28APR

China's Decree 835 sits in reserve

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09:13UTC

China's State Council issued Decree No. 835 on 13 April, eleven days before the Hengli designation, creating a Malicious Entity List with asset-freeze and entry-ban powers. The Ministry of Justice, not MOFCOM, holds identification authority. Beijing has not activated it.

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ConflictDeveloping

Key takeaway

Beijing built its Malicious Entity List eleven days before the Hengli designation and has chosen not to use it yet.

China's State Council issued Decree No. 835 on Monday 13 April, eleven days before OFAC designated Hengli Petrochemical, creating a State Council-level Malicious Entity List with asset-freeze, entry-ban and investment-restriction powers ¹. The decree, analysed by Morrison Foerster in a 20 April client note, assigns identification authority to the Ministry of Justice rather than to the Ministry of Commerce (MOFCOM, the standard administrator of China's trade-and-investment framework). Beijing had not activated the decree against any US entity as of close of business 28 April; its Washington embassy continued to handle the response at protest level .

Beijing's decision to assign listing authority to the Ministry of Justice rather than to MOFCOM is the analytically novel piece. MOFCOM would have processed retaliation under the Anti-Foreign Sanctions Law of 2021, which sits inside China's trade-policy toolkit and invites WTO escalation in the way the 2018 tariff dispute did. Routing through the Ministry of Justice treats listing as a domestic rule-of-law matter. The forum is administrative review inside the Chinese court system, not a state-to-state trade complaint, which closes off the WTO escalation channel Beijing avoided after the 2018 tariffs and has been reluctant to reopen.

Whether Beijing wrote Decree 835 in anticipation of the Hengli designation cannot be confirmed from the available record. The eleven-day gap between the State Council issuance and the OFAC action is structurally preparatory rather than reactive: drafting a State Council decree, clearing it through the Communist Party Politburo and gazetting it does not happen in eleven days from a standing start. Either the Hengli designation was anticipated by the State Council legal apparatus, or Decree 835 was written for a different escalation that arrived on a useful schedule. Morrison Foerster's reading of the decree timeline favours the first interpretation; the eleven-day gap fits known State Council drafting cycles for prepared retaliatory instruments.

Not activating the decree on Day 60 communicates two things. First, Beijing prefers the embassy-level posture for as long as the 24 May wind-down on Hengli remains theoretical; activating now would convert the deferral into a confrontation before either side has been forced into one. Second, Decree 835 holds the Ministry of Justice ready to designate US entities or executives without a fresh State Council process if Hengli transactions continue past 24 May and Treasury escalates. The architecture is built; the political decision to use it has not been taken.

Deep Analysis

In plain English

China passed a law in April that lets it freeze the assets of, and ban entry to China for, companies or individuals from countries that sanction Chinese firms. The law was created eleven days before the US sanctioned a Chinese oil refinery over Iran. China has not used the law yet. If it does, UK and US companies caught in the middle would face an impossible choice: follow the US rules and break China's, or follow China's rules and break the US ones.

What could happen next?

Risk
UK multinationals with China revenues face potential criminal liability under Decree 835 if Beijing activates it against entities complying with OFAC's Hengli secondary-sanctions requirements after 24 May.
Precedent
Decree 835's Ministry of Justice routing establishes a template for Chinese counter-sanctions that bypasses WTO dispute resolution permanently, structurally changing the rules of US-China economic coercion for the next decade.

Source Landscape

This story draws on neutral-leaning sources

Compliance desks at European and US multinationals operating in China face a new risk calculation following Decree 835. Prior Chinese counter-sanctions instruments required MOFCOM notification before compliance with foreign sanctions , a paper exercise most multinationals navigated by applying for exemptions.

The Ministry of Justice pathway removes that paper exercise: a MOJ designation triggers mandatory non-compliance with the original US or EU sanction, with criminal liability for executives who continue to comply with the foreign order.

For UK-listed companies with significant China revenues , HSBC, Standard Chartered, Shell, and BP all have material China operations , Decree 835 activation against a UK entity would create an irreconcilable conflict: comply with OFAC and face criminal liability in China, or comply with China and face OFAC secondary sanctions. No UK government mechanism currently provides safe harbour for companies caught in that conflict.

Consensus view: Paul Hastings' Beijing office assesses the Ministry of Justice routing as the legally consequential element of Decree 835. MOFCOM-based designations are challengeable under WTO Article XXI national-security exemptions, but Chinese Ministry of Justice designations sit outside WTO jurisdiction entirely, in the same category as criminal law and national-security enforcement. The US has no multilateral forum in which to contest a MOJ-based designation.

Counter-view: Gavekal Dragonomics' Arthur Kroeber argues Beijing's track record with counter-sanctions instruments is to announce and defer: the 2020 Unreliable Entity List, the 2021 Anti-Foreign Sanctions Law, and the 2023 export controls on gallium and germanium all proceeded more slowly than the announcement architecture implied. Decree 835 is more likely to be used as a negotiating signal than as an operational weapon.

Key tension: Whether the Ministry of Justice has the operational capacity to run a sanctions compliance infrastructure comparable to OFAC , with the financial-intelligence, legal-review and enforcement staffing that makes US designations credible , or whether Decree 835 is a legal shell that depends on political will to activate.

Sources:Morrison Foerster

Mentions:China State Council →Malicious Entity List →MOFCOM →Hengli Petrochemical (Dalian) Refinery Co. Ltd →OFAC →Beijing →Anti-Foreign Sanctions Law →Communist Party →Iran →China →Morrison Foerster →Washington →UK Ministry of Defence →Decree No. 835 →

First Reported In

Update #82 · Iran writes Phase 1; Washington still has no pen

Morrison Foerster· 28 Apr 2026

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Different Perspectives

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