China Bans Compliance with US Sanctions Ahead of Trump-Xi Summit

May 7, 2026

China's Ministry of Commerce issued a prohibition order on May 3, 2026, barring compliance with US sanctions on Hengli Petrochemical (Dalian) refinery and four other refineries, marking the first invocation of its 2021 anti-sanctions law (Rules on Counteracting Unjustified Extra-territorial Application of Foreign Legislation). The US Treasury sanctioned Hengli in April 2026. Chinese buyers received more than 80 percent of Iran's oil shipments in 2025.

China's prohibition order

▪Chinese buyers received more than 80 percent of Iran's oil shipments in 2025.
▪China is Iran's largest trade partner and by far the biggest buyer of Iranian oil.
▪The US Department of the Treasury imposed sanctions on Hengli Petrochemical (Dalian) refinery in April 2026 after accusing Hengli of generating hundreds of millions of dollars in revenue for Iran's military via crude oil purchases.
▪The US Treasury Department called Hengli Petrochemical (Dalian) refinery one of Tehran's most valued customers.
▪China's Ministry of Commerce stated the US sanctions improperly restricted normal trade and business activities in violation of international law.
▪China's Ministry of Commerce issued a prohibition order on May 3, 2026, stipulating that US sanctions on Hengli Petrochemical (Dalian) refinery and four other refineries shall not be recognized, enforced, or complied with.

Anti-sanctions law mechanism

▪Businesses that suffer losses due to parties' compliance with foreign sanctions can initiate court proceedings against them for compensation under China's anti-sanctions law.
▪Under China's anti-sanctions law, Chinese citizens and organizations restricted from engaging in business activities by foreign legislation are required to report their circumstances to the Ministry of Commerce within 30 days.
▪Beijing introduced the anti-sanctions law in 2021 after years of tensions with US President Donald Trump's first administration over sanctions targeting Chinese firms and technology.
▪China's Ministry of Commerce can issue an order barring a party from complying with foreign legislation after determining within a 30-day review period that a business or individual has been subject to an unjustified extra-territorial application.
▪Chinese citizens and organizations who fail to report their situation to the Ministry of Commerce face potential penalties including warnings and fines.

First-time deployment significance

▪Dominic Chiu of Eurasia Group stated Beijing is demonstrating a lower threshold for deploying their legal and regulatory toolkit to counter US sanctions.
▪The May 2026 prohibition order is the first time Beijing has invoked its anti-sanctions measures formally known as the Rules on Counteracting Unjustified Extra-territorial Application of Foreign Legislation and Other Measures.
▪Naimeh Masumy of Maastricht University stated that before the 2021 anti-sanctions law, China mostly relied on ad hoc diplomatic protests and informal pressures.

Corporate compliance dilemma

▪Dominic Chiu of Eurasia Group stated that China's stance means firms may increasingly face binary choices between complying with US sanctions and risking Chinese countermeasures, or vice versa.
▪Naimeh Masumy of Maastricht University stated that for most companies with significant exposure to US markets, transactions in US dollars, or relationships with American banks, the consequences from the US are usually far more immediate and devastating than anything Beijing might impose.
▪Naimeh Masumy of Maastricht University stated that for companies heavily focused on China and Chinese state-owned enterprises, complying with the blocking statute becomes a more realistic expectation and the risk of US punishment becomes the cost of doing business within China's regulatory framework.

International model potential

▪Dominic Chiu of Eurasia Group stated that China's anti-sanctions model would be of limited use to countries already cut off from the US financial system such as Iran or Russia.
▪Naimeh Masumy of Maastricht University stated that the anti-sanctions law's most significant long-term effect could be to inspire other powers such as Russia and the European Union.