On August 28, China’s Ministry of Commerce and Ministry of Science and Technology jointly released a newly revised Catalogue of Technologies Prohibited and Restricted from Export (“Catalogue”), which is the second revision since the creation of the Catalogue in 2001. While China has separate control lists for items (including technology) controlled for non-proliferation reasons (i.e. nuclear, biological, chemical and missile-related control lists), this Catalogue sets forth technologies that otherwise warrant control, including on grounds of national security, public interests, environmental protection, etc.[1]
The Catalogue is structured in accordance with the industry classification issued by China’s National Bureau of Statistics, with the controlled technologies listed by category under each industry with a code assigned to the category. Before the revision, the Catalogue contained 150 categories/codes of technologies related to 34 industries, including 33 prohibited categories and 117 restricted categories. The controlled technologies include techniques related to China’s indigenous cultural and natural resources (e.g. manufacturing techniques of certain tea, alcohol, food and Chinese medicine, certain panda nurturing techniques) as well as technologies that are important to safeguarding China’s economic interests and national security.
The revision this time removed 4 categories of “prohibited” technologies and 5 categories of “restricted” technologies, while adding 23 new categories of “restricted” technologies. Moreover, changes were made to 21 existing categories with respect to the nature and parameters of the specific technology covered. Those newly added include technologies related to encryption, cyber defense, metal 3D printing, aero remote sensors, UAVs, lasers, major power and petrochemical facilities, etc.
With respect to artificial intelligence, five technologies were added to the negative list including speech synthesis, voice recognition, smart review of exam answers, artificial intelligence user interface and data analysis-based personalized recommendation pushes. This move has generated media headlines as some have surmised that the addition, especially the data-based categories, may potentially impact the timing of any sale by ByteDance Ltd. (“ByteDance”) of its Tiktok app. The U.S. government has ordered ByteDance to divest its U.S. Tiktok operations as a result of a review of ByteDance’s acquisition of musical.ly by the Committee on Foreign Investment in the United States. ByteDance has been in discussions with a number of U.S. companies about a potential sale of Tiktok.
As a result of the changes to the Catalogue, a sale of Tiktok reportedly would trigger review by the Chinese government. Perhaps tellingly, the state-run Xinhua News Agency released a media report in which a university professor called on Bytedance to “seriously study the revised catalog, seriously and carefully consider whether there is need to suspend the substantive negotiation of related transactions, fulfill the required petition procedures, and then take further actions according to the situation.” According to other media reports, ByteDance has been informed through preliminary talks with Chinese government officials that any proposed transaction must be submitted for approval.
As the name implies, technologies in the “prohibited” section of the Catalogue are banned from export. For technologies in the “restricted” section of the Catalogue, government approval (currently at the provincial level) is required before parties can engage in substantive negotiations regarding export and sign contracts, and an export license needs to be obtained before the export can be made. Notably, the word “export” here is defined in the applicable regulation[2] as “the transfer of technology from China’s territory to abroad through trade, investment or economic and technological cooperation” and the latter part has been interpreted by the Ministry of Commerce to encompass all means of transfer. While the definition appears territorial based, it remains to be seen whether the Catalogue will be triggered in the case of “deemed exports.” (As noted in our earlier article, China’s upcoming new export control law, as it is currently drafted, has not expressly subjected deemed exports to control.) Another noteworthy point is that some of the criteria descriptions in the newly added items, as well as the previously existing items in the Catalogue, are quite generic, for example, several descriptions contain the term “key technologies” although that term remains undefined. Arguably, this caveat may potentially provide the Chinese government certain level of discretion in the implementation of the new rules.
In an official statement released concurrently with the revised Catalogue, the Ministry of Commerce stated that the main purpose of the revision was to “regulate the export of technologies, promote technological improvement and expand economic and technological exchanges with foreign countries while safeguarding national economic security.” It also stressed that China would enhance cooperation with other countries on technology trade and will further “shorten and revise” the Catalogue.
The revision of the Catalogue of Technologies Prohibited and Restricted from Export, as well as China’s legislative activities regarding an export control law, reflects Chinese government’s efforts to enhance its export control regime and an increased attention to export control as a policy tool. We will continue to monitor developments in this area in China.
[1] Art. 29, Regulation of the People’s Republic of China on the Administration of Import and Export of Technologies, State Council, Mar. 2, 2019.
[2] Id. Art. 2.