China is hitting back at the US and other countries with a new law that allows it to retaliate against countries that abuse export controls to the detriment of Chinese interests and national security. The new export control law passed by the highest Chinese lawmaking body also allows the country to restrict sensitive exports.

The law comes in light of deteriorating ties between China and other countries — mainly the United States — which are putting restrictions on Chinese technology and investments. This includes India, which has banned as many as 224 Chinese apps, and has since been looking into investment proposals from that country with intense scrutiny.

The law casts shadow on the partial sale of TikTok to American companies Oracle and Walmart, necessitated by US President Donald Trump’s ordering Chinese ByteDance to divest from the company. Since this already-delayed and complicated deal involves the sale of Chinese technology, the country’s government can theoretically use this law to block it.

What is the China’s new export control law?

The Export Control Law passed by the National People’s Congress’s (NPC) Standing Committee is only available in Chinese. According to an English summary by NPC Observer, an independent blog that covers Chinese legislation, the law applies in the exports of military products, nuclear items, and “other items” such as technology and services related to ” the safeguard of China’s national security”. All Chinese entities — domestic and foreign — will be subject to it. The law will come into effect on December 1.

“China will take countermeasures against countries and regions that abuse export-control measures and pose a threat to China’s national security and interests.” — National People’s Congress of PRC statement

The Chinese government will create a list of items whose export is to be restricted. According to the NPC Observer’s assessment, authorities can impose a complete ban on export of certain controlled items, or impose a more limited ban in certain jurisdictions, entities or individuals. Article 48 of the law authorises the Chinese government to take reciprocal measures when a foreign government “abuses export control measures to endanger China’s national security and interest”. 

Violations of the law can lead to fines and revocation of export licences. Applicants whose license has been denied cannot approach the country’s courts to appeal against such a decision.

A Chinese offensive in tech war with US

The new law essentially gives China a justification to fight the US, where Chinese companies are facing immense trouble due to export controls. Huawei and ZTE, two of the world’s largest 5G technology and infrastructure providers, have been virtually banned from the US. Both companies and several of their affiliates were placed on the Department of Commerce’s Entity List, prohibiting them from using American technology. Earlier this year, they were designated as “national security threats”. One impact of this move was that Google had to suspend Huawei’s Android license, meaning Google services such as GMail and Play Store are no longer available on Huawei smartphone.

Huawei was further affected after the Semiconductor Manufacturing International Corporation (SMIC) was also placed n the Entity List. SMIC, a major supplier of Huawei, was deprived of crucial American technology used in microprocessor manufacturing.

The new law will likely have great ramifications in the matter of TikTok in the US. President Donald Trump had earlier issued an executive order ordering China’s ByteDance to divest itself from TikTok, and hand over data of US users. Following several failed acquisition proposals, Oracle and Walmart announced that they would pick up a 20% stake in TikTok Global. Oracle would become TikTok’s cloud services, meaning data of American users would be in the hands of an American company. However, the Trump administration is yet to bless the deal due to its dissatifaction over ByteDance’s continued majority ownership of TikTok.

China’s new export control law gives its government a way to block the Oracle-Walmart-TikTok deal, since it involves the sale of Chinese technology to an American company.

Possible effects on rare earth metals industry

Because of the wide ambit of the law, China can also use it to ban the export of rare-earth metals such as Neodymium, which are crucial for the global electronics manufacturing industry. The Global Times, a Chinese state-run propaganda newspaper, has dubbed the law a part of the the country’s “no chips, no rare earths” strategy — meaning: if the US doesn’t give China tech to produce microprocessor chips, China won’t give it rare earth metals.

China contributes to around 70% of the global rare earth metal output, while the US accounts for only 5%, thereby making it highly dependent on exports, an analyst told the publication. The publication quotes another analyst who says US uses rare earth metals even its fighter jets, and this “should be stopped”.

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