In recent months, there has been a noticeable escalation in the use of economic statecraft in the US-China rivalry. In the US, the expansion of the 1260H list maintained by the US Department of Defense that identifies Chinese companies deemed to have links to China’s military or civil-military fusion strategy, ongoing Section 301 investigations, and progress on the proposed Multilateral Alignment of Technology Controls on Hardware (MATCH) Act are cases in point.

Never one to trail any nation in geoeconomic weaponization, China also has put in place a new raft of tough measures, including the implementation of dual-use restrictions and export controls targeting Japan. In recent months, China’s State Council issued three decrees that, taken together, dramatically impact how multinational enterprises (MNEs) interact with China and how Chinese companies operate abroad.

China’s State Council Decree 837, issued on June 1, 2026, and effective July 1, 2026, forms the basis of the new “Regulation on Outbound Investment.” It is the State Council’s comprehensive legal framework governing all outbound investment by Chinese investors. It does not replace the existing framework but overrules it in the event of any inconsistencies. Investors should therefore expect changes in the coming months to rules issued by China’s State Administration for Foreign Exchange, Ministry of Commerce, and National Development and Reform Commission to align with the new decree.

Decree 837 represents a move toward a more unified, security‑focused system that embeds export controls and data governance directly into the outbound investment legal framework. Decree 837 involves the state at every stage of the overseas investment cycle, from initiation to repatriation or exit. It enables the state to determine the level, direction, quantity, and quality of China’s outbound investment flows. This ensures that the entirety of China’s huge trade surplus is recycled into the global economy in a way that is conducive to the interests of the Chinese Communist Party-state. Given that China is a major net supplier of capital to the world and consistently ranks among the top three foreign investors on a gross basis, the decree will have a global impact insofar as it shapes China’s overseas investment patterns.

The decree is strikingly broad. It applies to all “Chinese investors,” which includes not only individuals and Chinese companies but also foreign-invested companies registered in China. Investment is very broadly defined to include not only the purchase of control over a company or assets overseas, but also management rights, overseas financing, and even guarantees. It covers the export of technologies and data, but also expertise. For example, the decree dictates requirements for the cross‑border secondment of technical personnel, technical guidance, and training. In addition, Hong Kong, Macau, and Taiwan are treated as “overseas” for the purposes of the decree, meaning mainland investment into these jurisdictions will require the same level of state scrutiny. The decree embeds a national security review process at every stage of an investment’s life. It also stipulates significant punishments for breaches of the rules. Furthermore, at a time when other jurisdictions are reviewing inbound investment through the prism of national security, the decree empowers the State Council to investigate foreign investment barriers and impose countermeasures against states, organizations, or individuals that discriminate against Chinese investors.

In isolation, Decree 837 could be construed as a significant lurch toward formalizing China’s mercantilist economic model. Viewed in conjunction with Decrees 834 and 835, it suggests the formalization of state control over areas of the economy where some observers of the Chinese economy had presumed the state would take a back seat.

Decree 834, “Provisions on the Security of Industrial and Supply Chains,” came into effect at the end of March 2026 with the purpose of building a nationwide system for monitoring, investigating, and mitigating risks to China’s industrial security and supply chains. Of particular concern to multinationals are Articles 13 and 15. Article 13 prohibits illegal supply chain investigations and information-gathering by foreign entities in China. This is relevant, for example, for multinationals conducting supply chain due diligence, which is necessary to comply with US laws on forced labor.

It is important for MNEs to understand their own vulnerabilities to Chinese economic statecraft and how to weigh their supply chain dependencies against China’s new and tougher laws.

Article 15 targets foreign companies or individuals that sever normal trading relationships with China or impose selective restrictions on trade and investment with China. Unlike legislation pertaining to China’s Unreliable Entity List (UEL), the threshold for breaching the law is lowered from causing “serious harm” to a Chinese entity to merely posing a “threat” to supply chain security. This could be interpreted as actions by an MNE to de-risk its own operations if, in doing so, they were to weaken the in-China supply chain ecosystem.

Decree 835, “Regulations on Countering Improper Extraterritorial Jurisdiction by Foreign States,” came into force one week later on April 7, 2026. It is intended to enable China to retaliate against what it perceives as unjustified measures taken by foreign powers that seek to dictate the behavior of foreign entities toward China or inhibit the freedom of action of Chinese firms abroad. On May 15, 2026, China's Ministry of Justice issued its first formal determination under Decree 835, finding that the European Commission's cross-border investigation into Nuctech — a partially state-owned manufacturer of security inspection machines, including X-ray scanners — under the European Union’s (EU) Foreign Subsidies Regulation constituted improper extraterritorial application of a foreign law.

Decree 835 adds teeth to a legal framework that China has been putting in place for a while, beginning with the UEL in 2020, its Blocking Rules (also known as the Rules for Blocking the Improper Extraterritorial Application of Foreign Laws and Measures), the Anti-Foreign Sanctions Law (AFSL) in 2021, and the AFSL's implementing regulations in 2025. The decree clearly creates a conflict for foreign multinationals operating in China: compliance with the EU, US, or other countries’ sanctions can be deemed unlawful in China, and China has now set out a clear means to retaliate. China has created a “Malicious Entity List” (MEL) naming institutions it finds to have enforced “unlawful” foreign measures. Companies, individuals, or other institutions that find themselves on the MEL are subject to fines or asset seizures.

As countries push back against the “second China shock” in the form of a new surge of higher value-added exports worldwide and the global competition for technological supremacy intensifies, these decrees are catalysts for the further fragmentation of the global economy. The three decrees entrench China’s legal framework for state control of both its own MNEs operating abroad and foreign MNEs operating in China. The global environment of economic statecraft appears to be evolving in increasingly hostile directions, with little evidence of an “off-ramp” on either side or, indeed, of a desire to create them.