Stricter Controls of Chinese Technology

The People’s Republic of China has drafted its first-ever national export controls law, published in June 2017. As such, the country has significantly expanded the scope and objectives of its export controls. This could have far-reaching consequences for German companies.

Through comprehensive new legislation, the Chinese government is seeking to centrally regulate the country’s export controls. This step is to be welcomed in principle, since China is increasingly exporting security-related high-technology products. However, the draft law contains both many vague legal terms and elements that contradict fundamental multilateral export control standards.

Vague Legal Terms and Industrial Policy Motives

The draft combines traditional objectives of export controls with the apparent aim of regulating those exports that seem to run counter to China’s interest in economic development. For example, the text repeatedly connects terms such as “economic development” and “ability to compete”, and, on the other hand, the law’s scope of application. This is problematic: China would not only deviate from international export control regimes, it would also be in non-compliance with the regulations of the World Trade Organization (WTO).

Claims of Extraterritorial Application Spells Trouble

Moreover, from a European perspective, it is alarming that China is following the example of the United States and laying claim to the extraterritorial application of its own export controls legislation. The draft law imposes controls on Chinese direct exports as well as on so-called re-exports. In this way, exports from other countries are to be subject to Chinese export controls if they contain a certain share of controlled components manufactured by Chinese companies. However, experience with the U.S. export controls regime shows that extraterritorial controls over re-exports lead to difficulties and higher costs. Against this background, German industry has taken the following position:

  • Many of the draft’s broadly defined terms should be made more precise.
  • Export controls over sensitive goods should follow international conventions, treaties, and regulations.
  • China should refrain from including any extraterritorial provisions in its export controls law. 
  • The BDI welcomes the intention, expressed in Article 7 of the draft law, to establish an expert mechanism for the implementation of export controls. This mechanism should be formed in an open and transparent manner.

Chinaʼs export controls law could have far-reaching consequences – for the organization of supply chains, for cooperation in research and development, and for investment decisions of companies. German industry calls on the EU Commission as well as on the Federal Government of Germany to step up its dialogue with the Chinese government regarding export controls. In this way, German and European experience and best practices could be taken into account in the formulation of the new regulations.