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China’s decoupling so far only symbolic

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  • Following the “Huawei” shock in 2019, when the Trump administration cut Huawei off from critical tech input (esp. semiconductors), the Chinese government decided that it needed an arsenal of defensive trade instruments to retaliate against US measures.
  • In quick succession, the Chinese government passed several laws to lay the foundation for a more active approach to economic security. The instruments are largely emulating the US legislative trade defense framework and further substantiate the decoupling between the “West” and China.
  • The first measure was a revised technology export list, followed by China’s first comprehensive Export Control Law, working with a licensing mechanism for certain goods and allowing China to officially impose embargoes against countries on specific goods such as rare earths.
  • In parallel, China introduced the Unreliable Entity List, which sanctions companies that endanger China’s national security or take discriminatory measures such as boycotts or other unilateral sanctions against Chinese companies. The Unreliable Entity List thus serves as a retaliatory measure ag•In parallel, China introduced the Unreliable Entity List, which sanctions companies that endanger China’s national security or take discriminatory measures such as boycotts or other unilateral sanctions against Chinese companies. The Unreliable Entity List thus serves as a retaliatory measure against the export controls imposed by the USA.ainst the export controls imposed by the USA.
  • In parallel, China introduced the Unreliable Entity List, which sanctions companies that endanger China’s national security or take discriminatory measures such as boycotts or other unilateral •The regulatory scope of the instruments is broad and vague (based on national security), giving Chinese authorities wide discretion to single out specific transactions. The formulation of the laws also enables China to use these tools coercively, for example when a company “interferes in China’s internal affairs”.
  • However, the trade instruments remain largely symbolic as China has not used these instruments very actively yet, mainly because China lacks leverage as it controls less advanced technologies than the US.

Sinolytics is a European consulting and analysis company specializing in China. It advises European companies on their strategic orientation and concrete business activities in the People’s Republic.

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