Even Steven

Columnist Natalia Portiakova discusses how China secured a right to reciprocity regarding United States trade sanctions.

This week, China issued a new Export Control Law. The new law is an all-encompassing list of national regulations, which has unified and updated certain provisions of six previous laws on trade and export. Most importantly, the new law has reinforced Beijing’s position with respect to challenging foreign sanctions.

As early as at the end of last year, Chinese Commerce Minister Zhong Shan made it clear that the country needed a new law primarily to standardize scattered regulations. However, he did not try to conceal the fact that a range of controlled items and control measures were “not fully reciprocal and balanced with other countries.”

It is not difficult to deduce that the new export law, which China has been working on since 2017, is a response to multiple restrictions coming from the U.S. regarding technology, including companies like Huawei, although naturally, no official representative of the People’s Republic of China has admitted so. In many ways, the new law mirrors U.S. export regulations.

The new Export Control Law requires businesses to obtain a license from a government agency in order to transfer sensitive and dual-use technology to foreign companies that are considered to be a threat to Chinese national security or China’s national interests, thus restricting their export. The law may even be used to prohibit foreign companies from exporting their products abroad.

Of course, China had controlled its exporters before implementing the new law. However, the new law imposes extraterritorial restrictions that affect subcontractors as well as end users. If a foreign recipient wants to export the listed items from China again without obtaining an appropriate license, it will be blacklisted and have to pay a fine equal to 20 times the value of the unapproved contract.

The Chinese Ministry of Commerce has not published the full control list of all technology that is subject to the new export restrictions. At the same time, it has imposed temporary (up to two years) export controls on goods and technologies that are not going to be on that list. Again, China justifies its restrictions by saying they will help protect Chinese national security and the country’s national interests.

China’s new Export Control Law gave way to lots of speculation and rumors. At the end of October, the Global Times, a newspaper which has been the main resource for reflecting trends within the Chinese government, argued that “the new law could pave the way for state-sanctioned export controls on rare earth metals,” quoting a few analysts. Arguably, Beijing believes that the “no chips, no rare-earth metals” tactics are the most logical and effective response to the U.S. restrictions against Huawei and other technology companies in China.

Interestingly, this article was removed from the website a few days after its publication. Yet, concerns about Chinese actions have not gone anywhere.

In 1992, which seems like the distant past, the patriarch of the Chinese reforms, Deng Xiaoping, asserted that “the Middle East has oil, China has rare earths.” Since then, China has rolled out a massive program of extraction, processing, and application of these metals, which allowed the country to become the 21st-century leader in rare earths exports across the world. The U.S. high-tech industry, from the producers of microchips to producers of lasers and radars, has become particularly dependent on rare earth elements. In recent years, U.S. companies imported up to 80 percent of rare earth metals from China. The government of the People’s Republic is well aware of this dependency.

In May 2019, General Secretary Xi Jinping, accompanied by Vice Premier Liu He, who has been leading trade negotiations with the United States, visited one of the Chinese factories that produce rare earth metals. The visit took place a few hours after the Donald Trump administration prohibited U.S. companies from cooperating with Huawei. The timing of these two events was not coincidental, and the public interpreted the visit of the Chinese leader as a warning that China might use rare earth metals as leverage in its trade war with Washington.

In recent years, China, which has criticized unilateral restrictions like no other country, seemed like a victim of the U.S. sanctions. However, in reality, Beijing has resorted to similar measures on multiple occasions. For example, the government “recommendations” that were issued to travel agencies to stop selling group tour packages to South Korea. Another example occurred in 2017, when Korean companies stumbled upon multiple problems after Seoul decided to deploy the U.S. Terminal High Altitude Area Defense antimissile system on its territory. In addition, there were numerous anti-dumping investigations against Australia’s exports of beef, wheat, barley and wine, which resulted in a 212% increase in tariffs on wine sold in China.

However, China got its best practices from the United States and the Huawei case, which demonstrated how a country might use export control to change the behavior of another country and to complicate its calculus as much as possible. The new Chinese export law allows the People’s Republic to play by the same rules and to respond accordingly.