The year 2023 marks significant progress in the legislation and enforcement of China’s export control and sanction laws. From the perspective of legislation, China has introduced an overarching authorization for export control and sanctions-related administrative activities by government agencies; from the perspective of enforcement, the emerging orders or actions of Chinese governments herald a wave of multi-facets, ever-progressing methodologies and philosophies of enforcement of relevant laws and regulations.

I. National Security Legislations

1. Comprehensive and Superior Authorization of Foreign Relations Law

Over the past two years, several legal instruments have been introduced to relieve sanctions and national security-related issues in trade law. For example, the Counter Foreign Sanction Law provides the Chinese government with direct authority to counteract illegal, unfair, and discriminatory foreign sanctions; and the Blocking Rules were designed to shield domestic entities from adverse effects of certain foreign sanctions.

On July 1st of 2023, The Law on Foreign Relations of the People’s Republic of China (hereinafter referred to as the “FRL") entered into force, comprising 45 articles distributed across six chapters. The FRL systematically addresses foreign relations powers, foreign relations templates, and foreign relations guarantees, fortifying China’s current foreign policy on a more solid legal ground. The law articulates its goal as to "develop foreign relations, safeguard national sovereignty, security, development interests, protect and develop the interests of the people."

Notably, the FRL holistically articulates China’s foreign policy and principles, and provides a comprehensive statutory authority for government actions on sanctions as well as counter-sanctions against foreign sanctions and long-arm jurisdiction. Article 33 specifies that the People’s Republic of China has the right to take corresponding countermeasures and restrictive measures against acts that violate international law or basic norms of international relations, or endanger the sovereignty, security, and development interests of the country. This positions the FRL as the top-level design for China’s foreign-related national security and sanction law framework, enriching and improving the legal "toolbox" of trade and investment-related rules. With this authority, measures under the Export Control Law, technology import and export regulating regime based on the Foreign Trade Law, along with the abovementioned sanction-related laws and rules, may collectively form the foundation of China’s national security rules in the realm of the trade law.

Regarding the extraterritorial effects, Articles 29 and 32 of the FRL, for the first time, clearly stipulate those measures safeguarding national sovereignty, security, and development interests, as well as legitimate rights and interests of Chinese citizens and organizations, may have extraterritorial jurisdictional outreach effects.

2. Foreign Sovereign Immunity Law Aligns State Immunity and Protections

In September of 2023, the Law of the People’s Republic of China on Foreign State Immunity (hereinafter referred to as the “FSIL") was enacted and came into effect on January 1st, 2024. Composed of 23 articles, the FSIL delineates the general principles of China’s state immunity policy, outlining limited immunity accorded to certain business or commercial disputes and addressing related procedural issues. It signifies a shift in Chinese mainland and Hong Kong SAR’s sovereign immunity policy from absolute immunity to relative immunity.

The implications of the FSIL for trade laws are twofold. On the one hand, it explicitly renders sovereign immunity to foreign states, even in cases where certain sanctions were imposed as a result of their administrative activities. This immunity persists unless reciprocal principles are invoked, such as when foreign states deprive immunity to the Chinese government. On the other hand, it may pave the way for Hong Kong SAR or Chinese mainland as venues for dispute settlement involving foreign states where sanctions or counter-sanction measures may be a part of the dispute. 

II. China’s Export Control

1. Legislative Development

(1) The Export Control Regulations under Legislation

Apart from the enactment of China’s Export Control Law in 2021, the Export Control Regulations were reportedly being in its legislative process. As the implementing regulation, the Export Control Regulations are expected to provide great clarity and practice guidance in both the compliance and enforcement areas of the Export Control Law.

(2) The Regulation on the Administration of Commercial Cryptography Updated

After 20 years of implementation, the Regulation on the Administration of Commercial Cryptography has undergone substantial amendments. The revised version specifies that the import and export controls on commercial cryptography apply only to commercial cryptography that involves national security, social and public interests, and possesses encryption-based protection capabilities. Specifically, those commercial cryptography used in mass consumer products is not subject to the import license or export control systems. Article 31 of the updated Regulation imposes license requirements for business operators involved in the import or export of crypto-related technology, products, and services.

2. Modification to Catalogues of Controlled Items

(1) The Catalogue of Technologies Prohibited or Restricted from Exporting

In December, the Ministry of Commerce (MOFCOM) issued an updated Catalogue of Technologies Prohibited or Restricted from Exporting. This catalogue is an updated version of the regulatory instrument set forth in 2008, which outlines restricting or prohibiting certain technologies from export. Significant adjustments have previously been made in 2020 to impose restrictions on technological transfer in the information industry.

The 2023 newly released Catalogue supersedes the previous versions, including that of the 2020 version, and streamlines the list from 164 to 134 items. The reduction reflects the deletion of 34 technical items, the inclusion of 4 new items, and the modification of 37 items. Notably, the new version deletes 6 prohibited items, including green plant production regulator manufacturing technology; as well as 28 restricted export technology items, including medical diagnostic devices and equipment manufacturing technology, target feature extraction and recognition technology.

Nevertheless, the updated Catalogue introduces one new prohibited technology item related to human cell cloning and gene editing technology. It also adds three new restricted technology items, including crop hybrid advantage utilization technology, bulk material loading and unloading transportation technology, and LiDAR system.

In addition, adjustments have been made to the control points and technical parameters of 37 technical items. This includes modifications to 6 prohibited export technical items, such as traditional Chinese medicine resources and production, as well as 31 restricted export technical items, which cover economic crop cultivation and breeding technology, non-ferrous metal metallurgy technology, and large-scale high-speed wind tunnel design and construction technology.

(2) The Catalogue of Dual-use Items under Control

Following the conventional release of catalogue of dual-use items under export control by the end of 2022, the administrative authority - the MOFCOM, has extended license requirements to several important items to those already listed in the conventional catalogue.

In July 2023, MOFCOM announced controls on the export of certain semiconductor raw materials, as well as drones and drone-related equipment. On July 3rd, it was announced that China would restrict exports of products and materials containing gallium and germanium, which are widely used in the manufacture of semiconductors and electronics. On July 31st, two announcements were released, imposing restrictions on the export of drones and drone-related technology. Notably, for certain drone-related equipment and technology, direct export controls were instituted, covering certain engines, infrared imaging equipment, SAR, and laser devices. In addition, temporary export controls were promulgated for the export of some specific drones. Strict prohibitions on exporting controlled drones if proliferation, terrorism, and military end-uses were found.

In October 2023, MOFCOM revised its export controls on graphite. In comparison to the 2022 conventional control list in force, the revision added some items not previously on the list, including natural flake graphite (HS 2504101000) and spherical graphite (HS 2504109100). In addition, the order terminates temporary controls on certain graphite products.

3. Enforcement of Export Control Law by Customs Administration

China’s Export Control Law (hereinafter referred to as the “ECL") authorizes MOFCOM and the Customs Administration to enforce the law within their respective purviews. By the end of 2023, MOFCOM has yet to take any enforcement actions since the ECL came into effect. In contrast, Customs administrations nationwide have been actively using ECL to render administrative penalties to violators, together with other customs administrative laws and regulations.

In 2023, Customs administrations issued 44 penalty orders based on our statistics, a significant increase compared to that of 2022. The majority of these cases involved incorrect declarations about the HS Code or product categories by the exporters when applying for customs clearance. Regarding the product category, violations related to dual-use items and military items each accounted for half of all orders; noticeably, within the dual-use item category, graphite-related products were the subject of investigation in approximately two-thirds of all customs orders.

On average, the penalties imposed as a result of customs investigations and orders have been relatively moderate, typically involving fines and without confiscation of illegal incomes. This approach may be partly explained by the conventional practices of similar investigations and actions taken by customs administrations, and partly by customs’ focus on customs clearance procedures. However, when MOFCOM - the authority responsible for full coverage of export control laws and regulations enforcement, conducts investigations and makes consequential findings, the penalties may be more severe. For example, illegal exports without prior authorization or licenses to sanctioned entities may result in a heavy fine of up to 20 times the contract value. When taking into account the designated unreliable entities and economic sanctions on certain companies, fines imposed on Chinese companies for such illegal exports may be significantly higher.

4. International Cooperation on Export Control

In recent years, China has attached increasing importance to international exchanges and cooperation in export control, and it has established export control dialogue mechanisms with major global players including the United States, the European Union, Japan, and South Korea.

In August, the MOFCOM announced the commencement of the China-US export control information exchange mechanism following a bilateral ministerial meeting. This mechanism serves as a forum for both sides to explain their respective export control systems and concerns, thereby improving bilateral communications and reducing misunderstandings, for example about US national security policies.

In September, during the 10th China-Europe Economic and Trade High-Level Dialogue, China and the European Union agreed to establish a dialogue mechanism in the field of export control. This mechanism aims to facilitate communication and dialogue on export control policies and practices between the two sides.

In November, The MOFCOM and the Japanese Ministry of Economy, Trade, and Industry agreed to establish a dialogue mechanism on export controls, to promote trade and investment cooperation between the two countries.

In December, China and South Korea reached a consensus on establishing a bilateral export control dialogue mechanism during the Fifth Joint Committee Meeting of the China-South Korea Free Trade Agreement. This also marks a significant step in strengthening trade relations and regulatory understanding between the two countries.

III. China’s Sanction

1. Legislations

As introduced above, the most notable legislative development regarding sanction laws is the enactment of FRL. It provides overarching and full authorizations to government agencies for implementing export control measures, sanctions, and counter-sanctions.

In addition, the Civil Procedure Law (2023 Amendment) provides, that if people’s courts, after examination, find that a judgment of a foreign court contravenes the basic principles of the laws of the People’s Republic of China, or harms national sovereignty, security, and public interests, such a ruling shall not be recognized or enforced. This new provision empowers Chinese courts to refuse recognition or enforcement of certain foreign court rulings in relation to sanction policies or measures enacted by foreign countries. This, in combination with China’s ‘blocking statute’, the Rules on Counteracting Unjustified Extra-territorial Application of Foreign Legislation and Other Measures, enhances the predictability of the enforceability of blocking orders issued by MOFCOM.

 2. Designations

(1) Designations of Unreliable Entity

Unreliable Entity List has been seen as a form of sanction on trade and investment imposed by the MOFCOM. In February 2023, the Ministry announced the first-of-its-kind sanctions on two U.S. defense companies, Lockheed Martin Corporation and Raytheon Missiles and Defense, for their arms sales to the Taiwan region. This marked the first instance of China designating entities to the Unreliable Entity List since the establishment of the list in 2019. It was also the first time utilization of the governing rules of the Unreliable Entity List, introduced in 2020 (See our analysis on the nature[1], trade[2] and investment[3] ban, investigation[4], fines[5] and reliefs[6] ).

As a result of the designation, both companies will be prohibited from engaging in import and export activities related to Chinese mainland and from making any new investments within Chinese mainland. Senior management personnel of the two companies face entry bans into China. In addition, a fine will be imposed on the two companies, in the amount of twice the value of the arms sales to Taiwan region since September 2020. Subsequently, the Ministry further clarified that six senior managers of the two companies were designated to be prohibited from entering China. Chinese companies have also been required to adhere to supply chain due diligence compliance obligations, as such preventing any circumvention of these new regulations.

(2) Other Designations

In 2023, the Ministry of Foreign Affairs of China announced four rounds of countermeasures in accordance with the Anti-Foreign Sanctions Law, imposing sanctions including transaction prohibitions, assets freezing, as well as visa and entry bans on relevant individuals and entities.

(3) UN Sanctions

In 2023, the Ministry of Foreign Affairs issued 13 notices on the implementation of UN Security Council sanction resolutions, targeting "Islamic State" and Al Qaeda, Yemen, Iraq, South Sudan, Central Africa, Mali, Haitian gangs, Congo, Libya, armed groups Shabab, Somalia, and other sanction projects and activities. The notices cover updates to the sanctions list, the adoption of sanctions resolutions by the Security Council, the extension of existing sanctions authorizations, the extension of sanctions measures, the lifting of Security Council sanctions, and the expiration and termination of sanctions measures.

IV. Observations

Over the past year, there have been significant advancements in both the legislation and application of China’s export control and sanctions laws. In addition to China’s continuous efforts to promote free trade worldwide, the importance of national security become increasingly prominent. On the legislation side, there has been a discernible shift towards developing a safeguarding toolkit to counteract and mitigate the adverse impacts of foreign sanction laws and measures. On the enforcement side, a new policy emphasis seems to be taking shape in the background of globally escalating trade compliance requirements.

Observing the evolution and development of China’s export control and sanction policies reveals that China is becoming a more adept player in the strategic implementation of these measures. These efforts are intended to promote policy goals that address both diplomatic and security interests. Domestic promotion of trade compliance has been also accelerated with repeated notice of compliant requirements by relevant authorities. Following the issuance of guidance and notice on internal control protocols to business operators, the authorities, including MOFCOM, may strengthen law enforcement actions in the coming years.

[Note] 

[1] The Nature Of China's Unreliable Entity List, https://www.lexology.com/library/detail.aspx?g=df113c82-6011-48c0-931e-8fce6eac6c61

[2] Unpacking Trade Ban under the Unreliable Entity List, https://www.lexology.com/library/detail.aspx?g=91b5a916-a64a-4a53-8cee-67f02b50d49c

[3] Understanding Investment Ban under the Unreliable Entity List, https://www.lexology.com/library/detail.aspx?g=19c0aa54-d909-4c5d-aed0-4eb8625741ca

[4] How an Unreliable Entity List Investigation Proceeds, https://www.lexology.com/library/detail.aspx?g=ac79fe52-c9d0-471c-9370-d9f127487b86

[5] Decoding Fines under the Unreliable Entity List, https://www.lexology.com/library/detail.aspx?g=6cb5924e-a198-4e42-99be-1705a9720fb8

[6] Possible relief under the Unreliable Entity List, https://www.lexology.com/library/detail.aspx?g=f21e3b6a-0ed5-442c-aca4-a23df6a288b6