Beijing has unleashed a new set of regulations that significantly bolster its ability to penalize Western firms for reducing their reliance on China, a move that is creating a complex web of coercion and compliance challenges for multinationals. These new powers, introduced in April alongside the Regulations on Industrial and Supply Chain Security, signal Beijing’s intent to actively deter ‘decoupling’ and ‘de-risking’ efforts by foreign governments and corporations.
Beijing Flexes New Muscles on Global Stage
The implications of these rules extend beyond China’s borders. In a striking demonstration of its expanded reach, Chinese authorities recently blocked Meta’s $2 billion takeover of Singapore-headquartered AI startup Manus, citing national security concerns. Despite being based outside China, Manus was deemed a strategic asset in the global AI race, highlighting Beijing’s willingness to intervene in deals structured extraterritorially.
These measures are designed to prevent US tech giants from acquiring advanced Chinese technologies and to retaliate against foreign firms that shift production away from China, whether to countries like Vietnam and India or through reshoring initiatives. Companies could face fines and supply chain blacklisting if they adhere to export controls or sanctions imposed by the United States and the European Union targeting Chinese entities.
Deterring De-risking Efforts
Rebecca Arcesati, an analyst at the Mercator Institute for China Studies (MERICS), told DW that the regulations are ‘effectively meant to derail de-risking measures such as those the EU and member states, including Germany, have been taking to reduce dependency on China.’ Since the COVID-19 pandemic, both the EU and the US have intensified efforts to build more resilient supply chains less dependent on China, leading many foreign companies to scale back operations there.
The acceleration of this shift was significantly influenced by former US President Donald Trump’s aggressive tariffs on Chinese goods. These trade disputes have contributed to a global economic environment moving away from broad globalization towards a more fragmented, bloc-based trading system.
Europe’s Balancing Act
In response to what it terms ‘repeated dumping of cheap Chinese goods’—most recently electric vehicles (EVs)—flooding the European market, the EU has been implementing measures to protect its trade. The European Commission’s Industrial Accelerator Act (IAA), published in March, aims to reduce strategic dependencies on Chinese goods and investments and counter unfair competition from Chinese rivals who often benefit from substantial state subsidies. While not explicitly naming China, its intent is clear.
This regulatory tug-of-war places multinational corporations, particularly German automakers like Volkswagen, BMW, and Mercedes-Benz, in a precarious position. These companies rely heavily on their substantial market share in China and profit from producing vehicles there for export. Simultaneously, they face domestic pressure to reduce reliance on Chinese components and compete with rapidly advancing Chinese EV manufacturers.
An ‘Extraterritorial Toolbox’
Jens Eskelund, president of the European Union Chamber of Commerce in China, described Beijing’s new powers as an ‘extraterritorial toolbox’ that will exacerbate ‘complexity in global trade.’ He warned of potential scenarios where companies find it ‘impossible to comply with them all’ due to conflicting regulatory demands from the US, Europe, and China.
Anecdotal evidence suggests China is already exerting pressure on foreign companies regarding their relocation plans. Arcesati noted that China’s leaders are prioritizing self-sufficiency and aiming for the world to remain reliant on Chinese supply chains and technology to ensure national leadership in critical sectors.
Beijing has previously demonstrated its willingness to weaponize supply chains, as seen in its export controls on rare earth elements and critical minerals last year. These materials are indispensable for the production of EVs, defense systems, and advanced electronics.
Pressure on EU Policy
The EU is reportedly facing increasing pressure from Beijing to dilute the IAA. Several EU member states with strong economic ties to China, including Germany, are advocating for a more cautious approach. Despite the EU’s significant trade deficit with China, which reached €360 billion ($424 billion) in 2025, Brussels may find it challenging to maintain a firm stance, even as analysts stress the urgency of protecting Europe’s industrial future.
Alice Garcia Herrero, Chief Economist for Asia Pacific at French Investment Bank Natixis, advised European policymakers to ‘double down,’ warning that ‘If we keep on accepting the threat from China, we’ll have less and less room.’ The unfolding regulatory battle underscores the growing geopolitical and economic friction that multinationals must navigate.
