China Expands Unreliable Entity List, Heightening Compliance Risks forForeign Firms

Introduction: A Sharpened Tool in China’s
Regulatory Arsenal

On October 9, 2025, the Chinese government announced the addition of 14 new
entities to its Unreliable Entity List (UEL), a move that significantly heightens
compliance risks for foreign companies with ties to China. This expansion of the
UEL, which took effect immediately, serves as a stark reminder of Beijing’s
readiness to leverage its regulatory powers to safeguard national security and
economic interests. For international law firms and their clients, this development
necessitates a renewed focus on supply chain resilience, due diligence, and the
complex web of geopolitical risks that now define the global business landscape.

The UEL, first established in 2020, is a key component of China’s evolving regulatory
framework for managing foreign trade and investment. The addition of these 14
new entities, which are reported to be primarily in the technology and defense
sectors, signals a more assertive use of this tool. This article examines the
implications of the expanded UEL, the legal consequences for listed entities, and
the strategic considerations for foreign businesses seeking to navigate this
increasingly challenging environment.

The Unreliable Entity List: A Potent Sanctions
Mechanism

The UEL provides the Chinese government with a powerful mechanism for
sanctioning foreign entities that are deemed to have engaged in activities that harm
China’s national sovereignty, security, or development interests. The consequences
of being placed on the UEL are severe and can include:

Restrictions on Trade and Investment: Listed entities are prohibited from
engaging in any import or export activities related to China and are barred
from making new investments in the country.

Restrictions on Personnel: Senior executives of listed entities may be denied
entry into China, and their work permits may be revoked.

Financial Penalties: Listed entities may be subject to fines and other financial
penalties.

The criteria for inclusion on the UEL are broad and give the Chinese authorities
significant discretion. The recent additions to the list suggest that Beijing is
particularly focused on entities that it believes are involved in the development or
supply of advanced technologies that could be used for military purposes.

Strategic Implications for Global Businesses

The expansion of the UEL has significant strategic implications for global
businesses, even those that are not directly listed. The move highlights the growing
importance of supply chain transparency and the need for companies to have a
clear understanding of their exposure to geopolitical risks.

Supply Chain Disruptions: Companies that rely on listed entities as suppliers
or customers will face immediate disruptions to their operations. They will
need to quickly find alternative sources of supply or new markets for their
products.

Increased Due Diligence Requirements: The expansion of the UEL
underscores the need for enhanced due diligence in all business dealings with
Chinese entities. Companies must have robust procedures in place to screen
their partners and customers against the UEL and other relevant sanctions
lists.

Heightened Geopolitical Tensions: The use of the UEL is a clear indication of
the escalating geopolitical tensions between China and the United States and
its allies. This creates a more uncertain and volatile environment for
international businesses, which must now factor geopolitical considerations
into their strategic planning.

Guidance for Law Firms and Their Clients

In this high-stakes environment, law firms should advise their clients to adopt a
proactive and risk-based approach to compliance. Key recommendations include:
Conduct a UEL Risk Assessment: Companies should conduct a
comprehensive risk assessment to determine their potential exposure to the
UEL. This should include a review of their entire supply chain, from raw
material suppliers to end customers.

Strengthen Compliance Programs: Companies must ensure that their
compliance programs are up-to-date and effectively address the risks posed
by the UEL. This includes implementing clear policies and procedures for
screening business partners, conducting due diligence, and responding to
potential violations.

Develop a Crisis Management Plan: Companies should develop a crisis
management plan to respond to the potential listing of a key supplier,
customer, or business partner on the UEL. This plan should outline the steps
to be taken to mitigate the impact of the listing and to ensure business
continuity.

Conclusion: Navigating the New Reality of Economic Statecraft

The expansion of China’s Unreliable Entity List is a clear manifestation of the new
reality of economic statecraft, where trade and investment are increasingly used as
tools of geopolitical competition. For international businesses, this new reality
requires a fundamental shift in their approach to risk management. By embracing
transparency, strengthening compliance, and preparing for a more uncertain future,
companies can navigate the challenges of this new era and build more resilient and
sustainable businesses.