China Issues New Export Control Regulations: What Businesses Need to Know? China Briefing, Oct. 23, 2024.
Posted by China Briefing Written by Giulia Interesse
China will implement new regulations on the export control of dual-use items starting December 1, 2024, aiming to enhance national security and align with international standards.
The new regulations consolidate China’s existing export control rules. The updated framework introduces a unified control system, simplified licensing processes, and stricter oversight of high-tech sectors, including semiconductors and AI.
These regulations help to lay the groundwork for China’s tighter export control system.
China is set to enforce a new set of Regulations on Export Control of Dual-Use Items (hereinafter, the “new regulations”) starting December 1, 2024, marking a significant step in its efforts to safeguard national security and enhance global cooperation on non-proliferation.
The updated framework, announced by the State Council, aims to regulate the export of goods, technologies, and services that can be used for both civilian and military purposes.
These measures come at a time of increasing technological rivalry and security concerns, aligning China’s export control policies with international standards while streamlining existing regulations.
Key contents of China’s new export control regulations
The new regulations are structured across six chapters and consist of fifty articles. In response to evolving global security dynamics and technological advancements, the new regulations seek to address concerns over the misuse of dual-use items, which pose potential threats to international security.
Dual-use items, as referred to in the new regulations, are goods, technologies, and services that have both civilian and military applications or contribute to enhancing military capabilities. Specifically, they can be used for the design, development, production, or use of weapons of mass destruction and their delivery systems, including related technical data and documentation.
According to the regulations, dual-use items shall be subject to strict controls:Exporters must obtain corresponding regulatory approvals before exporting dual-use items subject to export control.
A risk management system for end-users and end-uses of dual-use items shall be developed. Entities being listed on the “watch list” or the “control list” will be subject to higher scrutiny.
Exporters with non-compliance will face penalties.
The primary focus is to safeguard national security, promote global cooperation on non-proliferation, and ensure tighter oversight of dual-use exports. Moreover, the framework is intended to strengthen China’s capacity to monitor exports and manage risks, aligning its policies with global standards while enhancing regulatory clarity and efficiency.
Compared to China’s existing export-control regulations, one of the most significant changes is the simplified licensing process, which establishes clearer and more transparent procedures for obtaining export licenses. Businesses exporting dual-use items will now be required to disclose specific details about the end users and the intended use of the exported products. This ensures strict adherence to the end-user and end-use requirements, minimizing the risk of misuse for military or unauthorized purposes.
Meanwhile, the new regulations consolidate China’s existing export control regulations, replacing the previously fragmented control lists with a unified system. The unified lists –the “watch list” and the “control list”—simplify compliance for exporters by consolidating various standards into a single framework, reducing the complexity of managing different regulations across sectors.
These updated regulations will not only enhance regulatory transparency but also streamline the overall process for businesses involved in the export of dual-use items.
What dual items shall be subject to export control?
According to the new regulations, dual-items subject to export control mainly include two categories—those being listed on the “List of Dual-Use Items Subject to Export Control” and those being subject to “temporary export control”.
The List of Dual-Use Items Subject to Export Control shall be developed by the competent commerce department of the State Council (i.e., the Ministry of Commerce, hereinafter referred to as the MOFCOM) and subject to regular adjustments. The formulation and adjustment of the List may solicit opinions from relevant enterprises, chambers of commerce, associations, and other parties. Industrial surveys and assessments might be carried out when necessary.
Beyond the List of Dual-Use Items Subject to Export Control, the MOFCOM, upon approval by the State Council or the State Council and the Central Military Commission, may impose temporary controls on certain dual-use goods, technologies, and services not listed in the List of Dual-Use Items Subject to Export Control. Such temporary controls are usually based on the need to safeguard national security and interests and to fulfill international obligations such as non-proliferation.
The MOFCOM shall announce such controls. The duration of each temporary control shall not exceed two years.
Businesses engaging in exports closely follow up with relevant export control announcements. They should understand the performance indicators, main uses, and other relevant details of the goods, technologies, and services they intend to export to determine whether they fall under dual-use items. If they are unable to make this determination, they may consult the MOFCOM. When making such a consultation, export operators should provide the performance indicators, the main uses of the goods, technologies, and services they intend to export, and the reasons why they are unable to determine whether they fall under dual-use items.
Licensing requirements regarding the export of dual-use items
According to the new regulations, the export of dual-use items is strictly regulated through a licensing system. Exporters are required to apply for licenses from the MOFCOM when dealing with dual-use items listed in the export control list or subject to temporary control measures.
Types of licenses and eligibility
Exporters have access to three main types of licenses:
Single license: This license permits a single export of a specified dual-use item to a designated end user, with a validity period of one year. If the export is completed within the validity period, the single license shall automatically become invalid.
General license: This option allows for multiple exports of specific dual-use items to one or more end users over a maximum period of three years.
Registration-based export certificate: This option requires exporters to fill in and report relevant information with the MOFCOM every time before exporting certain dual-use items and obtain an export certificate. With the export certificate, exporters can then proceed with the export.
Only exporters with a well-established and effectively managed internal compliance system for the export control of dual-use items, along with relevant export records, stable export channels, and consistent end users, are eligible to apply for the general license.
For the export of specific dual-use items that meet any of the following conditions, exporters can apply for an export certificate through the registration-based information submission method before each export:
Items re-exported to the original end user after being imported for repair, testing, or inspection within a reasonable period.
Items re-imported after being exported for repair, testing, or inspection within a reasonable period.
Items exhibited at exhibitions held within the People’s Republic of China and re-exported in their original form to the original export location immediately after the exhibition ends.
Items exhibited at exhibitions held outside the People’s Republic of China and re-imported in their original form immediately after the exhibition ends.
Export of civil aircraft parts for repair and spare parts.
Other circumstances specified by the MOFCOM
To be noted, exporters with any of the following circumstances are not eligible to apply for a general license or obtain an export certificate through the registration-based information submission method:
The entity has been criminally punished for violations of dual-use item export control regulations, or its directly responsible managers and other directly responsible personnel have been criminally punished for such violations.
The entity has received severe administrative penalties for violations of dual-use item export control regulations within the past five years.
The entity is a wholly foreign-owned enterprise, representative office, or branch established in the People’s Republic of China by foreign organizations and individuals listed in the control list.
Other circumstances specified by the MOFCOM.
Meanwhile, according to Article 26 of the new regulations, exporting dual-use items to importers or end users listed on the watch list are not eligible to apply for a general license or obtain an export certificate through the registration-based information submission method.
Materials required
To apply for single licenses, exporters must submit several key documents during their application. These include:
Identification of legal representatives and key management personnel;
Copies of contracts related to the export of dual-use items;
Technical specifications or inspection reports; and
Documentation that confirms the final users and intended uses of the items.
Any additional material requested by MOFCOM must also be provided.
To apply for the general license, the following materials must also be submitted:
A description of the operation of the internal compliance system for the export control of dual-use items;
An explanation of the application and use of dual-use item export licenses; and
Information regarding the export channels and end users of dual-use items.
Approval timeline
Once an application is submitted, MOFCOM will conduct a review, either independently or in collaboration with relevant national departments, within a timeframe of 45 working days. During this period, the agency will determine whether to approve or deny the license. For exports that may significantly affect national security, additional approvals from the State Council or the Central Military Commission could be required.
In cases where further investigations or expert consultations are deemed necessary, the review process may extend beyond the standard 45 working days.
Compliance requirements
Exporters must export dual-use items within the scope, conditions, and validity period specified in the export license. They are required to report the actual export details, including transportation, arrival, installation, and usage. If there is a need to change key elements such as the type of dual-use items, destination country/region, end user, or end use during the validity period of the export license, the exporter must reapply for an export license for dual-use items according to the regulations, return the original export license, and temporarily halt the export.
For changes to non-key elements related to the export of dual-use items during the validity period of the export license, the exporter must submit an application for modification of the export license to the MOFCOM, provide truthful supporting documents, and temporarily stop using the export license.
The MOFCOM shall decide whether to approve the modification within 20 working days from the date of accepting the application and inform the exporter in writing. If approved, a new export license will be issued, and the original license will be canceled. If not approved, the exporter must continue to export dual-use items according to the original license’s scope, conditions, and validity period.
End-user and end-use management system
The new regulations in China introduce a comprehensive Control and Watch List System aimed at enhancing the oversight of entities and transactions that could pose risks to national security. This system draws inspiration from similar mechanisms in other countries, notably the US Unverified List (UVL) and Entity List under the Export Administration Regulations (EAR).
Watch list
As mentioned earlier, when applying for an export license for dual-use items, exporters must submit end-user and end-use certification documents issued by the end user. The end user of dual-use items must commit to the requirements set by the MOFCOM and must not change the final use of the dual-use items or transfer them to any third party without MOFCOM’s permission.
MOFCOM conducts end-user and end-use verification of dual-use items in accordance with the law, and relevant organizations and individuals must cooperate. If importers or end users fail to cooperate with the verification or provide the required certification materials within the specified time, making it impossible to verify the end user or end use of the dual-use items, MOFCOM may place the relevant importers or end users on the “watch list”.
Exporters exporting dual-use items to importers or end users listed on the watch list are not eligible to apply for a general license or obtain an export certificate through the registration-based information submission method. When applying for a single license, exporters must submit a risk assessment report on the importers or end users listed on the watch list and commit to complying with export control laws, regulations, and related requirements.
Control list
MOFCOM, either on its own authority or based on suggestions and reports from relevant parties, may decide to place importers or end users with any of the following circumstances on the control list:
Violating end-user or end-use management requirements.
Potentially endangering national security and interests.
Using dual-use items for terrorist purposes.
If importers or end users engage in any of the following activities that endanger national security and interests, they will also be subject to the control list:
Using dual-use items for the design, development, production, or use of weapons of mass destruction and their delivery systems.
Being subject to prohibitive or restrictive measures on relevant transactions or cooperation by national authorities.
The MOFCOM may take one or more of the following measures against importers or end users listed on the control list, depending on the severity and specific circumstances:
Prohibit transactions involving relevant dual-use items.
Restrict transactions involving relevant dual-use items.
Order the suspension of relevant dual-use item exports.
Implement other necessary measures.
Exporters are prohibited from conducting transactions involving dual-use items with importers or end users listed on the control list. In special circumstances where such transactions are necessary, exporters must apply to the MOFCOM and, upon approval, may conduct the transactions and report as required.
Penalties for non-compliance
Failure to comply with these regulations can lead to serious penalties, including substantial fines (up to RMB 3 million) and restrictions on future licensing applications. Entities found guilty of violations may face administrative sanctions, and companies with severe penalties within the last five years are barred from applying for general licenses or obtaining an export certificate through the registration-based information submission method. Additionally, MOFCOM has the authority to revoke existing export licenses if violations occur, halting export activities until compliance is restored.
These stringent measures highlight the importance of adherence to regulatory requirements in protecting national security interests.
Who will be impacted by China’s new export control regulations？
The new export control regulations in China will broadly affect a variety of products as MOFCOM develops its comprehensive list of dual-use items. This list is set to encompass not just traditional military and civilian products but also an expanding range of advanced technologies, software, and services that may be classified as dual-use. Particularly, high-tech sectors are anticipated to be under greater scrutiny due to their rapid technological advancements. Critical areas such as commercial encryption, semiconductor technology, drones, artificial intelligence (AI), quantum computing, and biotechnology are expected to be prioritized.
This focus highlights the Chinese government’s efforts to manage technologies with potential dual applications for both civilian and military uses, emphasizing their significance for national security and competitive advantage.
Consequently, stakeholders in these industries must remain vigilant about compliance to effectively navigate the changing export control environment.
Implications for China’s export control regulation framework
In recent years, China has introduced a series of laws and regulations aimed at regulating exports and countering sanctions imposed by foreign nations.
Key developments, among others, include the implementation of the Unreliable Entity List regulations in September 2020, the Export Control Law established in December 2020, and subsequent measures like the Anti-Foreign Sanctions Law introduced in June 2021. Furthermore, the Administrative Measures for Import and Export Licensing of Dual-Use Items and Technologies, enacted in May 2009, provided foundational guidelines for the oversight of items that may have both civilian and military applications.
In such context, the new regulations are crucial for managing dual-use items, as they define essential management frameworks, control protocols, inspection processes, and the responsibilities associated with compliance. These updates will also dictate how the dual-use export control list is formulated, modified, and disseminated.
All in all, the introduction of the new regulations aims to create a cohesive legal framework for controlling exports, which is expected to resolve issues stemming from the previously fragmented regulatory environment. By streamlining processes and enhancing the effectiveness of control measures, the new regulations position China to better navigate international trade complexities while ensuring national security interests are upheld.
How to prepare for the implementation of China’s new export-control regulations?
Based on the above analysis, it can be seen compliance with China’s new export control regulations for dual-use items is crucial for exporters. To cope with these new export control requirements, companies should establish robust internal compliance systems that track and document all export activities, maintaining detailed records of their export history.
Moreover, exporters are suggested to ramp up compliance efforts from the following aspects:
Stay informed: Keep up-to-date with the latest developments in export control laws and regulations. Regularly review updates to the export control list and any new implementation rules or industrial guidelines released by the Chinese government.
Establish a compliance program: Develop a robust internal export control compliance program. This should include drafting a clear policy statement, establishing an organizational structure with a dedicated compliance officer, and conducting comprehensive risk assessments.
Internal procedures and training: Create internal procedures for reviewing and approving exports. Ensure that all employees involved in export activities are well-trained in the new regulations and understand their responsibilities.
Regular audits: Conduct regular compliance audits to identify and address any potential issues.
Emergency measures: Develop contingency plans to address violations or unexpected changes in export control requirements. This includes having procedures in place for immediate corrective actions.
Consultation and reporting: If there are uncertainties about whether certain items fall under dual-use categories, consult with the authority in charge for clarification. Ensure timely and accurate reporting of export activities as required by the regulations.
By following these steps, exporters can better navigate the complexities of China’s export control regulations and ensure their operations remain compliant.