Introduction of New PRC Export Control Regime

In recent years, China has introduced a series of laws and regulations aimed at regulating exports.

The most recent legislative update in 2024 is China’s newly issued Regulations on Export Control of Dual-Use Items, which took effect on 1 December 2024 (the “2024 Regulations on Export Control of Dual-Use Items”). This enhances the export controls stipulated in the PRC Export Control Law, which has been effective since 1 December 2020 (the “2020 PRC Export Control Law”), expanding control over dual-use items.

Furthermore, on 15 November 2024, the “PRC Dual-Use Items Export Control List” (the “List of Dual-Use Items”) was issued to fulfil the basic requirements of both the 2020 PRC Export Control Law and the upcoming 2024 Regulation on Export Control of Dual-Use Items. It is also an important reform step to perfect the China export control regime.

Control Policy of Dual-Use Items: List-Based Control, Temporary Control and Embargoes

List-based control: List of Dual-Use Items

Long-term export controls are based on the List of Dual-Use Items. The list was newly issued on 15 November 2024 and was effective on 1 December 2024.

The most significant update and breakthrough of this list is that, unlike the usual practice of listing HS codes, the list has adopted a new unified export control code, which extensively draws on mature international practices and methodologies. It is a unified list, taking over the dual-use items previously scattered across soon-to-be-obsolete laws related to nuclear, biological, chemical and missile controls.

It also uniformly aligns export control codes to form a complete list system. It consolidates all currently controlled dual-use items into ten major industry categories, each further divided into five types of items. The classification employs a coding system using “Arabic numerals + English letters” arranged in a format comprising “one Arabic numeral + one uppercase English letter + three Arabic numerals”, making up a combination of five elements, such as 1C351, 3A201, etc.

Currently, the number of dual-use items on the List of Dual-Use Items is approximately 700, significantly fewer than those in major countries and regions.

Temporary control

The Ministry of Commerce (MOFCOM) may impose temporary controls on goods, technologies and services not listed on the List of Dual-Use Items and announce these controls publicly. The duration of temporary controls shall not exceed two years each time.

Before the expiration of the temporary controls, the MOFCOM will make one of the following decisions.

• If it is determined that the controls are no longer necessary, the temporary controls will be cancelled.
• If continuous control is deemed necessary but it is not appropriate to include the items on the List of Dual-Use Items, the temporary controls may be extended, but such extension shall not exceed two instances.
• If long-term control is necessary, the items will be included in the List of Dual-Use Items.

Embargoes

The MOFCOM, along with the relevant national departments, may:

• prohibit the export of specific dual-use items;
• prohibit the export of specific dual-use items to specific destination countries and regions; and
• prohibit the export of specific dual-use items to specific organisations and individuals.

Expanded Scope of Controlled Activities

The scope of activities that constitute “Controlled Activities” under the prior export control regime was expanded in the 2020 Export Control Law and further expanded in the 2024 Regulations on Export Control of Dual-Use Items.

The following activities are subject to the 2024 Regulations on Export Control of Dual-Use Items.

• Change in geographical locations – transfer of dual-use items from the territory of the PRC to overseas.
• Change in subject – provision of dual-use items by Chinese entities (ie, citizens, legal persons, and unincorporated organisations) to foreign organisations and individuals.
• Transit, trans-shipment, transport, re-export, or export from customs supervision areas and bonded areas to overseas.
• Extraterritorial application.

Change in subject: the provision of dual-use items by PRC entities to foreign organisations and individuals

Both the 2020 Export Control Law and 2024 Regulations on Export Control of Dual-Use Items expressly define “exporting” as the provision of controlled items by Chinese entities to foreign entities.

In this context, the geographical location does not differentiate. That is the provision of dual-use items by PRC entities to foreign organisations and individuals within China also falls under the governance of the 2020 Export Control Law and 2024 Regulations on Export Control of Dual-Use Items.

By this definition, the transfer of technical data or information regarding sensitive technologies that are listed on the List of Dual-Use Items and are developed by a Chinese company from its Chinese employees to any non-Chinese entities (even when such transfer happens wholly inside China) may also be deemed as “exporting” under the 2020 Export Control Law and 2024 Regulations on Export Control of Dual-Use Items.

Extraterritorial jurisdiction: transfer outside the PRC by foreign entities to specific destination countries and regions or specific organisations and individuals

The 2024 Regulations on Export Control of Dual-Use Items specify the extraterritorial applicability of export controls in Article 49.

Where foreign entities (ie, organisations and individuals) transfer the following goods, technologies and services outside the PRC to specific destination countries and regions or specific organisations and individuals, MOFCOM may require the foreign entities to comply with the 2024 Regulations on Export Control of Dual-Use Items.

• Products produced outside the PRC that contain, integrate, or are mixed with “specific” PRC-origin dual-use items. This regulation stipulates that products manufactured outside the PRC (which themselves must fall within the scope of China’s dual-use items) but also contain, integrate, or are mixed with “specific” PRC-origin dual-use items, will be subject to the control of the 2024 Regulations on Export Control of Dual-Use Items.
• Products produced outside the PRC by using “specific” PRC-origin dual-use items such as technologies. This provision specifies that products manufactured outside the PRC (which themselves must fall within the scope of China’s dual-use items) but are produced by using “specific” PRC-origin dual-use technologies or other PRC-origin dual-use items, will also be controlled under the 2024 Regulations on Export Control of Dual-Use Items.
• “Specific” PRC-origin dual-use items. This stipulation clarifies that “specific” PRC-origin dual-use items, even if exported overseas, are still subject to the 2024 Regulations on Export Control of Dual-Use Items.

In future enforcement practices, Article 49 will empower the MOFCOM to exercise extraterritorial jurisdiction over foreign entities outside the PRC and to require foreign entities to fulfil the export obligations under the 2024 Regulations on Export Control of Dual-Use Items.

In addition, in the future, more clarification from the MOFCOM is expected in the application of Article 49. It is noted that the use of the words “specific PRC-origin dual-use items” indicates that not all PRC-origin dual-use items are subject to Article 49. Furthermore, although it is considered, to some extent, similar to the De Minimis Rule under the US Export Administration Regulations (EAR), it lacks the specific requirements on the minimum percentage of containing, integration, or mixing of PRC-origin dual-use items.

Simplified Licensing Process

The 2024 Regulations on Export Control of Dual-Use Items newly establish three types of export licences based on the sensitivity and risk level of dual-use items:

• single licence;
• general licence; and
• registration-based export certificate.

Single licence

The single licence permits a single exporter to export specific dual-use items for a single transaction to a single end user. The period of validity shall be no more than one year and will be invalidated automatically if the export is completed within the period of validity.

General licence

The general licence permits a single exporter to export specific dual-use items for multiple transactions to single or multiple end users. The period of validity shall not exceed three years.

The exporters shall meet all the three requirements for application and obtaining such general licence.

• Established and well-functioning internal compliance systems for the export control of dual-use items.
• Maintained records of relevant exports of dual-use items.
• Had relatively fixed export channels and end users.

Registration-based export certificate

The exporters can also obtain export permits through the registration and reporting of information before each export of specific dual-use items to the MOFCOM in the following cases.

• Re-exportation to the original end user in the original export location within a reasonable period after entry for repair, testing or inspection.
• Re-importation within a reasonable period after exit for repair, testing or inspection.
• Participation in exhibitions held within the territory of the PRC, with immediate return of the items in their original state to the original export location after the exhibition ends.
• Participation in exhibitions held outside the PRC, with immediate re-importation of the items in their original state after the exhibition ends.
• Export of spare parts and spares for civil aircraft maintenance.
• Other circumstances specified by the MOFCOM.

End User and End-Use Management

The MOFCOM, under the State Council, has implemented a risk management system for the end user and end use of dual-use items. This system assesses and verifies the end user and end use of dual-use items to enhance management in these areas.

Legal obligations of exporters

Exporters have the following legal obligations.

• Obligation to submit “End User and End-Use Certificates” for applying for the export licence of dual-use items.
• Obligation to retain documentation properly, including end user and end-use certificates along with contracts, invoices, books, bills and related correspondence for a minimum of five years.

Commitment obligations of the end user

The end user must commit not to change the end use or transfer the dual-use items to any third party without permission from the MOFCOM.

Reporting obligations of exporters and importers

If exporters discover any of the following situations with the dual-use item exported, they must immediately stop exporting, report to the MOFCOM, and co-operate with verification:

• the end user or end use of the dual-use item has changed or might change;
• the end user and end use certificates are found to be forged, altered or expired; or
• the end user and end-use certificates were obtained through deceitful, corrupt or improper means.

If the MOFCOM verifies that the situation is true, it may notify the exporter of the suspension, withdrawal or revocation of the exporter’s licence, or request adjustments to the export licence. Under that circumstance, the MOFCOM will also inform the customs authorities.

Watch list and obligations of importers and end users to co-operate with the MOFCOM’s verification on end use and end user

The 2024 Regulations on Export Control of Dual-Use Items introduced a Watch List, a pivotal mechanism designed to assist in overseeing end user and end use of dual-use items. Consequently, these measures are vital for preventing the misuse of dual-use items and safeguarding China’s national security by enforcing compliance with legal export and usage stipulations.

Under these regulations, importers and end users are required to co-operate with the MOFCOM during the verification of end use and end-user information.

If the importer or end users fail to co-operate with the verification process or do not provide the necessary documentation within the specified time frame, preventing the verification of the end users or end uses of dual-use items, MOFCOM may place the importer or end users on the Watch List. Severally, if the importer or end user on the Watch List meets the conditions for being listed on the Control List, the MOFCOM may add them to the Control List and remove them from the Watch List.

Conversely, entities that fulfil their verification obligations and demonstrate no unauthorised changes in end use or third-party transfers may subsequently be removed from the Watch list.

Extraterritorial Application

In addition to the extraterritorial jurisdiction specified in the 2024 Regulations on Export Control of Dual-Use Items, foreign entities’ activities outside the PRC may also fall under the 2020 Export Control Law.

The 2020 Export Control Law purports to regulate businesses located outside the PRC in circumstances where the business “endangers the national security or interests of China or hinders China’s performance of non-proliferation and other international obligations”. If foreign entities imported the items subject to PRC export control (including the dual-use items listed on the List of Dual-Use Items) from the PRC, it is suggested that the foreign entities require the end user to undertake that:

• the items will not be used for any other purposes unless otherwise approved by the competent Chinese government;
• the items will not be transferred to any third party other than the end user itself, unless otherwise approved by the competent Chinese government; and
• the end use of the items shall not possibly endanger China’s national security and interests, or be for terrorism.

Legal consequences for foreign entities include having the relevant export activities cancelled and being added to the Control List of entities to whom Chinese entities may be restricted or prohibited from exporting relevant items.

Introduction of PRC Anti-Sanction Regime

The PRC has established an anti-sanction regime through a series of legislative acts and regulatory mechanisms aimed at countering foreign sanctions. The system includes various legal frameworks including the following:

• PRC Law on Foreign Relations (promulgated in June 2023);
• 2020 PRC Export Control Law;
• Anti-Foreign Sanctions Law (promulgated in June 2021);
• 2024 Regulations on Export Control of Dual-Use Items
• Measures for Blocking Improper Extraterritorial Application of Foreign Laws and Measures (the “Blocking Statues”, promulgated in January 2021); and
• Provisions on the List of Unreliable Entities (promulgated in September 2020).

PRC Anti-Foreign Sanctions Law and Blocking Statutes Allow Lawsuits for Damages From Foreign Sanctions

It is the first time that both the Anti-Foreign Sanctions Law and the Blocking Statute codify a private right of action for aggrieved parties to sue for losses and damages incurred as a result of covered foreign sanctions, respectively. These legal frameworks provide a mechanism for Chinese companies to seek redress and defend their interests against extraterritorial measures imposed by foreign countries.

However, foreign companies conducting business in China need not be overly concerned about these. These regulations specifically target foreign sanctions imposed in violation of international law and the fundamental principles of international relations. Such measures refer to actions taken by foreign countries to contain or suppress China, often under various pretexts or based on their domestic laws, and to impose discriminatory restrictions on Chinese citizens and organisations, interfering in China’s internal affairs. As a result, the focus of these PRC anti-sanction regulations is more on protecting Chinese companies from unjust discrimination rather than broadly disrupting foreign business activities.

PRC Counter-Measure Lists

Associated with these laws and regulations is a series of PRC counter-measure lists, including the following.

• Unreliable Entity List (based on the Provisions on the List of Unreliable Entities).
• Countermeasure List (based on the Anti-Foreign Sanctions Law).
• Control List (based on the 2020 Export Control Law and the 2024 Dual-Use Items Export Control Regulation).
• Watch List (based on the Dual-Use Items Export Control Regulation effective from 1 December 2024).
• Individual Sanction Decisions.

In addition to the Watch List that has been mentioned above, the other PRC counter-measures lists are described below.

Unreliable Entity List

The entities (including individuals) on the Unreliable Entity List might face the following consequences:

• restrictions or prohibitions on their involvement in import and export activities related to China;
• restrictions or prohibitions on their investment activities within the territory of China;
• restrictions or prohibitions on the entry of their associated personnel and vehicles into China;
• restrictions or revocations of work permits, as well as stay or residence qualifications for their associated personnel within China;
• fines imposed in amounts that correspond to the severity of the violation; and
• other necessary measures as deemed appropriate.

The entities on the Unreliable Entity List may apply for removal from the list.

Countermeasure List

The entities (including individuals) on the Countermeasure List might face the following consequences:

• denial of visa issuance, denial of entry, deregistration of visa or deportation;
• seizure, attachment, or freezing of movable, immovable, and other types of property within the territory of China;
• prohibitions or restrictions on organisations or individuals within China from engaging in transactions, co-operation, or other activities with them; and
• other necessary measures as deemed appropriate.

Control List

The 2020 Export Control Law first introduced the Control List and the reasons for adding to the Control List were further expanded in the 2024 Dual-Use Items Export Control Regulation. The Control List is considered as the Chinese version of the US Entity List.

If importers or end users fall into any of the following scenarios, they might be placed on the Control List:

• violation of the management requirements for end users or end use;
• potential threats to PRC national security and interests;
• use of controlled items (including dual-use items) for terrorism purposes;
• use of dual-use items for designing, developing, producing, or using weapons of mass destruction and their delivery vehicles; and
• being subjected to prohibitions or restrictions on related transactions or co-operation by relevant PRC national authorities according to law.

The entities (including individuals) on the Control List are prohibited or restricted from conducting transactions involving controlled items, including being suspended from exporting the relevant controlled items. The entities on the Control List may also apply for removal from the Control List if they comply with the relevant requirements imposed.

Outlook for 2025

China’s export control regime is rapidly advancing, entering a phase of accelerated development. Enhanced supervision and stringent enforcement of existing export control regulations are anticipated in 2025. Foreign companies conducting business in China are advised to enhance their compliance efforts.

In addition, given the degree to which sanctions have been imposed on Chinese companies, foreign companies conducting business in China are suggested to carefully navigate the intersection of compliance with PRC anti-sanctions laws and sanction-related foreign laws. This proactive approach is crucial in balancing their obligations under China’s increasingly stringent legal framework with those of international regulatory bodies.