DCC Regulatory & Policy Update 04/26

April 2026

Contents

1. Economics & macro-regulation China's Draft Financial Law: A Basic Law for the Entire Financial System

   
   

2. Competition & Market Regulation Decree 835 of The State Council

   
   

3. Technology (Cyber, Digital, Data) China Blocks Meta's Acquisition of AI Startup Manus
   

4. Tax Tax Enforcement and Digital Compliance Continue to Intensify

   
   

5. Trade and export (supply chain, export controls) China’s New Industrial and Supply Chain Security Regulations

1. ECONOMICS & MACRO-REGULATION

   
   

China's Draft Financial Law: A Basic Law for the Entire Financial System

On 20 March 20 2026, five of China’s most senior financial regulators, the Ministry of Justice (“MOJ”), the People’s Bank of China (“PBOC”), the National Financial Regulatory Administration (“NFRA”), the China Securities Regulatory Commission (“CSRC”), and State Administration of Foreign Exchange (“SAFE”), released the Draft Financial Law (“Draft”) for public comment through 19 April 2026.

The Draft would become China’s first overarching cross-sector financial statute, a kind of mini constitution guiding financial matters that are regulated in existing banking, securities, insurance, and related legislation. The Draft seems to be more than mere technical regulatory reform as seen quite often in the past. It reflects Beijing’s broader ambition to build a modern financial system with “Chinese characteristics,” increasingly insulated from external financial pressure and more closely aligned with Chinese national security and industrial policy priorities.

What the Draft Does

Unified framework above sector-specific legislation

Historically, China’s financial institutions have been governed through separate legislative regimes covering banking, securities, insurance, and payments. The Draft now introduces a foundational framework law designed to establish common principles and enforcement standards across the entire financial system while leaving detailed operational rules to sector-specific legislation. The practical implications for any given sector will therefore only become fully clear once follow-on rulemaking is issued.

Expanded regulatory perimeter

One of the Draft’s most significant features is its broad definition of “financial activities.” The scope extends beyond traditional financial institutions to include deposits, loans, insurance, securities, futures, trusts, funds, payments, and credit reporting. Importantly, the expanded framework goes beyond traditional financial institutions (banks, insurances, etc.) by capturing non-financial listed companies and third-party professional service providers supporting financial activity, including law firms, accounting firms, rating agencies, and IT service providers. Legal commentators cited by the much respected financial weekly Caixin have warned that the breadth of the Draft risks creating substantial compliance burdens for businesses operating outside the traditional financial sector.

PBOC as macroprudential authority

The Draft consolidates the PBOC’s functions into a dedicated chapter and formally recognizes the digital renminbi as having equal legal status with physical currency for the first time at statutory level.

Stronger shareholder and governance oversight

Financial institutions would face enhanced governance obligations, including stricter requirements regarding paid-in capital, disclosure of actual controllers, and shareholder conduct. Regulators would gain authority to require capital supplementation, restrict shareholder rights, and mandate equity transfers in certain circumstances.

Consumer and investor protection measures

The Draft prohibits product structures designed to circumvent regulation and restricts the sale of products beyond a client’s risk tolerance. Compliance obligations are also extended to third-party service providers involved in financial activities.

Financial security and sanctions countermeasures

Article 85 of the Draft authorizes China to take countermeasures against jurisdictions imposing discriminatory financial restrictions on Chinese entities and to block the improper extraterritorial application of foreign laws. This provision is particularly relevant for institutions simultaneously subject to Chinese regulation and US or EU sanctions regimes.

Effects-based extraterritorial jurisdiction

Extraterritorial reach is a major and accelerating legislation trend in China since 2017. Article 92 of the Draft introduces an effects-based jurisdiction standard under which offshore financial activities may still trigger liability if they are deemed to endanger China’s financial security, disrupt domestic financial order, or harm Chinese users. The provision potentially extends Chinese regulatory reach far beyond the territory of the PRC itself.

Why This Matters

The Draft signals a continued move toward “substance over form” regulation. Offshore structures, cross-border digital platforms, and app- or web-based financial services targeting Chinese users may increasingly fall within Chinese regulatory jurisdiction regardless of formal incorporation structure (note the same “substance over form” approach in the Manus case below). The expanded regulatory perimeter is equally significant. Foreign law firms, accounting firms, rating agencies, technology providers - and even certain management consultants, financial advisors and M&A consultants could be captured - that support financial institutions, or listed companies in China, could be subject to direct regulatory scrutiny in ways that current laws do not contemplate.

Possibly the most contentious provision: the Draft empowers financial regulators with quasi-judicial measures, including asset freezes, seizures, and exit and travel bans, without clearly defining procedural safeguards governing their use. Several legal experts, including former PBOC officials cited in Chinese financial media, have raised concerns regarding due process and the risk of regulatory overreach. More broadly, the Draft reflects Beijing’s efforts to align financial governance more closely with economic security priorities, industrial policy, and technological self-reliance.

What to Watch

The Draft is likely to undergo further revision before enactment, particularly following industry feedback regarding regulatory overreach and the breadth of the proposed framework.

Key issues to monitor include:

• how the extraterritorial reach will be implemented in practice

• what type of procedural safeguards may be added regarding quasi-judicial powers

• how broadly authorities interpret the Draft’s application to non-financial professional service providers and offshore structures

• future implementing rules addressing AI, digital finance, and crypto-related financial activities

The National People’s Congress has already confirmed enactment of the Financial Law as a legislative priority for 2026, suggesting a relatively compressed timeline from draft to final law.

2. COMPETITION & MARKET REGULATION

   
   

Decree 835 of The State Council

On 13 April 2026, China’s State Council issued the “Regulations on Countering Foreign States’ Unlawful Extraterritorial Jurisdiction” (“Decree No. 835”), effective immediately and issued only days after the “Industrial and Supply Chain Security Regulations” (“Decree No. 834”), discussed below in 5.1. Together the two decrees mark a significant shift in China’s economic security posture: from largely reactive and fragmented countermeasures towards a much more coordinated, operationalised system and toolkit to address sanctions, supply chain disruptions, trade restrictions, and cross-border legal conflicts in an integrated manner.

The 2 decrees do not create an entirely new framework. Rather, they consolidate and strengthen mechanisms developed progressively since 2020 through the Anti-Foreign Sanctions Law (“AFSL”), the Ministry of Commerce’s (“MOFCOM“) Rules on Counteracting Unjustified Extraterritorial Application of Foreign Legislation (“Blocking Rules”), and the MOFCOM Provisions on the Unreliable Entity List (“UEL”).

What the New Toolkit Includes

China’s own extraterritorial jurisdictional claim

Article 4 of Decree 835 formally articulates China’s assertion of jurisdiction over offshore conduct with an “appropriate connection to China” (与中国存在适当联系的). This represents a shift away from merely defensive blocking measures toward an affirmative jurisdictional stance with potentially significant implications for multinational businesses operating across competing legal systems.

The new Malicious Entity List

Article 8 of Decree 835 establishes a new designation mechanism targeting organizations or individuals that “promote or participate in implementing” foreign discriminatory measures against Chinese entities. The inclusion of the word “promote” (推动) significantly broadens the scope of potential liability, potentially extending beyond direct implementation to advocacy, lobbying, or internal corporate compliance measures.

Criminal liability and personal exposure

Article 12 of Decree 835 introduces the possibility of criminal liability for violations of the Regulations. Combined with expanded use of personal restrictions (including quite possibly exit bans - although not explicitly mentioned), this materially increases individual exposure for executives, compliance officers, and managers operating in China; compliance decisions that previously carried only corporate risk now carry personal risk as well.

Prohibition Execution Orders

Decree 835 now empowers the MOJ to issue binding orders prohibiting compliance with foreign sanctions. Failure to comply may result in restrictions on government procurement, import/export activities, data transfers, personal mobility, and monetary penalties.

Why This Matters

The practical significance of the framework based on Decree 835, Decree 834 as well as the AFSL, the Blocking Rules and the UEL lies in its interlocking structure. A single foreign commercial decision, such as terminating a Chinese supplier due to sanctions or export control obligations, may now simultaneously trigger exposure under multiple Chinese instruments, including the AFSL, UEL, Decree 834, and Decree 835. Here is the calculated catch: company policies that automatically apply foreign sanctions rules across all global operations may themselves (automatically) constitute violations under Chinese law.

What to Watch

The first implementing guidelines issued by MOJ, MOFCOM, and Ministry of Industry and Information Technology will be critical in determining how aggressively the framework is applied.

Particular attention should be paid to:

• the first designations under the Malicious Entity List

• definitions of “improper extraterritorial jurisdiction” and the act of “promoting” foreign discriminatory measures

• early enforcement involving supply chain or sanctions-related disputes

• how Chinese authorities apply the framework to Hong Kong-linked structures and multinational compliance programs

  
  

Since this area is particularly complex, please contact us if you have questions.

3. TECHNOLOGY (Cyber, Digital, Data)

   
   

China Blocks Meta's Acquisition of AI Startup Manus

In April 2026, Chinese authorities formally blocked US-based Meta Platforms’ proposed acquisition of AI startup Manus, marking the first publicly known case in which China’s foreign investment security review framework was used to prohibit a major offshore AI transaction.

Although Manus was incorporated in Singapore, and, as it seems, neither assets, employees, or social media accounts remain in China, Chinese regulators concluded that the company’s underlying AI capabilities, engineering talent, and technological value remained sufficiently tied to China’s national interests to justify intervention. The case provides one of the clearest signals yet that Beijing increasingly views advanced AI capability as a strategic national asset subject not only to industrial policy support, but also to outbound transfer restrictions and national security oversight. From a regulatory perspective it is perhaps one of the most prominent examples of applying "substance over form".

Background

Meta announced plans to acquire Manus in late 2025. While the transaction was structured entirely offshore, Chinese regulators, including MOFCOM, the National Development and Reform Ccommission (“NDRC”), and State Administration of Market Regulation (“SAMR”), initiated coordinated reviews shortly thereafter. Chinese media and industry observers noted that Manus’ founding team and certain R&D capabilities still remained deeply connected to China’s domestic AI ecosystem despite the company’s overseas incorporation structure. This reflects a broader trend among Chinese AI startups, many of which have adopted offshore holding structures in Singapore or other jurisdictions to facilitate fundraising, foreign investment, international expansion and potentially easier exit from their business .

Key Regulatory Signals

Substance over form

“Substance over form” refers to an approach where regulators look at and judge the true economic realities around a transaction or a structure and less to the wording in written law and is in our view an accelerating regulatory trend in China. Chinese authorities are focusing less on formal registration or transaction structures and more on the actual or original location of founders, stakeholders, key technology, key talent, key data, and strategic capability. In effect, offshore incorporation and business migration alone may no longer shield Chinese-origin technology companies from domestic Chinese national security review.

AI capability now treated as strategic infrastructure

In addition, Chinese policymakers appear to be broadening the definition of what constitutes sensitive technology. The focus is no longer limited to individual algorithms or code bases, but extends to integrated AI ecosystems involving models, data, engineering teams, workflows, and commercialization capability. This aligns with broader policy themes emerging from the Two Sessions and preparations for the 15th Five-Year Plan, where AI self-sufficiency and technological resilience featured prominently.

Expanding outbound technology controls

The Manus case may also foreshadow tighter controls over outbound transfers of advanced AI capability, particularly where transactions involve US firms or strategic technologies identified as strategically sensitive. Several Chinese commentators compared the logic behind the review to evolving US scrutiny of outbound investment into China-linked advanced technologies.

Why This Matters

The decision significantly complicates the assumption that offshore holding structures automatically place Chinese-founded technology firms beyond the reach of PRC regulatory intervention. For investors, the case introduces additional uncertainty around exit pathways, overseas listings, M&A transactions, and foreign acquisitions involving Chinese AI companies. More broadly, it illustrates how industrial policy, national security, and technology regulation are converging: Beijing’s approach to AI is no longer purely developmental; it is becoming increasingly securitised.

What to Watch

Particular attention should be paid to:

• future guidance on AI-related foreign investment reviews

• potential outbound technology transfer restrictions involving AI capability

• increased scrutiny of VIE and offshore holding structures

• whether similar principles are applied to semiconductors, biotech, quantum computing, or other strategic sectors

4. TAX

   
   

Tax Enforcement and Digital Compliance Continue to Intensify

China’s tax environment continues moving toward greater digitalization, cross-border transparency, and coordinated enforcement between tax, customs, banking, and regulatory authorities. While many of these trends have developed gradually over recent years, 2026 increasingly appears to represent a transition from infrastructure-building toward practical enforcement.

Particularly notable is the growing integration of digital invoicing systems, overseas financial account reporting, customs data, and corporate transaction monitoring into a more unified compliance ecosystem.

Cross-Border Enforcement and CRS Data

China has participated in the Common Reporting Standard (“CRS”) since 2018, under which financial institutions across participating jurisdictions automatically exchange overseas account information with tax authorities. After several years of data accumulation, Chinese authorities now possess significant historical datasets covering jurisdictions including Hong Kong, Singapore, Australia, Canada, Europe, and various offshore financial centres. Throughout 2025 and into 2026, local tax authorities in several provinces publicly disclosed cases involving individuals contacted regarding undeclared overseas income and guided through corrective filings. While many of these cases involved voluntary rectification rather than aggressive penalties, we view (and have reported in Update No.2) 2025–2026 to be the first meaningful phase of CRS-driven enforcement in practice.

VAT and Digital Invoice Reform

Implementation of China’s new VAT Law, which took effect on January 1, 2026, continues reshaping day-to-day compliance obligations. At the same time, the nationwide expansion of electronic invoicing (“e-fapiao”) systems is significantly increasing the transparency and traceability of commercial transactions. For foreign-invested enterprises, the practical implications extend beyond tax filing itself. Supplier management, invoice verification, input VAT recovery, and internal procurement controls are all becoming increasingly data-sensitive and system-driven.

Anti-Avoidance and Transfer Pricing

Local tax bureaus also remain focused on transfer pricing arrangements, related-party transactions, and offshore structures lacking clear commercial substance, with particular scrutiny falling on service fee structures with limited operational substance (as we have seen with several of our clients since beginning of 2026), offshore IP holding arrangements, intercompany financing, and aggressive profit allocation mechanisms. The broader policy direction remains consistent with Beijing’s emphasis on “substantive economic activity” over purely formal corporate structuring.

Why This Matters

For multinational companies, the practical consequence of these shifts is that inconsistencies between customs declarations, VAT invoices, banking records, transfer pricing documentation, and overseas reporting are becoming significantly easier for authorities to detect and reconcile. Historically, fragmented systems and local inconsistencies created gaps that limited enforcement in practice. Those gaps are closing, and the direction of travel is clear: less reliance on manual review, more reliance on automated risk-identification across integrated datasets.

What to Watch

Key developments to monitor include:

• further implementing guidance under the new VAT Law

• broader use of CRS and overseas income enforcement

• increased integration between customs, banking, and tax data systems

• additional local campaigns targeting offshore structures lacking economic substance

• evolving scrutiny of cross-border service and royalty payments

Contact us if you have issues with intercompany services, cash flow management, invoices, cost-plus and similar arrangements and we would be happy to share with you the newest insights on handling such cases.

5. TRADE & EXPORT (Supply Chain, Export Controls)

   
   

China’s New Industrial and Supply Chain Security Regulations

On 7 April 2026, China’s State Council issued the Regulations on Industrial and Supply Chain Security Regulations (“Decree 834”), effective immediately, representing one of the most important expansions of China’s economic security framework since the Anti-Foreign Sanctions Law. The Regulations establish a broad legal structure enabling Chinese authorities to monitor, protect, and intervene in supply chains deemed strategically important to national security and economic resilience. Issued amid continuing geopolitical tensions, they reflect Beijing’s growing concern over external technological dependence, supply chain disruption, and industrial vulnerability.

A Broader Strategic Shift

Decree 834 are part of a much wider policy transition already visible across export controls, technology policy, industrial planning, and trade governance. Supply chains are no longer viewed by Beijing merely as commercial networks. Increasingly, they are being treated as strategic national infrastructure linked directly to national security and industrial policy objectives. This shift aligns closely with themes emphasized during the 2026 Two Sessions and in preparations for the 15th Five-Year Plan, including China’s resilience, self-sufficiency, and control over critical technologies and production capacity.

Key Provisions

National supply chain monitoring framework

Decree 834 establishes a system for risk monitoring, emergency coordination, industrial reserves, and resilience planning across sectors considered strategically important. Authorities are empowered to identify vulnerabilities, coordinate interventions, and mobilize resources in response to perceived supply chain risks.

Supply-chain security investigation

Article 15 of Decree 834 empowers State Council departments to open a supply-chain security investigation against foreign organizations or individuals whose commercial conduct — including interrupting normal transactions, applying discriminatory measures, or causing substantial harm to PRC supply chain security — is deemed to have harmed China’s industrial or supply chain security. The language is intentionally broad and may potentially apply to sanctions compliance decisions, supplier terminations, investment restrictions, or sourcing shifts perceived as politically motivated. Business decisions such as stopping supply to Chinese customers or shifting sourcing away from China and similar such cases may fall within the scope of Decree 834, with reach potentially extending to subsidiaries and affiliates.

Restrictions on supply chain audits and data collection

Decree 834 may also complicate ESG audits, supply chain due diligence exercises, and foreign compliance investigations involving Chinese counterparties. Multinational companies may increasingly find themselves balancing Western disclosure obligations against Chinese restrictions on data transfers and information collection with no clean solutions possible.

Expanded personal and corporate exposure

The Decree 834 regulatory enforcement toolbox is rather broad and similar to the tools under Decree 835 restrictions involving investment activity, import/export operations, financing, government procurement participation, and even personal mobility. Combined with the new counter-extraterritorial jurisdiction rules in Decree 835 issued days later, Decree 834 contributes to a significantly more complex compliance environment for internationally active firms.

Why This Matters

Multinational companies are increasingly operating between overlapping and sometimes contradictory regulatory systems involving sanctions, export controls, ESG obligations, cybersecurity, supply chain due diligence, and national security rules. The new framework signals that China is increasingly willing to use legal and regulatory tools proactively to determine commercial behaviour and defend strategic industrial interests.

Importantly, the Regulations do not necessarily signal imminent “decoupling.” Rather, they suggest a future environment in which cross-border business becomes more conditional, more politicized, and more compliance-intensive.

What to Watch

Key areas to monitor include:

• publication of sector-specific “critical supply chain” lists

• implementing rules clarifying Article 15 enforcement standards

• early enforcement actions involving ESG audits or supplier due diligence

• interaction between the Regulations and China’s export control regime

• future restrictions tied to semiconductors, AI, rare earths, biotech, and critical minerals

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