New Chinese Export Control Regulation: Impact on Global Business Using Chinese-Origin Goods

The global trade landscape is shifting once again with the introduction of China's new export control regulations, which already took effect since December 1, 2024. Announced as Order No. 792, these rules signify Beijing’s commitment to safeguarding national security and interest in an ever more complex geopolitical context. The far-reaching implications extend beyond China’s borders, creating a ripple effect across industries reliant on Chinese-origin goods and technologies. This article explores the legal and practical impacts of these regulations and suggests strategies businesses can adopt to remain resilient amid evolving trade policies.

This article is written by Sefa Gecikli ([email protected]) and Marius Ungureanu ([email protected]). Marius and Sefa are both part of RSM Netherlands International Consulting Services with a specific focus on International Trade and Strategy.

Background: Reforming China’s export control regime 

•    Revision of the control system

At its core, the regulation redefines how China controls the export of dual-use items—goods and technologies with both civilian and military applications. Until now, China utilized a simpler HS Code-based system for control. However, with the recent changes, China is transitioning to an approach more similar to the EU and US models. Under this new system, the following categories serve as the primary headings for controlled items:
 

Informed by similar mechanisms in the United States, the regulation introduces a "Control and Watch List" system for high-risk entities and transactions. These efforts aim to mitigate risks to national security and ensure compliance with international non-proliferation agreements. 

•    Extraterritorial application

Perhaps the most striking feature is its extraterritorial application. Foreign companies handling Chinese-origin dual-use items could be compelled to align with these rules, even when operating outside China's borders. This adds a layer of complexity for global businesses involved in supply chains that incorporate Chinese technologies.

Article 49 of this regulation establishes export controls over specific "dual-use items" manufactured outside of China that incorporate Chinese-origin controlled content.  Foreign organizations and individuals transferring or providing the controlled goods, technologies, and services from outside the China to specified countries, regions, organizations, or individuals may be required by to comply with the relevant provisions of Chinese export control rules. The products may require this compliance include:

• •Dual-use items manufactured abroad that contain, integrate, or are mixed with specific dual-use items originating from the People's Republic of China;
• Dual-use items manufactured abroad using specific technologies originating from the People's Republic of China;
• Specific dual-use items originating from the People's Republic of China.

Unlike the U.S. Export Administration Regulations (EAR), which apply the "de minimis" rule generally to all foreign products, Article 49 explicitly references only "dual-use items" produced abroad. However, it remains unclear whether the term "dual-use items" is limited to those defined under China’s control lists or if it might extend to items categorized as "dual-use" under the laws of the manufacturing country. The prevailing interpretation suggests that the scope of "dual-use items" in Article 49 likely aligns with China’s control lists. The extraterritorial provisions in Article 49 are broadly worded and lack specificity regarding application scenarios or thresholds for controlled content within a final "dual-use item." For instance, if a high-volume consumer product such as an electric vehicle or a laptop includes Chinese-controlled rare earth elements in its motor or Chinese-controlled materials in its display components, it remains uncertain whether the motor, display, or the entire product would necessitate an export license from the Chinese government. Moreover, the conditional language of Article 49, stating that China "may" require compliance with its regulations rather than mandating it unequivocally, introduces further ambiguity. This phrasing complicates compliance efforts for companies while granting authorities significant discretion in enforcement. More clarify is expected in the upcoming term. 

•    Enhanced Licensing System

The revised licensing structure includes single-use and general licenses, each requiring exporters to maintain robust internal compliance systems and export records. Temporary controls may also be imposed on items not explicitly listed under the regulation’s control list.

•    Compliance Oversight and Penalties

China's Ministry of Commerce (MOFCOM) is tasked with supervising export activities, including issuing warning letters, initiating supervisory talks, and applying administrative penalties for violations.

Practical Implications for Global Business

The regulation introduces new challenges for industries dependent on Chinese-origin technologies. China controls approximately 80% of the commercial drone market, the introduction of restrictions on drone components like batteries, motors, and flight controllers has disrupted supply chains in the US and Europe. Western companies now face increased costs and delays as they scramble to secure alternative sources. 

Additionally, China has enacted bans on exporting key materials like gallium, germanium, and antimony, crucial for semiconductor manufacturing and military applications. These measures exacerbate supply chain vulnerabilities and hinder technological advancements outside China. With graphite as a primary material for EV batteries, stricter export controls on this resource could significantly impact EV production globally. 

China’s new export control regulations are set to significantly impact EU businesses, particularly those in high-tech sectors reliant on Chinese-origin goods and technologies. Industries such as electronics, aerospace, energy, and advanced manufacturing are likely to face the greatest challenges due to the dual-use nature of many materials and components they use. The extraterritorial scope of these rules means that even products manufactured outside of China that incorporate Chinese-controlled items could require export licenses, adding complexity to compliance efforts.

The timing of these measures underscores their retaliatory nature in the ongoing US-China trade and technology disputes. With both nations imposing escalating sanctions and restrictions, businesses operating within or reliant on these markets are increasingly caught in the crossfire. This tit-for-tat escalation highlights the fragility of global trade systems, especially in sectors critical to national security.

China’s new export control regulations mark a significant shift in the global trade landscape, with profound legal and practical implications for businesses. While the measures aim to safeguard China’s national security, they add complexity to international supply chains and heighten geopolitical tensions. Businesses must adopt proactive strategies to remain compliant and resilient in the face of these challenges. 

Resilience Strategies for Businesses

First and foremost, setting up strong internal compliance systems is crucial. These systems should enable companies to track regulatory changes in real-time, monitor dual-use item classifications, keep detailed export records, and stay aligned with evolving legal requirements. A well-designed compliance system helps avoid penalties and minimizes disruptions to operations

Diversifying supply chains is another critical step to reduce reliance on Chinese-origin goods. By exploring alternative suppliers and establishing production hubs in different regions, businesses can safeguard against potential restrictions. While this strategy might involve higher upfront costs, it provides long-term stability and ensures operational continuity. Alongside diversification, regular risk assessments are essential. Identifying vulnerabilities in key materials or technologies allows companies to create contingency plans and stay prepared for sudden policy shifts.

Forward Thinking

Upcoming regulations and tensioned trade dynamics may require a broader restructuring of global trade. With China's control over critical materials and technologies, countries and companies may accelerate efforts to look for and invest in alternative materials sourcing, manufacturing and technological hubs. However, this shift is not without its challenges, as China's dominance in cost-effective production is difficult to replicate.

Furthermore, as nations increasingly view trade policy through the lens of national security, we can anticipate heightened scrutiny of cross-border transactions involving dual-use technologies. This may result in more comprehensive compliance requirements for global businesses, particularly those operating in strategic industries like semiconductors, drones, and EVs.

The regulations also signal China's willingness to assert its geopolitical influence. By leveraging its control over critical resources, China has a significant impact on international trade, compelling other nations to reevaluate their trade and industrial policies.

RSM is a thought leader in the field of Strategy and International Trade consulting. We offer frequent insights through training and sharing of thought leadership based on a detailed knowledge of industry developments and practical applications in working with our customers. If you want to know more, please contact one of our consultants.
 

[1] 中华人民共和国两用物项出口管制条例

[2] China Begins Limiting Sales of Key Drone Components to US, Europe - Bloomberg

[3] China Imposes Its Most Stringent Critical Minerals Export Restrictions Yet Amidst Escalating U.S.-China Tech War