US-China tech war
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Chinese exports to the US have become a focus of the rivalry between the two sides. Photo: AFP

US-China tech war: Beijing counters restrictions with new law to curb sensitive exports

  • Restrictions include military and nuclear technology, according to the official news agency Xinhua
  • Observers believe the new measures will make it harder for American and Chinese tech firms to operate in the other country

China’s national legislature passed a new law controlling the export of sensitive goods, services and technologies on Saturday in the latest move to counter escalating restrictions on Chinese technology companies by the United States.

The new law will make it more difficult for US and Chinese tech companies to do business in each other’s countries, in particular making it more difficult for Chinese firms to operate globally, analysts said.

The official Xinhua new service published a report on the new law late Saturday night, saying it will come into effect on December 1.

“Any country or region that abuses the export control measures and endangers the national security and interests of the People’s Republic of China,” the report said. It continued “China can take reciprocal measures against that country or region based on actual conditions”, without providing specific examples.

The controlled items include military and nuclear products, as well as other goods, technologies and services, according to Xinhua.

During the final review of the legislation, Ouyang Changqiong, a delegate to the National People’s Congress, proposed that the law should explicitly cover areas such as computer program source codes and algorithms, the state-owned Legal Daily reported.

China passes law to restrict exports of sensitive technology

Another delegate, Zhang Yesui, said that the law should strengthen protections for technologies such as 5G and quantum communications, in which China was a world leader.

“In a very practical sense, [the new law] is an incremental move down the road that both China and the United States have been on for quite some time,” said Nathaniel Rushforth, an American lawyer and cybersecurity specialist at the Shanghai-based DaWo Law Firm.

“This is China’s way of pushing back against American attacks on TikTok and, at the time, potential ones on companies like Alipay, WeChat and DJI, ” said Shaun Rein, managing director of China Market Research Group.

Rushforth said that “companies on both sides need to continue preparing for much, much more examination, especially in more strategically sensitive industries”.

But “this doesn’t mean business between the two countries is even remotely being shut down, rather that compliance with sometimes unclear national laws and interests will be increasingly scrutinised,” he said.

Alex Capri, visiting senior fellow at National University of Singapore, said for companies doing business in both countries, it means a cut down the middle of their operations. “That just makes their supply chain management even more difficult and even more risky,” said Capri.

Some analysts said the passage of the law will make it harder for Chinese companies to go global.

“[For Chinese companies], it means they will have protection, an excuse not to sell overseas, but it also means it’s going to be very tough for them to become global players,” said Rein.

“Chinese companies are going to be very cautious about expanding into the United States or western Europe, where they might be facing unfriendly governments,” he said.

“American tech venture capital [firms] are getting scared of investing in China … because they are worried about their investments getting killed,” he added.

China passes law to restrict exports of sensitive technology

Tensions between China and the US have escalated recently and spilled over into the realm of technology. Big names such as Huawei, TikTok, WeChat and Semiconductor Manufacturing International have all found themselves in Washington’s cross hairs.

Washington threatened to block TikTok in the US unless its Chinese parent company ByteDance sold the popular video-sharing app to Americans, but the fate of TikTok’s “strategic partnership” deal with Oracle and Walmart still hangs in the balance.

The Chinese government has also speeded up the development of a blacklist that could be used to punish US firms that are judged to harm Chinese interests, but Beijing has hesitated to release the list, with some arguing it should wait until the US election, The Wall Street Journal reported last month, citing anonymous sources.

But Capri said China is still in a “vulnerable position to the US when it comes to critical technologies like semiconductors”.

“I think they have to be careful to not escalate [the tension],” he said. “You know, because there’s still a lot that the US could do in terms of expanding the restricted entity list.”

In August, China updated its export control catalogue to include two key technologies used by TikTok, including speech recognition.

ByteDance said in late September that it had applied for a licence to comply with the recently revised Chinese rules, but no further information has been provided since.

This article appeared in the South China Morning Post print edition as: ‘Sensitive goods’ law aims to counter US tech curbs