US tweak to export controls forces China tech entities to cooperate

An adjustment to Washington’s latest export control regime last month is forcing affected Chinese entities to reach out to US officials for end-user checks, according sources briefed on the matter.

A Chinese entity on a trade watch list, or an unverified list, will be added to a trade sanctions list, or the entity list, if it fails to complete an end-user check within 60 days because of a lack of cooperation by the host government, according to the export control regulations issued by the US Bureau of Industry and Security (BIS) on October 7. The bureau conducts end-use checks to verify the bona fides of companies on these lists.

The tweak that directly links the two lists has added pressure on the Chinese companies and authorities to respond. The change has had an impact, as the BIS delegates at the US embassy in Beijing have suddenly become busy, according to a source, who declined to be identified as the matter is private.

Previously, visits by US export control officials were often denied or postponed, with Covid-19 controls or conflicting schedules cited as reasons, but Washington’s move to directly link the unverified list with the entity list and the 60-day time limit have sharply increased the urgency for affected entities to seek solutions, the source added.

The Post reported last week that US officials conducted initial talks with China’s top semiconductor equipment maker, Naura Technology Group, as one of its subsidiaries was added to the unverified list.

Meanwhile, a BIS delegate from the US embassy in Beijing is scheduled to visit Wuhan this week, according to a source.

Wuhan-based entities, including China’s top memory-chip maker Yangtze Memory Technologies Co (YMTC), Wuhan Juhere Photonic Technologies and Wuhan Institute of Biological Products are among the 31 entities that were added to Washington’s unverified list on October 7.

“For the first time, the export administration regulation is explicitly linking the lack of cooperation by the host government in conducting an unverified list end-use check to the addition of a party to the entity list,” said a note by law firm Akin Gump Strauss Hauer & Feld.

“If a foreign government is preventing such a check from occurring, it will quickly jeopardise the ability of the foreign company to obtain access to US commodities, software and technology.”

The US embassy in Beijing did not respond to a request for comment.

The Chinese commerce ministry did not reply to multiple requests for comments.

None of the 31 Chinese entities has disclosed any information about their plans about the threats or contacts with the US officials.

An official at Wuhan Juhere Photonic, who declined to be named, told the Post that the company has been in contact with US export control officials in Beijing to remove itself from the US trade watch list. Wuhan Institute of Biological Products and YMTC declined to comment.

The meetings between Chinese entities and US officials, which are often conducted in the presence of delegates from the Chinese commerce ministry, are held routinely. Chinese companies are frequently added and removed from the unverified list once end-user checks are completed.

While Beijing has lashed out at Washington’s latest chip technology export control as an act of “bullying” to contain China’s technology advancement, Chinese chip companies have shown a preference for compliance instead of confrontation against the US export control authority.

Soon after Huawei Technologies, one of China’s most powerful technology giants, was added to the US entity list in 2019 its lucrative smartphone businesses quickly lost relevance in China and elsewhere, as it has been unable to equip its phones with advanced chips.

After the new regulations were announced on October 7, which also include measures to restrict involvement of US persons from advanced chip facilities in China, Naura Technology Group took precautionary measures by asking its US engineers to step aside from research and development. YMTC has also taken similar measures, the Financial Times reported.

YMTC highlighted its compliance “across the globe” in a public statement issued last month, denying media reports that it had conducted secretive meetings with China’s Ministry of Industry and Information Technology to assess possible consequences. South China Morning Post