overseas shipments and causing delays and higher costs for European and US firms.
EU De-risking Initiatives
EU officials are preparing options to respond to China’s use of its new legal toolkit, potentially including faster deployment of the EU Anti-Coercion Instrument and more assertive use of trade-defence tools. The European Commission views Beijing’s counter-extraterritoriality and supply-chain regulations as a direct attempt to undermine EU de-risking, particularly in sectors such as semiconductors, electric vehicles, and critical raw materials. Brussels is reportedly considering guidance to EU companies on how to handle Chinese prohibition orders, as well as closer coordination with G7 partners on export controls and outbound-investment screening. The European Commission has proposed an Industrial Accelerator Act to introduce 'Made in EU' conditions for public procurement and subsidies in strategic sectors, aiming to reduce dependence on Chinese imports. This includes tightening foreign direct investment screening for investments over 100 million euros from countries with significant global production shares, often targeting China. The EU's new economic security strategy, featuring tighter foreign investment screening and export control coordination, has prompted diplomatic warnings from Beijing against "decoupling" and "containment" efforts, with China's foreign minister describing de-risking as "disguised protectionism". The EU has also adopted updated dual-use export control guidelines and a pilot outbound investment screening mechanism focused on advanced semiconductors, quantum, and AI, with member states tightening national licensing on chip-making tools. China has expanded licensing requirements for chipmaking equipment and critical industrial inputs, citing national security and supply chain security concerns, which EU officials link to Western export controls. NATO and EU officials are coordinating tighter monitoring of China-Russia technology and dual-use trade links, focusing on semiconductor and drone components, and considering adding Chinese intermediaries to future EU sanctions packages if systematic re-export of controlled items to Russia is evidenced. EU officials and member-state representatives recently met to coordinate de-risking measures in light of China's expanded anti-sanctions legal framework, discussing guidance for companies on managing legal conflicts and potential risks. The EU is also expanding its economic security toolkit with new proposals targeting ICT supply-chain risk and overcapacity, increasing direct regulatory exposure for Chinese firms active in Europe. These include a revised Cybersecurity Act (CSA2), the Industrial Accelerator Act (IAA), and a debated French-led "overcapacity instrument" backed by several member states. Meanwhile, the United States has partially relaxed its AI chip export stance toward China with a conditional licensing regime, even as it keeps broader semiconductor chokepoints in place. The US has further tightened its export controls on China's semiconductor industry, extending restrictions to equipment manufactured in third countries and targeting around 140 Chinese firms. A proposed US MATCH Act aims to impose stricter controls on exports of semiconductor manufacturing equipment to China from allied nations, including the Netherlands.
Key events
Full chronicle233
This week
- US unveils third major export-control package on China's chip sector.
- New US controls restrict shipments to 140 Chinese firms and third-country equipment.
- US lawmakers introduce MATCH Act to control European chipmaking tool exports to China.