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From Rare Earth Controls to Responsible Supply Chain and Investment, China Undertakes Surgical Approach in Export Control & Business Implications

Posted by on February 8, 2024

From Rare Earth Controls to Responsible Supply Chain and Investment, China Undertakes Surgical Approach in Export Control & Business Implications

从稀土管制到尽责供应链与投资：中国的精准出口管制及其商业影响

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  1. Executive Summary 执行概要

As a formal response to China-specific trade & investment controls and enforcement in the West, China has released significant countermeasures, before the new year holidays, with a conditional rare earth technology ban (with exceptions) to bolster her national security and Chinese-origin green technology outflows.  China supplies to US and EU markets respectively 74% and 98% in terms of rare earth compounds.

本备忘录简要分析了中国针对西方涉华贸易与投资管控举措的应对举措。在2024年新年来临前，中国落地了针对西方涉华措施有力反制的稀土技术有条件出口禁令（含例外），并将部分稀土材料出口许可制度化，旨在加强对国家安全保障并推动本土绿色技术出境的源头管理。中国对欧美市场供给的稀土材料比例分别高达98%和74%。

中国统筹发展与安全的政策，积极改善营商环境，不以地缘为中心或为其左右，并鼓励外资加强遵守中国当地法律和深化在华业务，同时保障中国公民和企业海外业务和运营正当权益。

Rare earths refer to certain metallic elements critical, and sometimes foundational, to electrified energy infrastructure, engineering materials, semiconductors and electronics, and biotechnology, from permanent magnets for electric vehicles (EVs) and wind turbines to catalysts in petroleum chemical industry and emissions control.

稀土属于关键或者基础原材料的金属元素，并应用于如下工业领域：电气化能源基础设施、工程材料、半导体和电子产品以及生物技术（应用官方，包含电动汽车（EV）、航空涡轮机组和风力涡轮机组永磁体，到石油化学工业和排放控制的催化剂等）。

From Chinese regulatory perspective, these countermeasures follow and substantiate her coordinating development and security (统筹发展与安全) strategy.  It seeks to address the following acute risks resulting from the US-led semiconductor ban since October 7, 2022, US-outbound investment screening, coordinated enforcement by US and allies, and looming trade measures on made-in-China EVs:

从中国监管制度出发，目前反制措施遵循并贯穿中国贸易与投资监管制度的总体安全观，体现并落实（在对外开放中）统筹发展与安全的原则与策略。这些措施寻求应对由于如下一系列涉华措施带来的严峻挑战：由美国主导的对华半导体禁令（于2022年10月7日实施）、美版海外投资审查、西方国家协同的涉华监管和执法行动，以及正在酝酿中的对中国国产电动车的贸易措施。

技术封锁及人才流动受限与流失

  • Uprooting foreign investments or manufacturing capacity standstill,

抑制在外外资及本地产能增改扩受阻

  • Supply-chain offshoring and hollowing industrial clusters co-built with MNCs, and

（所谓“友岸”引发）供应链离岸化及中外资产业集群被动空心化，以及

  • Harms to the development interests and the lawful rights and interests of Chinese citizens and private sectors doing businesses overseas.

中资人员和资本在海外合法发展权益受侵害。

Still, Chinese countermeasures are less geo-centric.  China’s export control approach is balanced and differs from its Western counterparts.  The latter seeks  to “out-compete” China with multi-purpose policy objectives including fighting “racism and hate.”[1]

尽管地缘压迫严峻，中国的应对不以地缘为中心也不为其左右。中国的出口管制监管风格体现了利益相关方的平衡，与西方对应措施迥异；后者寻求所谓“胜出”中国，其多头政策目标要求其不得制造种族歧视和仇恨。

Nevertheless, the dynamic licensing nature of export controls also means its outcome of asymmetrical strike as offense with unintended consequences, if conflict escalates.

尽管如此，出口管制制度动态许可的属性也意味着若贸易摩擦升级，中国有能力实施非对称打击作为积极防卫（尽管会有中方并不愿其发生的后果）。

2. Actionable Insights 务实分析

The conditional ban on exports of supply-side of rare earth mining, exploration, smelting and metallurgical technologies presents the newly added covered technologies  under the updated Controlled Technology List[2] released on December 21, 2023 by Chinese Ministry of Commerce (MOFCOM).

目前有条件的稀土技术出口禁令将若干稀土提炼、加工、利用技术列入由中国商务部于2023年12月21日公布的修订后《中国禁止出口限制出口技术目录》禁止出口技术范畴（包括稀土萃取分离工艺技术，稀土金属及合金材料的生产技术，钐钴、钕铁硼、铈磁体制备技术和稀土硼酸氧钙制备技术）。

It comes in tandem with the separate, updated Dual-use Control List[3] released on December 29, 2023 that significantly deregulates items such as certain biotechnology but regularizes the recent licensing measures on

与稀土技术出口禁令一前一后出台的《两用物项和技术进出口许可证管理目录》（2023年12月29日颁布）显著减少了监管物项（例如若项生物技术） ，但常态化了近期已经落地的（临时出口）管制措施：

  • graphite critical to EV production, and

达到某些参数要求的石墨类物项（对电动车制造关键）

镓、 锗相关物项——在制造半导体、电子产品、光伏中关键原材料以及作为聚合物催化剂（中国占全球54%供给）（“稀土技术出口禁令”）。

Screening China-outbound Trade & Investment with Regulatory Significance

对有监管意义的对外贸易和投资进行审查

The conditional Rare Earth Tech Export Ban covers a wide range of upstream rare earth items and technologies with across-the-spectrum impacts on items from permanent magnets used in EVs, airplanes or wind turbines, to semiconductors and electronics, LED lighting, infrared optics, fiber optics, solar cells, polymerization catalysts and pharmaceuticals as well as aerospace and military applications.

有条件的稀土技术出口禁令涵盖一系列上游稀土物项和技术，其跨行业影响涵盖面从电动汽车、飞机或风力涡轮机中使用的永久磁铁，半导体和电子产品、LED 照明、红外光学、光纤、光伏、聚合物催化剂和制药，到航空航天和国防应用等领域。

Technology transfer restrictions under Chinese Export Control Law (ECL) and regulations take a substance-over-form approach.  Regulatory scrutiny applies whenever business transactions, either technology licensing / transfer arrangements, joint ventures, business collaborations, or private equity / mergers & acquisitions (PE/M&A) transactions, would involve cross-order transfer of controlled technologies.[4]  In other words, proper filing or licensing must be in place upfront, before engaging in certain cross-border trade and investment activities.

中国《出口管制法》（ECL）和相关行政规章视野下，针对受控技术转让的审查适用实质重于形式的原则。 无论是技术许可/转让协议、合资合作还是私募股权/并购（PE/M&A）交易，若涉及受控技术的跨境转让，应认定为纳入出口管制的商业交易。换言之，企业或个人在从事特定的跨境贸易和投资活动之前，应当进行适当的报备或申请相应的出口许可证。

Source: Arafura Rare Earths

来源：Arafura稀土公司

Under-appreciated Exceptions

未被充分理解的例外情形

Exceptions exist to facilitate China-outbound investment in areas such as collaborative exploration of high-grade rare earth ores with greener technology application that fall within restricted export categories that would minimize the environmental footprint in rare earth material extraction, processing and recycling.

有条件的稀土技术出口禁令规定了例外情形，旨在促进中资企业手中符合限制出口类的绿色技术运用于境外优质稀土矿产勘探合作开发，从而最大限度地减少稀土材料提取、加工和回收过程中的环境足迹。

The updated Controlled Technology List carves out “ionic rare earth ore leaching process” (change from item 080901J to 080901X) as export-restricted rather than export-prohibited mining engineering technology.[5]  Also, certain rare earth metallurgical technologies fall within export-restricted technologies thus licensable:

  • Rare earth exploration, selection and metallurgical technologies other than those captured under export-prohibited categories,
  • Synthesis process and formulation of rare-earth extractants, and
  • Rare-earth modification and addition technology for metal materials.

Therefore, while halting outflow of most rare earth producing/processing technologies, this conditional ban also offers:

修订后《中国禁止出口限制出口技术目录》将采矿工程技术——离子型稀土矿山浸取工艺由禁止出口变更为限制出口（编号由080901J变更为 080901X）。同时，特定有色金属冶金技术也纳入限制出口范围，从而允许适格企业取得出口许可（包括“稀土的采矿、选矿、冶炼技术（已列入禁止出口的技术除外）、稀土萃取剂的合成工艺及配方、金属材料的稀土改性添加技术”）。

因此，在制约大多数稀土制造/加工技术出境的同时，该有条件禁令同时允许：

  • legitimate room to minimize interruption to pre-existing captive supply chain of industrial MNCs with bases in China if electing to local compliance,

为落实遵守中国法律的合规制度的跨国企业提供合法通道，尽可能减少对在华拥有制造基地的跨国工业企业既有的供应链冲击；并

  • and exception for China-outbound investment and technology cooperation with greener rare earth exploitation technology.

对采用更环保的稀土采选技术的对外投资和技术合作予以例外考量。

Dual-Track Export Control Measures with Primary & Ancillary Targets

管制措施双轨化（区分监管对象主次）

As an emerging dual-track export control measure with primary and ancillary targets, other than rare earth controls, the latest Chinese countermeasures come along with adding new export restrictions that affirm China’s traditional commitments largely aligned with the West countering illicit narcotics and organized crimes, nonproliferation, and regional stability:

有条件的稀土技术出口禁令也体现了管制措施运用的双轨化，对不同监管对象区分主次：除涉稀土监管外，中国监管部门对监管物项的取舍体现了中国在若干传统领域的国际义务和承诺——在打击非法毒品、有组织犯罪、防止核/生化武器扩散以及维护地区稳定方面与包括西方在内的跨国监管合作空间：

  • advance-grade laser detection and ranging (LiDAR) technology

高性能的激光雷达系统

  • unmanned aerial vehicles (UAV)

无人驾驶型航空器

  • UAV flight control and sensor technologies

无人驾驶型航空器导航和目标探测等技术

  • cybersecurity tech with broad-bandwidth capacity beyond 500Gbps, and

接入线路带宽达到 500Gbps 以上大流量网络安全处理专用设备相关技术

  • precursor ingredients to illegal drugs.

非法药物的前体成分。

Also, it is worth noting that the current Chinese countermeasures carved out the proposed licensing on photonic wafers (which China accounts for 97% global supply), for the time being.

亦值得一提的是，中国目前的反制措施尚未涵盖征求意见稿提议的光伏硅片制备技术（中国在全球供给中占97%）。

  • Business Implications for MNCs

Chinese regulators see China-specific sanctions among various trade & investment restrictions in the West as overstretching national security laws (国家安全泛化) in disguise of “competing and practicing protectionism in the name of de-risking and reducing dependence”.

中国监管部门视某些西方国家针对中国的贸易和投资限制措施为泛化国家安全的行为，以“去风险”“降依赖”之名行竞争和保护主义之实。

In practice, China-outbound trade & investment involving unlicensed transfer of controlled technologies could become illegal under local Chinese law.  Unlicensed transfer of controlled technologies or dual-use items, either directly or through third parties, may lead to hefty fines at 5-10 times of the illegal turnover plus disgorgement of illegal gains (depending on the nature & severity of violation).

回到商业实际，海外投资和国际商业往来若构成未经许可转让受控技术，在中国法律视野下将构成非法行为。未经许可转让受控技术或两用物项（无论直接或通过第三方）的违法后果包括违法经营额 5到10 倍的巨额罚款、并没收非法所得（视违法性质和严重程度而定）等严厉处罚。

By contrast, MOFCOM has broadened and facilitated, since August 2023, pilot general licenses within selected free trade zones for certain dual-use items crucial to China-based manufacturing bases of MNCs with value chains in petrochemicals, aeronautic components, engines, batteries, and lighting sectors. [6]

相形之下，自 2023 年 8 月起，中国商务部已推动若干自贸区内指定两用物项的通用许可便利化改革试点，确保“放开到位”政策取向落实到在华有基础的跨国公司价值链，而适用通用许可试点的指定两用物项涉及石油化工、航空零部件、发动机、电池和照明等行业。

It remains to be seen how MOFCOM would administer the following key risk areas:

中国商务部对如下重点风险区域如何监管仍需进一步观察：

  • Exports of manufacturing equipment carrying sensitive technologies,

作为敏感技术载体的装备的出口；

  • Technological services and site management of overseas plants already in place,

已经在海外建厂的企业现场管理及其技术服务；及

  • House-keeping of an effective compliance program at the level of a licensable exporter, with sufficient paper trails to ensure no derail or circumvention.[7]

对于有望获得出口许可的出口企业而言，其内部合规制度的有效运行的日常监督管理，以预防、纠正和惩戒违反或者规避中国监管行为。

Going forward and with respect to upstream/downstream businesses to rare earth sector, Chinese regulators may leverage ECL to further:

     对于稀土以外的上下游而言，当前的稀土涉及的出口管制措施展现了中国监管部门有权进一步运用《出口管制法》完善如下监管要求和跨部门执法协作：

  • Emulate the US with her own “foreign direct product rule” with respect to physical movements of processing equipment that contains controlled technologies

效仿美国出口管制制度下的（源自本国技术的）外国直接产品原则，针对包含受控技术的装备物理移动的具体监管要求；

  • Inspect and penalize non-compliant maintenance / use of controlled technologies

审查并惩戒受控技术不合规使用/维护；

  • Strengthen international collaboration overseas in critical material exploration, R&D centers, and standardization initiatives that meet her national security and environmental interests.

对符合中国国家安全和环保要求的海外稀土资源勘探国际合作开发、研发中心以及标准化倡议等正当商业活动，加强相应的营商环境改善。

In short, every individual and corporate citizen incorporated in or operating within the territory of China must respect and comply with China’s export control and national security laws, with more weights and resources on local compliance, in order to avoid disruption to their greater market access, tax credits and investment returns.

简言之：尊重、遵守维护中国出口管制和国家安全的法律是每一个在华企业的基本义务，国际企业需要予以更多权重遵守中国法律方能行稳致远，避免逐步深入的市场准入、优惠待遇和投资收益遭受损失。

In terms of immediate “to-dos,” MNCs need adequate resourcing and follow through with respect to the following:

跨国公司宜考虑在以下方面投入充分妥当的资源并贯彻落实：

  • Staffing clear-minded, disciplined people on the ground who genuinely place trade & investment compliance essential to corporate value proposition,

人事上委任头脑清醒、纪律严明，真正将贸易与投资监管合规视为企业价值主张的关键要素的管理人员在当地予以落实；

  • Regularizing informed workstreams to comply with China’s “countermeasures,” minimize surprises, and ensure smooth communication with regulators, and

制度化审慎的内部工作流，使得当地业务遵守包括中国反制措施在内的当地法律，最大化减少业务中断风险，并确保与中国监管部门沟通顺畅；

  • Operationalizing effective compliance programs respecting trade rules and national security interests of both at home and on the ground, while safeguarding shareholder and business interests.

落实可操作的合规机制，在保护和实现股东和商业利益的同时，负责任地保护东道国和母国市场的国家安全利益。

Note: This memo does not constitute legal advice; to avoid misinterpretation or misinformed actions, please contact your trusted legal advisor for legal advice.

注：本备忘录不构成法律建议，请联系您可信赖的法律顾问寻求法律意见，避免相关内容被曲解或利用。

[1] U.S. White House, Biden Administration National Security Strategy, October 12, 2022, https://www.whitehouse.gov/wp-content/uploads/2022/10/Biden-Harris-Administrations-National-Security-Strategy-10.2022.pdf.

[2] Chinese Ministry of Commerce and Ministry of Technology, Announcement 57 (2023) on Issuing the Catalogue of Technologies Prohibited or Restricted by China from Export (“Controlled Technology List”), issued and effective on December 21, 2023, http://www.mofcom.gov.cn/zfxxgk/article/gkml/202312/20231203462079.shtml.

[3] Chinese Ministry of Commerce and General Administration of Customs, Announcement 66 (2023) on 2024 Dual-Use Items & Technologies Import and Export License Catalogue (“Dual-Use Control List”), issued on December 29, 2023 and effective on January 1, 2024, http://aqygzj.mofcom.gov.cn/article/glml/202312/20231203463916.shtml.

[4] Chinese Ministry of Commerce Press Release on Catalogue of Technologies Prohibited or Restricted by China from Export, “Technology export refers to the transfer of technology out of China through trade, investment or economic and technical cooperation.” (技术出口是指从中国境内向境外，通过贸易、投资或者经济技术合作的方式转移技术的行为), http://www.mofcom.gov.cn/article/zcjd/jddwmy/202312/20231203462539.shtml.

[5] Under the Chinese taxology for controlled technologies, items ended with “J” refer to export prohibition, while those ended with “X” refer to export restriction (triggering licensing requirements).

[6] Chinese Ministry of Commerce, Circular on Carrying Out Pilot Work Related to Export Control of Dual-Use Items in Selected Pilot Free Trade Zones, issued on August 20, 2023 and effective on September 1, 2023, http://aqygzj.mofcom.gov.cn/article/zcgz/gzgf/202309/20230903438283.shtml.

[7] Chinese Ministry of Commerce, Announcement No. 10 [2021], Guiding Opinions on Establishing an Internal Compliance Mechanism for Export Control by Exporters of Dual-Use Items, http://www.mofcom.gov.cn/article/b/c/202104/20210403056267.shtml.