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China’s new restrictions on tech exports could hit more than TikTok

As Chinese brands go global, regulations at home and abroad may impede their operations.

Image from Shutterstock. Image from Shutterstock.

The Chinese government announced its updated rules for tech exports last Friday—its first adjustment in 12 years. The revamped restrictions throw a wrench in ByteDance’s sale of TikTok’s US, Canadian, Australian, and New Zealand operations, but they may also have broader consequences for other tech sectors, including drone technology and audio recognition, as the world’s two largest economies tussle on multiple fronts.

The new regulation, called the Catalogue of Technologies Prohibited or Restricted from Export, was issued by China’s Ministry of Commerce and Ministry of Technology. “Technologies that can be used for both military and civilian purposes fall under this regulation,” reads the ministries’ announcement made on August 28. The catalogue covers AI-related intellectual property in sectors like biotech, telecommunications, agriculture, animal husbandry, aerospace, internet, and software. In all, the new rules removed nine items from the list, added 23 restricted items, and adjusted 21 existing lines.

If a company in China plans to sell any technologies that are now restricted by the government, it must first obtain approval from the country’s commercial authorities before entering substantial negotiations with potential buyers, according to a Xinhua report.

For now, some firms whose proprietary tech comes under the purview of the updated Catalogue are not worried about the changes. “In the short term, the rules won’t have much impact on us, because they mainly involve technology transfers,” said Gary Gu, the overseas business head at Shenzhen-based drone company MicroMultiCopter, or MMC. “For us, we don’t open our technology to customers,” Gu said, adding that sales of its consumer-facing products are not subject to the new rules.

“But in the long term, since we plan to sell our production lines to overseas companies, this part of our business might encounter problems,” Gu told KrASIA.

There’s the catch. As Chinese hardware and software companies increasingly become global players, moving beyond their domestic market or white-label products to develop their own recognizable brands, sales and acquisitions are more likely to take place across borders, meaning technology transfers may need to be part of these deals. Aside from TikTok’s case, it may be too early to determine how difficult the approval process may be.

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Read this: ByteDance to comply with China’s latest tech export rules, complicating TikTok sale

“Regarding the adjusted Catalogue, we don’t know additional information and we haven’t received any notification from the government,” a representative of drone maker DJI said in a written response to KrASIA, noting that the company always complies with laws and regulations in every market.

Earlier in the year, the Shenzhen-based drone market leader triggered security concerns in the US and faced the possibility of an all-out ban. However, in August, the United States International Trade Commission decided not to issue an injunction against DJI after concluding its investigation.

The global market size for drones is expected to grow from USD 3.7 billion in 2018 to USD 103.7 billion by 2023, with Chinese manufacturers accounting for half that value, according to research conducted by Frost & Sullivan.

China’s new tech export restrictions also cover AI-driven audio synthesis, AI interactive interfaces, as well as voice recognition. These technologies are utilized in smart speakers, sound recorders, and voice recognition software, meaning the Catalogue may impact the likes of iFlytek, Sogou, and Baidu, which is betting big on its smart speaker business.

Sogou and Baidu both declined to comment on the matter when reached by KrASIA.

iFlytek is among a collection of companies that are particularly vulnerable in the spat between Washington and Beijing. Along with other AI tech firms—Yitu, Megvii, and SenseTime—iFlytek was placed on a the US Department of Commerce’s Entity List last October. Foreign companies that are on the list are generally barred from doing business in the US, and US companies require a special license to export products and software to firms that are on the list.

Washington and Beijing are both tightening export controls to vie for global tech dominance. To reduce its dependence on other countries, the Chinese government counts AI technology as one of the key fields in its “New Infrastructure” campaign, which seeks to foster social development by making targeted investments in 5G networks, industrial internet, inter-city transportation and inner-city rail systems, data centers, AI, ultra-high voltage, and new energy vehicle charging stations. Regulations for startups to go public on China’s bourses have also been relaxed to cultivate a friendlier business and financial environment for tech companies.

Meanwhile, Chinese companies like Huawei, ZTE, Tencent, and ByteDance have all been in the Trump administration’s cross hairs, mirroring the status of companies like Google, Facebook, and Twitter in China.

Trade, tech, and other tensions between the US and China are manifesting in unexpected ways. The latest changes in China’s tech export rules immediately impacts TikTok and its many millions of users in the US, Canada, Australia, and New Zealand, but the full consequences may send ripples through numerous other sectors in the near future.