Pentagon Blocks Defense Contractors with China Links
Pentagon officials have blacklisted 134 China-linked companies as of January 2025, marking an unprecedented crackdown on these entities. This extensive ban follows Congressional restrictions outlined in the 2021 National Defense Authorization Act (section 1260H) and strengthened by the 2024 NDAA (section 805). The legislation blocks government dealings with specific China-based companies.
The defense industry faces a phased rollout of these restrictions. The Department of Defense cannot enter into new or renewed contracts with blacklisted companies after June 30, 2026. The restrictions’ scope will expand substantially by June 30, 2027. The Pentagon will then be unable to work with contractors that use end products or services from companies on the 1260H banned list. These changes affect many sectors including telecommunications, aerospace, semiconductors, artificial intelligence, energy, and transportation.
DoD Expands Compliance Rules for Defense Contractors
Defense contractors must deal with more complex compliance requirements as the Pentagon enforces stricter rules for companies with Chinese connections. These companies need to follow two different regulatory frameworks: FAR 52.204-25 (from Section 889 of the 2019 NDAA) and the Chinese Military Companies List (from Section 1260H of the 2021 NDAA).
The Pentagon’s compliance plan rolls out in two phases. The first phase starts June 30, 2026, when the Pentagon will stop entering, renewing, or extending contracts with entities on the 1260H List and companies that involve lobbyists representing Chinese military companies. The second phase begins June 30, 2027, when restrictions will cover indirect procurement. This phase bans the purchase of end products or services developed by blacklisted entities through third parties.
The indirect ban has a key difference – it applies only to end products, not components. Defense officials explain this clearly: “There’s a difference between a component and an end item… Components are not affected by this indirect procurement ban”.
The Pentagon will help contractors track their subcontractor connections by using “available supply chain illumination data” to spot risks. This transformation will push companies to find other suppliers, which could strengthen domestic supply chains and boost partnerships with allied nations.
Contractors Must Audit and Certify Supply Chains
Defense industry suppliers must now meet tough new requirements to verify their supply chain’s compliance with Pentagon security standards. The Department of Defense requires contractors to complete both internal and third-party cybersecurity assessments that deal with sensitive information.
Supply chain verification affects all production tiers. Prime contractors need to confirm that all but one of these subcontractors meet appropriate Cybersecurity Maturity Model Certification (CMMC) requirements. This step must happen before they award contracts that involve Federal Contract Information or Controlled Unclassified Information. The verification process needs identification of systems that handle DoD information.
Compliance doesn’t end with the original certification. Contractors need active certification throughout their contract’s lifecycle. An affirming official must submit yearly statements to confirm ongoing compliance or file new affirmations when a system’s status changes.
The Pentagon doesn’t deal very well with tracking material origins. While DoD has better tracking of major subsystems, they lack a full picture of component-level suppliers. This gap particularly affects suppliers of raw materials and parts. The Pentagon wants vendors to share foreign dependency information through contracts. However, officials disagree whether suppliers have this data or would share it willingly.
On top of that, contractors must avoid hiring lobbyists who also represent Chinese military companies. This new rule takes effect in 2026.
New Restrictions Signal Strategic Realignment
America’s defense procurement strategy has undergone a radical alteration through recent legislative actions that go beyond basic compliance requirements. The FY 2026 National Defense Authorization Act (NDAA) now includes Defense Federal Acquisition Regulation Supplement (DFARS) 252.225-7052, which stops DoD from obtaining critical minerals from non-allied foreign nations, especially China.
The Pentagon added molybdenum, gallium, and germanium to its restricted critical minerals list. Congress acknowledged supply chain vulnerabilities through this realignment, though implementation will take five years to help industry adapt.
These restrictions show a complete separation from China-linked defense supply chains. DoD must now evaluate its reliance on foreign entities of concern (FEOC) for critical infrastructure and assess supply chain redundancy risks.
The FY 2026 NDAA’s scope extends to outbound investments through the Defense Production Act. Companies must notify authorities about specific investments in Chinese-controlled entities working with advanced technologies. Violators face civil fines up to $250,000 or double the transaction value.
The Pentagon demonstrated this strategic direction through new consulting services restrictions. Companies offering management, scientific, and technical consulting to DoD must now verify that neither they nor their affiliates work with covered foreign entities. This rule addresses the risk of adversaries gaining access to sensitive defense information through multinational consulting relationships.
Conclusion
Pentagon’s new restrictions on China-linked defense contractors point to a radical alteration in national security strategy. This policy change splits the defense industrial base into two groups – contractors that line up with China and those that line up with the United States. Without doubt, this split creates both challenges and opportunities for contractors in the supply chain.
Defense companies will get time to adapt through a phased implementation, though they’ll need substantial investment and reorganization. The 2026 rules will block direct contracting with blacklisted entities. The 2027 indirect procurement ban will expand these limits even further. Defense contractors must quickly audit their supply chains, find new suppliers, and build compliance frameworks that meet Pentagon’s requirements.
These rules impact many key industries at once – telecommunications, aerospace, semiconductors, artificial intelligence, energy, and transportation. Companies in these sectors face complex compliance challenges that just need immediate action. While the difference between components and end products offers some flexibility, in spite of that, contractors must learn about these details to direct their way through the new rules.
Pentagon’s emphasis on supply chain checks shows its growing awareness of national security risks in global procurement networks. Defense officials plan to improve their tracking abilities, despite limited visibility into component-level suppliers now. This strategic shift also shows that Congress recognizes the need to protect critical supply chains from potential threats.
These restrictions mean more than just new rules – they reshape the defense procurement scene completely. Companies that adapt quickly will gain competitive edges, while slow movers risk losing valuable defense contracts. This policy change speeds up America’s strategic separation from China and deepens their commitment to domestic and allied nation supply chains for decades to come.