How Section 1260H Is Putting Teams At Risk of Violating NDAA Compliance

The National Defense Authorization Act’s list of Chinese military companies is about to get much more restrictive for American businesses.

Michael Mariani

8 min read
How Section 1260H Is Putting Teams At Risk of Violating NDAA Compliance

Article Highlights:

  • Despite some widespread misconceptions, the NDAA has historically not prohibited U.S. companies from doing business with entities listed on Section 1260H. Rather, the provision requires the Department of Defense to publish the names of businesses believed to have a relationship with the Chinese military under the nation's military-civil fusion doctrine.
  • The NDAA for fiscal year 2024 included a provision, Section 805, that prohibited the DoD from entering into, renewing, or extending contracts with any of the entities listed in Section 1260H. While this bill was originally passed in the summer of 2023, the new restrictions were not scheduled to go into effect until June 30, 2026.
  • In addition to the changes that entered into force in June 2026, Section 805 of the 2024 NDAA included another expansion to NDAA compliance that will enter into force in June 2027. The section prohibits the Department of Defense and all private contractors working with the agency from doing business with companies that source from entities on the Section 1260H blacklist.

Over the past decade, the U.S. government has used a variety of channels to expand the trade restrictions it imposes on chief economic rival China. One of the more prominent avenues for these restrictions is the National Defense Authorization Act (NDAA), a U.S. federal law that must be renewed every year. The NDAA establishes the budget, priorities, and procurement policies for the Department of Defense and other federal security agencies.

NDAA legislation often includes trade requirements that government agencies and the contractors they work with must adhere to. The National Defense Authorization Act for fiscal year 2021 featured a new provision known as Section 1260H. This section required the Department of Defense (also now referred to as the Department of War) to identify and publish a list of Chinese companies with potential ties to the country's military every year until at least 2030. While organizations listed on the NDAA's Section 1260H can still do business with most U.S. companies, they face significant restrictions and limited access to the American market. And while the Department of Defense expands the Section 1260H list every year, 2026 saw an especially large jump in the number of Chinese entities added to the list, as well as new restrictions.

Because of this, U.S. businesses that operate in the aerospace and defense industries should heed the NDAA and Section 1260H. While they were once minor compliance considerations, recent and upcoming changes are making them more consequential for businesses that work with the U.S. government.

What Restrictions Does Section 1260H Impose?

Despite some widespread misconceptions, the NDAA has historically not prohibited U.S. companies from doing business with entities listed on Section 1260H. As law firm DLA Piper explains, the provision is "principally a disclosure mandate"—meaning it requires the Department of Defense to publish the names of businesses believed to have a relationship with the Chinese military under the nation's military-civil fusion doctrine. But while inclusion on the list doesn't prohibit trade, it does serve as a signal to other U.S. regulatory bodies that the listed companies may pose a threat to national security. This makes these businesses higher-risk, increasing their vulnerability to future sanctions and other restrictions.

But the role of Section 1260H as "principally a disclosure mandate" changed in June 2026. On June 30, a key provision went into effect that significantly bolstered the NDAA compliance restrictions on entities listed in Section 1260H.

June 2026 Changes to NDAA Compliance

While Section 1260H of the 2021 NDAA did not impose any concrete restrictions on the Chinese entities listed by the Department of Defense, a subsequent authorization bill took the section further and gave it sharper teeth. The NDAA for fiscal year 2024 included a provision, Section 805, that prohibited the DoD from entering into, renewing, or extending contracts with any of the entities listed in Section 1260H. While this bill was originally passed in the summer of 2023, the new restrictions were not scheduled to go into effect until June 30, 2026.

As of June 30, the DoD and all defense contractors working with the agency are prohibited from working directly with companies on the Section 1260H blacklist. This is being seen by many experts as the first measure in a longer, more comprehensive effort to remove Chinese companies with links to China's military from U.S. defense supply chains.

Looming 2027 Changes to NDAA Compliance

In addition to the changes that entered into force in June 2026, Section 805 of the 2024 NDAA included another expansion to NDAA compliance that will enter into force in June 2027. The section prohibits the Department of Defense and all private contractors working with the agency from doing business with companies that source from entities on the Section 1260H blacklist.

This is a major expansion of the existing NDAA restrictions. U.S. businesses could adhere to the rule that went into effect in June 2026 by simply not doing business with any Chinese companies listed in Section 1260H. With the 2027 restrictions, however, organizations will need to ensure that those entities are not in tier 2 or tier 3 of their supply chains, meaning they are not operating as vendors to the organizations' direct (tier 1) suppliers.

These NDAA compliance rules require significantly more due diligence on the part of covered businesses, as they must now root out any of the 188 blacklisted entities that may be present in their manufacturing network. While businesses will have until June 2027 to meet this new NDAA compliance obligation, adhering to the new law will require them to map their supply chains, reach out to tier 1 suppliers, and—if sanctioned entities are discovered in their subtiers—work with vendors to extract those companies.

Chinese Entities in Section 1260H as of June 2026

In early June, the Department of Defense added an additional 65 entities to NDAA Section 1260H. These entities can be categorized into two different groups: standalone organizations that were added to the list for the first time and subsidiaries of entities previously listed in Section 1260H.

New Standalone Entities

  • Alibaba Group Holding Limited (Alibaba)
  • Autel Intelligent Technology Corp., Ltd. (Autel Technology)
  • Baidu, Inc.
  • BOE Technology Group Company Limited (BOE)
  • BYD Company Limited (BYD)
  • CALB Group Co., Ltd. (CALB)
  • EVE Energy Co., Ltd.
  • Hangzhou Yushu Technology Co., Ltd. (Unitree)
  • JA Solar Technology Co., Ltd.
  • NIO, Inc.
  • Novogene Company Limited
  • Robosense Technology Co., Ltd.
  • Tianma Microelectronics Co., Ltd.
  • TP-Link Technologies Co., Ltd.
  • Trina Solar Co., Ltd.
  • WuXi AppTec Co., Ltd.
  • Zhongji Innolight Co., Ltd. (Innolight)

Subsidiaries of Existing Listed Entities

Subsidiaries for Aviation Industry Corporation of China (AVIC)

  • Align Aerospace LLC
  • Avicopter PLC
  • Cirrus Design Corporation
  • Continental Aerospace Technologies, Inc.

Subsidiaries for BGI Group

  • BGI Americas Corporation
  • Complete Genomics, Inc.
  • GBI Diagnostics, Inc.
  • Innomics Inc.
  • STOmics Americas Ltd.

Subsidiaries for China Communications Construction Group (CCCG)

  • CCCC Design and Consulting Group Co., Ltd.
  • CCCC First Harbor Engineering Bureau Co., Ltd.
  • CCCC Second Navigation Engineering Bureau Co., Ltd.
  • CCCC Third Navigation Engineering Bureau Co., Ltd.
  • China Transportation Materials Co., Ltd.
  • Shanghai Zhenhua Shipping Co., Ltd.
  • ZPMC North America, Inc.

Subsidiaries for China COSCO SHIPPING

  • China Ocean Shipping Company Ltd.
  • COSCO SHIPPING Logistics Supply Chain Co., Ltd.
  • Shanghai Ship and Shipping Research.

Subsidiaries for China Electronics Corporation (CEC)

  • China Information Security Research Institute
  • IRICO Group Company, Ltd.
  • Shenzhen CEC Blue Ocean Holdings Co., Ltd.
  • The 6th Research Institute of CEC

Subsidiaries for China Electronics Technology Group Corporation (CETC)

  • 14th Research Institute of CETC
  • 15th Research Institute of CETC
  • CETC Research Institute 32

Subsidiaries for China Mobile Communications Group

  • Aspire Technologies (Shenzhen) Limited
  • China Mobile Hong Kong (BVI) Limited.

Subsidiaries for China National Offshore Oil Corporation (CNOOC)

  • China BlueChemical Limited
  • China North Industries Group (Norinco)
  • China North Chemical Research Academy Group Co., Ltd.
  • Chinese Academy of Ordnance Science; Kiekert USA Inc.
  • Merit Automotive Electronics Systems S.L.U.
  • North Petroleum International Company Limited
  • Yunnan Yuanjin Optical Instrument Co., Ltd.

Subsidiaries for China South Industries Group (CSGC)

  • Baoding Tianwei Baobian Electric Co., Ltd.
  • Beijing Beiji Mechanical and Electrical Industry Co., Ltd.
  • Changan US R&D Center, Inc.
  • China South Industries Group Corporation No. 59 Research Institute Co., Ltd.
  • Sichuan Jian'an Industry Co., Ltd.

Subsidiaries for China SpaceSat

  • Aerospace Star Space Technology Application Co., Ltd.

Subsidiaries for China Telecom Group

  • China Telecom Satellite Communications Co., Ltd.
  • New Guomai Digital Culture Co., Ltd.
  • Tianyi Cloud Technology Co., Ltd.
  • Zhongjie Communications Co., Ltd.

Subsidiaries for China Unicom

  • Beijing Telecom Planning and Designing Institute Company Limited

Subsidiaries for COMAC

  • Shanghai Aircraft Design and Research Institute

Subsidiaries for SDIC Intelligence

  • Beijing Meiya Hongshu Technology Co., Ltd.

Finally, 10 entities were removed from Section 1260H, as it was determined that the organizations don't do any business in the U.S.

  • Anhui Sun Create Electronics Co., Ltd.
  • China International Information Services Ltd.
  • China National Chemical Engineering Co., Ltd.
  • China Traffic Construction USA, Inc.
  • CNOOC China Limited (CNOOC China Ltd.)
  • CNOOC International Trading Co., Ltd. (CNOOC International Trading)
  • COSCO SHIPPING Finance Co., Ltd.
  • Costar Group Co., Ltd. (Costar)
  • GLARUN Technology Co., Ltd.
  • Taiji Computer Co., Ltd.

NDAA Compliance Considerations for Defense Contractors

For U.S. businesses that work in the defense industry, the recent and forthcoming changes to NDAA compliance and procurement are significant. In the past, companies only needed to have a passing understanding of the Chinese firms listed under Section 1260H. Their inclusion on the list might have served as a precursor to more restrictive sanctions, but Section 1260H itself didn't impose any obligations. Now, however, the list is forcing businesses to cut ties with Chinese entities believed to be engaged in military-civil fusion activities.

In order to identify and remove these blacklisted entities, companies need to leverage supply chain visibility and all the actionable data it yields. Organizations that can see into their supply chain will be able to assess whether any of their direct or subtier suppliers are on Section 1260H, and therefore putting them in violation of NDAA compliance. Without those capabilities and the information they help firms obtain, U.S. manufacturers face a bevy of challenges, including not only compliance violations but also reputational damage and potential market suspensions.

To learn about how Z2 helps businesses identify sanctioned entities in their supply chains, schedule a free trial with one of our product experts.