China’s new list of technologies under export controls came as an unwelcome surprise to when “there is a lot of tension in the tech space at the moment”.
The new list of “partially restricted exports” includes drone and cybersecurity technology, voice recognition software, and handwriting scanning software. The latest additions to China’s list of controlled technology exports could upset a broad range of industries and trigger an opportunity that some global tech giants may need to detach their Chinese operations, legal experts said.
The latest announcement of the updated list of technologies under export controls on August 28 landed as an unwelcome surprise to an industry already grappling with the uncertainty posed by trade tensions between China and U.S.
The move was initially seen as a way of giving Beijing a say in any sale of video app TikTok, but advisers to Chinese and foreign firms say the potential consequences go much further.
“The rules were a surprise to many in the market, and there is a lot of tension in the tech space at the moment,” said Alex Roberts, a company counsel at the Shanghai office of firm Linklaters.
Apart from recommendation algorithms like those used by ByteDance-owned TikTok, the new list of “partially restricted exports” includes drone and cybersecurity technology, voice recognition software, and handwriting scanning software.
Companies seeking export of those technologies must first pass reviews and acquire approvals from China’s Ministry of Commerce and Ministry of Science and Technology.”
This change could also affect a range of multi-national companies that conduct research and development inside China, adds Nicolas Bahmanyar, cybersecurity senior consultant at LEAF legal firm in Beijing.
“It’s very probable that a company with R&D centres in China are going to face a choice – keep their R&D centre in China, just for China, or leave China so they can use the tech they develop anywhere in the world,” he said.
The Ministry of Commerce was quick to reply to speculation that the new rules were aimed mainly at TikTok, saying they weren’t targeted at a specific company.
Lawyers that have looked closely at the changes say their broad scope means they might hit a good range of companies across different business sectors.
They can lead to change in the thinking of companies such as Microsoft MSFT.O, consumer drone manufacturer SZ DJI Technology Co Ltd, video streaming service Zoom Video Communications ZM.O, and Tencent Holdings 0700.HK, which exports games worldwide and features a fast-growing overseas cloud-service business.
On of the Tencent source, which features a slew of overseas subsidiaries and invested companies, said the organization was waiting for clarification on what the rules would mean for technology-sharing with these units.
“It’s very probable that a company with R&D centres in China are going to face a choice – keep their R&D centre in China, just for China, or leave China so they can use the tech they develop anywhere in the world” said Raymond Wang, managing partner at Beijing firm Anli Partners.
Zoom, for instance, employs roughly 500 people in China as engineers performing on development of products inconsistent with its prospectus. Microsoft houses Microsoft Research Asia in Beijing, which has been the origin of a variety of advances in AI.
Zoom and DJI declined to comment. Microsoft and Tencent didn’t answer Reuters’ requests for comment.
“It is usually clear from the market reaction that there’s some thinking to be done by numerous businesses with operations in China,” said Roberts of Linklaters.