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China preparing new export control law in response to US entity list

Bill employs same national security language US Department of Commerce used with its Entity List

China's National People's Congress

China's National People's Congress (AP photo)

TAIPEI (Taiwan News) — Beijing is preparing a new export control law that would prohibit Chinese companies from doing business with foreign firms on national security grounds.

According to Nikkei Asia, the Standing Committee of the National People’s Congress (NPC) is set to discuss the proposed law designed to protect national interests in a session beginning today (Oct. 13). The new legislation could go into effect as early as 2021, the report said.

The bill employs the same national security language the U.S. Department of Commerce has used with its Entity List to blacklist Chinese tech companies like Huawei, according to the report. Beijing has criticized Washington for using national security as an excuse to pressure Chinese firms.

Under the new law, the Chinese government could ban exports of strategic materials and advanced technology to specific companies if placed on Beijing’s unreliable entity list. The list is likely to include U.S. companies but could also contain firms from other countries if they follow Washington export restrictions on China.

China’s Ministry of Commerce first released a draft of this bill in June 2017, which was subsequently deliberated on by the NPC in December 2019 and June 2020, the report stated. The new law would mark certain products, technologies, and services prohibited from export unless Chinese suppliers submit documentation to Beijing.

Officials would then choose to approve the exports based on their impact on national security, potential for military use, and the identity of the clients. The list of materials protected under the legislation could include rare-earth elements, of which China controls 60 percent of the global market, one source told Nikkei Asia.

The Ministry of Commerce will be setting up an interagency “working mechanism” that will decide what companies will be listed as entities, according to China Business Review. If companies change their behavior in a way that satisfies Beijing, they can be removed from the list; while foreign companies can also apply to be removed, how that mechanism will work remains unclear.

Being placed on the list could lead to potential punishments, such as having import and export activities with China restricted; investment in China restricted; personnel and transportation vehicles restricted; work permits, stay, or residence qualifications for personnel restricted; and fines, according to China’s Ministry of Commerce.

The new law will also include a clause that lets Beijing hold companies liable for violating its export controls outside of China; however, the details remain unclear concerning this aspect, Nikkei Asia reported.