On October 17, 2020, China enacted an Export Control Law ("the Law") that builds upon China's existing export control regulations, which are scattered across multiple laws, administrative regulations, and rules and measures issued by various departments, with the goal of creating a unified export control system to promote China's national security and interests and commitment to nonproliferation. While the Law sets out a framework for export controls in China, the Law leaves unanswered a number of key questions of how the system will work in practice, including how its provisions will apply outside of China. 2020.

The Law takes effect December 1, 2020. Our translation of the Law can be found here

Significance and Background

The Law brings China's system somewhat closer to other export control regimes and has the potential to affect both domestic and international players that are exporting certain items, services, and technologies out of China.

The Law represents a continuation of the Chinese government's efforts to strengthen national security during President Xi Jinping's administration, focusing specifically on the export of dual-use, military, and nuclear goods, technologies and services, and other items that are related to the maintenance of national security and national interests and performance of nonproliferation and other international obligations ("Controlled Items"). The Law should read in connection with the recently enacted Encryption Law and the draft Data Security Law, as well as the earlier Cybersecurity Law, National Security Law, and Counterterrorism Law.

The Law was first drafted in June 2017 and revised in December 2019 and June 2020. The final version of the law contains only minor differences from the most recent draft. Notably, the Law retains the key features of the earlier drafts, including that the Export Control Law applies extraterritorially.

Key Provisions of the Law

Definition of "dual-use" and "military items"

The Law provides basic definitions of key terms (Article 2):

  • "Dual-use" is defined as "goods, technologies and services that can be used for not only civil purposes but also military purposes, or that are helpful to enhance military potential, especially those can be used for the design, development, manufacturing or use of weapons of mass destruction and their delivery vehicles"
  • "Military items" are defined as "equipment, special production equipment and other materials, technologies, and related services used for military purposes."
  • "Nuclear" is defined as "nuclear materials, nuclear equipment, non-nuclear materials used in reactors, and related technologies and services."
  • "Export control" means the prohibitive or restrictive measures taken by the State against the transfer of any Controlled Items out of the People's Republic of China, and the provision of any Controlled Items by any citizens, legal persons or non-corporate organizations of the People's Republic of China to any foreign organizations and individuals
  • The Law states that technical information and data are included within the definition of Controlled Items. This parallels the reference in the draft Data Security Law, which refers to export control requirements on "data."
  • The Law does not specifically define "export," although the provisions are broad enough to cover both "deemed export" and "re-export".
  • The Law does not define the term "exporter" (also translated as "export operator" ). (An earlier draft defined the term as "a citizen, legal representative, or other organization that is engaged in exporting controlled items in accordance with the rules of laws and administrative regulations.") 

Extraterritoriality and Retaliation (Articles 44, 48)

The Law makes the Export Control Law apply extraterritorially. According to Article44, organizations and individuals outside of China who, in violation of the export control regulations of the Export Control Law, obstruct the fulfilment of international obligations such as non-proliferation and damage China's national security and interests, shall be held legally accountable. The Law does not provide further detail, although some commentators have linked the new provision to the extraterritorial reach of the export regimes of other countries, such as the United States.

The final version of the Law includes a broad provision permitting China to take unspecified "reciprocal measures" if another country "abuses" export controls to endanger China's national security or national interests.

Agencies and Their Responsibilities (Articles 4-5)

The Law does not clearly specify departments under the State Council and the Central Military Commission that will handle export control regulation. Instead, it refers to the agencies as "State Export Control Administrative Departments" ("agencies", "") and states that different agencies will regulate and license different controlled items under the Law.

It seems the Law does not intend to change the current allocation of responsibilities among the various agencies. The future implementation rules might provide more details.

Although the Law does not describe how the agencies will work together, it provides that an export control coordination mechanism and expert consultation mechanism should be established to strengthen the cooperation of different agencies and provide guidance to exporters. It remains to be seen whether implementing regulations provide more details.

The agencies are obliged to establish a risk management system for end-users and end-uses, and to "inspect" and "enhance the management of end-users and end-uses." In addition, the agencies also are authorized to assess the countries and regions to which the Controlled Items will be exported to determine the level of risk and implement corresponding controls.

Control System and Control Lists (Chapter 2)

The Law establishes a unified export control system that includes various elements, primarily including a controlled item list, interim measures, prohibited exports, a license system for exporters, and a list of controlled importers and end users.

The Law does not contain the control list, although presumably it will build from existing lists scattered across different current laws and regulations. It is unclear whether China will continue to use its current system. For a particular product or technology that is not on the list, the Law allows certain agencies to designate such product or technology as a "temporarily controlled item" for up to two years. In addition, the Law authorizes the agencies, with the approval of the State Council and/or the Central Military Commission, to ban the export of certain items (regardless of the destination or end user), or prohibit the export of certain items to specific destinations or parties. 

Licensing (Article 13)

The Law does not detail the process for granting licenses; presumably the implementing regulations will provide more guidance to supplement the current processes provided in the various department regulations and measures.

Eight factors are to be considered when the licensing agency makes licensing decisions:

1. national security and national interests

2. international obligations

3. type of export

4. degree of sensitivity of the item

5. destination country or region

6. end-user and end-use

7. credit record of the exporter

8. other factors provided by laws and regulations

Some of the earlier drafts had included a deadline for the licensing agency to make a determination; the final version of the Law does not contain a deadline.

Catch-All License Requirement (Article 12)

Under the Law, an exporter must still apply for an export license, even if the item is not included on a control list, if the exporter knows or should know that the export of a product, technology, or service likely would:

  • "endangering [China's] national security or national interests" (which is not further defined); 
  • being used for the design, development, production, or use of weapons of mass destruction and their delivery vehicles; or
  • be used for terrorism.

The agencies should respond "in a timely manner" to inquiries regarding whether an item is subject to control. 

End-User and End-Use Certifications (Article 15)

The Law obliges the end user (or the government of the end user) to provide end-user and enduse certifications, and for exporters to proactively supply such documents to the regulators, presumably as part of the license application process. In addition, an export operator or importer is obliged to report any potential change to the end-user or end use.

Restricted List for Certain Importers and End-Users (Article 18)

The Law calls for a "restricted list" (also translated as "control list") for importers and end users that:

  • violate the requirements regarding end users and end uses
  • may endanger national security or national interests; or
  • use Controlled Items for terrorist purposes.

Importers and end users that are included in the restricted list are subject to additional restrictions or control measures when dealing with the relevant Controlled Items. Exporters are not allowed to transact with listed importers and end users without approval.

Other Requirements on Exporters (Article 14)

Earlier drafts had required exporters to implement an "internal system for export control compliance." The Law removes the explicit requirement for each exporter to implement such a system, instead giving exporters whose systems "work well" the possibility of a general license for certain controlled items or other unspecified benefits.

Hong Kong/Taiwan/Macau

An earlier draft provided that the Law would apply to exports to Taiwan, Hong Kong, and Macau. That provision was deleted in later drafts and does not appear in the final version of the Law. We assume that implementing regulations will confirm that the controls will apply to exports from mainland China to Taiwan, Hong Kong, and Macau.

Investigative Powers and Penalties for Noncompliance (Chapters 3-4)

The enforcement agencies have power to investigate potential violations, including the power to enter business premises, review and copy documents, interview witnesses, inspecting the delivery vehicles used for the export, seize the items involved in the investigation, and review bank account activity.

The Law outlines various penalties for violations, including warnings, orders to stop the violations, confiscation of illegal gains, fines on exporters and "responsible persons," denial or revocation of licensing, suspension of business, and revocation of qualification to export related items.

Companies or individuals can be subject to one or more of the above penalties for exporting without a license, obtaining a license through bribery or other fraudulent behavior, exporting prohibited items, circumventing export control measures, conducting transactions with parties on the Restricted List, or obstructing investigations (including not cooperating with a site inspection). Further, some of the penalties also apply to third parties providing freight services, customs declarations, electronic trading platforms, and financial services to exporters that violate the Law.

The final version of the Law makes it clear that exporting Controlled Items that are prohibited from being exported or exporting Controlled Items without a license in violation of this Law shall be subject to criminal liability. ,

Export control agencies may deny applications for export licenses filed by exporters for five years after the penalty decisions. In addition, the information of exporters who violate this Law may be added to their credit records by the export control agencies.

The Law does not specifically provide for a voluntary disclosure system, or potential mitigation for such disclosures.

Other Restrictions (Article 32)

The Law contains a vague provision that prohibits -- likely in the context of international communications and cooperation on export controls -- an organization or individual within the territory of China to provide "export control-related information" to those outside of the territory of China, if such sharing of information endangers the national security or national interests of China. The Law does not clarify what information and what kind of information sharing is subject to such prohibition. 

Next Steps: Implementing Regulations and Compliance Challenges

Companies that have focused their export control compliance efforts on regimes in the United States and Europe will need to determine whether their activities exporting items from China trigger China export control issues under the Law. This may include identifying tracking end users and end uses and reporting changes; establishing internal compliance systems to meet regulatory expectations in China; enhancing "know your customer" diligence to avoid providing services to parties engaging in activities violating the Law; and evaluating whether activities outside of China are subject to the Law due to its extraterritorial application. Companies that import or use Controlled Items from China shall also take caution to avoid being included in the restricted list for importers and end users.

Like most laws in China, we anticipate that the government will in the future issue regulations with more details to implement the Law. Given the timing of the multiple drafts, we anticipate that the government may take some time to align with internal and external stakeholders before issuing these implementing regulations.

Companies seeking to comply with the Law after its effective date of December 1, 2020 may have difficulty doing so until those implementing regulations are released. As suggested above, the Law lacks a number of key elements necessary for companies to comply: 

  • clarification on deemed exports (e.g., whether the sharing of technical information or data between the Chinese employees of a foreign-invested enterprise and a foreign employee of the same company is subject to export controls)
  • clarification on the definition of "export control-related information" and when the sharing of such information with overseas parties is allowed 
  • the mechanism for reporting potential changes of end users or end uses
  • standards and process for obtaining facilitation measures such as a general license for exporters with a satisfactory internal compliance program
  • more details on interim measures, prohibited exports, and restricted list of importers and end users
  • more details on the extraterritorial application of the Law and potential retaliatory measures