China’s Ministry of Commerce Proposes Sanctions on Foreign Companies for Infringement of Chinese Trade Secrets

Background

US life sciences companies license compounds from Chinese biotechnology companies, use Chinese contract manufacturers and research organizations, and hire scientists who have worked for Chinese competitors. When one of those relationships ends badly, the dispute often includes a claim that one side kept or used the other side’s confidential information. To date, that claim has been brought in the forum the parties selected in their agreement: in a US court under the Defend Trade Secrets Act of 2016 or state law; before the International Trade Commission under Section 337 of the Tariff Act of 1930; or in China in court or before the market regulators under the Anti-Unfair Competition Law and the State Administration for Market Regulation’s Provisions on the Protection of Trade Secrets, which took effect June 1, 2026. On October 26, 2026, the Ministry of Commerce of the People’s Republic of China (MOFCOM) released a draft regulation under which MOFCOM itself could investigate a foreign company accused of infringing a Chinese trade secret and could impose trade, investment, immigration, and monetary penalties on it.

The Draft Provisions

The Special Provisions on Protecting China’s Trade Secrets (Draft for Comment) (the Draft Provisions) were issued by MOFCOM for public comment on October 26, 2026. Comments go to MOFCOM’s Department of Treaty and Law and are due November 24, 2026. The document is 10 articles long, and MOFCOM has published it in Chinese only; the quotations in this alert are unofficial translations. The Draft Provisions cite the Foreign Trade Law and the Anti-Unfair Competition Law as their legal basis and state that their purpose is “to safeguard national sovereignty, security, and development interests and to protect the lawful rights and interests of rights holders” (Article 1). As drafted, they would “take effect on the date of promulgation” (Article 10).

Scope

The Draft Provisions apply where “a foreign entity, in international economic and trade and related activities, commits relevant acts infringing Chinese trade secrets” and the conduct also either “endangers China’s national sovereignty, security, or development interests” or “constitutes an actual threat” to those interests (Article 2). A “foreign entity” “includes foreign enterprises, other organizations, or individuals” (Article 3). The term “Chinese trade secrets” is not defined. The text does not say whether it turns on the nationality of the owner or the location of the information, whether information held by a foreign-invested enterprise in China qualifies, or whether conduct that takes place entirely outside China is covered.

Measures

If MOFCOM finds that a foreign entity has engaged in conduct covered by Article 2, it may impose one or more of the following: restricting or prohibiting the entity from “engaging in the import and export of goods and technology and international trade in services related to China” and prohibiting the export of relevant items to it; restricting or prohibiting “its new investment within China;” restricting or prohibiting “the entry of its relevant personnel, means of transport, and the like;” restricting or revoking “the work permits or stay or residence qualifications of its relevant personnel within China;” “imposing a fine of a corresponding amount in accordance with law based on the severity of the circumstances;” and “other necessary measures” (Article 5). The Draft Provisions do not state an amount or a cap for the fine. MOFCOM would announce its decisions publicly unless a law or administrative regulation provides otherwise (Article 8), and a Chinese enterprise, organization, or individual that needs, in special circumstances, to transact with a sanctioned foreign entity would need to apply to MOFCOM for approval (Article 9).

Procedure

MOFCOM would decide whether to open an investigation (Article 6). If it were to do so, the foreign entity “shall cooperate, accept inquiries, truthfully report the circumstances, and provide relevant materials,” and it “may make statements and present a defense.” If the entity “does not cooperate, or obstructs the investigation by other means, MOFCOM may make a decision based on the facts already obtained.” Any “enterprise, other organization, or individual may submit suggestions or reports to MOFCOM” concerning infringement of trade secrets by foreign entities, and the text places no requirements on the content of a report. The Draft Provisions themselves do not set a time limit for the investigation or a standard of proof, and they do not provide for a hearing, for notice before measures take effect, or for review of MOFCOM’s decision by a court. A sanctioned entity may apply to have the measures modified or canceled if it “voluntarily takes corrective measures, stops the infringement and eliminates the danger, and compensates for losses,” and MOFCOM may then “maintain, suspend, modify, or cancel” the measures after an assessment (Article 7).

Implications for Cross-Border Disputes

If adopted in this form, the Draft Provisions would give a Chinese company in a dispute with a foreign counterparty a second route for a trade secret grievance, and the measures available at the end of that route reach the foreign company’s trade with China, its investments in China, and its employees’ ability to enter and work there. A US company preparing to assert a trade secret claim against a Chinese licensor, manufacturer, or former collaborator, whether in court, at the ITC, or in arbitration, should assume that a report to MOFCOM is among the possible responses and should take stock of what the company and its people have at risk in China before it files. A company that receives a trade secret accusation from a Chinese counterparty should treat it as a possible predicate for a MOFCOM investigation and not only as a contract dispute. Companies with Chinese counterparties should also consider which of their agreements define confidential information and residual knowledge broadly enough to support an infringement allegation, where their China-facing personnel are located and how often they travel to China, how independent development is documented for programs that overlap with a Chinese partner’s technology, and whether to submit comments, directly or through an industry group, before November 24.

Bottom Line

The Draft Provisions may change before they are adopted, and MOFCOM has not published an explanation of how it intends to apply them. As drafted, they could allow a Chinese counterparty to take a trade secret grievance against a US company to a ministry with authority to cut off that company’s business in China, and they leave undefined the terms that would decide most cases. Companies that license from, manufacture with, or recruit from Chinese counterparties should review their agreements and dispute plans with that in mind, and they should consider commenting before the November 24 deadline.

* * *

For more information or questions about how the Draft Provisions may affect your agreements or disputes with Chinese counterparties, reach out to James Breen.