China

Following our recent overview of key topics to watch in the National Defense Authorization Act (“NDAA”) for Fiscal Year (“FY”) 2024, available here, we continue our coverage with a “deep dive” into NDAA provisions related to the People’s Republic of China (“China” or “PRC”) in each of the House and Senate bills.  DoD’s focus on strengthening U.S. deterrence and competitive positioning vis-à-vis China features prominently in the 2022 National Defense Strategy (“NDS”) and in recent national security discourse.  This focus is shared by the Select Committee on Strategic Competition Between the United States and the Chinese Communist Party (“Select Committee”), led by Chairman Mike Gallagher (R-WI) and Ranking Member Raja Krishnamoorthi (D-IL). 

It is no surprise, then, that House and Senate versions of the NDAA include hundreds of provisions—leveraging all elements of national power—intended to address what the NDS brands as China’s “pacing” challenge, including many grounded in Select Committee policy recommendations.  Because the NDAA is viewed as “must-pass” legislation, it has served in past years as a vehicle through which other bills not directly related to DoD are enacted in law.  In one respect, this year is no different—the Senate version of the NDAA incorporates both the Department of State and Intelligence 2024 Authorization bills, each of which includes provisions related to China. 

To get a flavor of the approach to China in this year’s NDAA, look no further than the “Ending China’s Developing Nation Status Act” in Section 1399L of the Senate bill, which would require U.S. opposition to granting China “developing nation” status in treaties under negotiation and by international organizations of which the U.S. and China are members, such as the World Trade Organization.  Classification as a “developing nation” affords China access to preferential loans and other economic benefits intended to increase trading opportunities, notwithstanding its current status as an upper-middle income country (as determined by the World Bank), and the world’s second largest economy, trailing only the U.S.  Not to be outdone, Section 155 of the House bill contains a provision mandating expedited deployment of advanced radars to track high-altitude balloons and other potential threats to the U.S., in direct response to the incident earlier this year in which a Chinese balloon flew across the U.S. before being shot down by the Air Force.

Given these provisions, and many more (some we discuss below), this year’s NDAA strikes us as different.  It incorporates many more China-related provisions and many of these would impose greater obligations on government contractors to limit their interactions with the PRC and entities affiliated with the PRC Government.  Whether the laundry list of China-related provisions in the current NDAA survive, and in what form, will be determined by the conference process currently underway.  But these provisions have the potential to impose significant near-term burdens on contractors—requiring them to assess their obligations and make adjustments to ensure compliance.  Indeed, these provisions may be far more disruptive than requirements imposed by prior year NDAA China provisions that contractors have navigated by reassessing supply chains and increasing due diligence.  All government contractors and suppliers to government contractors with any connection to China would be well advised to monitor how the NDAA conference approaches resolution of this legislation over the coming months.…

Continue Reading Not to Be Outpaced: NDAA Presents Measures Addressing China

Earlier this month the Biden Administration released its long-anticipated Executive Order on Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concern (“EO”), which imposes (1) prohibitions on certain outbound investments in the semiconductors and microelectronics, quantum information technologies, and artificial intelligence sectors, and (2) mandatory notification requirements for a…

Introduction

In early 2023, two final judgments in three related intellectual property matters were made public by the Supreme People’s Court of China (the “SPC”).[1] These judgments represent a significant development in the protection and enforcement of intellectual property rights (“IPRs”) in China, with particular implications for foreign-invested enterprises. This article provides a brief review of these high-profile cases and offers recommendations for foreign companies navigating the commercial landscape in China.

The Cases: A Brief Overview

Golden-Elephant Sincerity (“GES”), a foreign-invested chemical company, holds proprietary rights to trade secrets and two patents concerning the production of melamine.[2] In April 2014, it was revealed that Shandong Hualu-Hengsheng Chemical Co., Ltd. (“SHH”) was involved in developing a melamine production line that was strikingly similar to GES’s own design. Mingda Yin, GES’s former chief engineer, was implicated in the unauthorized transfer of confidential information to SHH, raising serious legal and ethical concerns.

Subsequent investigations revealed that Mingda Yin may have provided GES’s confidential information to two additional companies responsible for the design and/or engineering of SHH’s production line, Ningbo Fareast Chemical Group Co., Ltd. and Ningbo AT&M Environmental & Chemical Engineering Design Co., Ltd.

GES, along with other plaintiffs, filed a series of civil lawsuits against the alleged infringers for patent infringement and misappropriation of trade secrets.[3] While the lower courts’ judgments were not entirely favorable to GES, the cases were then appealed to the SPC, and the SPC overruled the judgments of the lower courts and granted enhanced remedies in support of all of the plaintiffs’ requests.…

Continue Reading Landmark Judgments in Chinese Intellectual Property Law: Implications and Strategic Considerations for Foreign-Invested Enterprises

Two speeches by the EU Commission President, Ursula Von de Leyen in March and April 2023, set out the EU’s policy towards China. In late April, the UK Foreign Secretary set out the UK’s emerging strategy and on the same day earlier this month, a UK Government Committee released a report which heavily criticized the UK’s dealings with China and the German Government released its long-awaited (and much-redrafted) China Strategy. 

This blog looks at similarities between the three approaches and what conclusions we might draw about the implications.

EU China Strategy

The EU first labelled China a systemic rival in 2019.  Since then, the European Commission has promoted the idea of “de-risking” the bloc’s most sensitive economic sectors to limit their dependence on China.

In a powerful speech in March 2023 Commission President Ursula Von der Leyen set out the need for the EU to develop its China Strategy.  The new strategy was needed because of what she described as the hardening of China’s overall strategic posture, matched by human rights abuses at home and an increasingly assertive stance in Asia. She was careful to note that the EU’s position on China would depend on how China interacts with ‘Putin’s war’ and how China meets international human rights obligations.  President Von der Leyen labelled as deliberate Chinese policies of disinformation and economic and trade coercion, saying they were used to target ‘countries to ensure they comply and conform’.

The tone of President Von der Leyen’s speech was set against the EU’s assessment that a newly assertive China was moving from an era of ‘reform and opening’ to one of ‘security and control’ whose purpose was ‘a systemic change of the international order [to place] China at its centre’.  In her speech, The Commission President noted that ‘all companies in China…are…obliged … to assist state intelligence-gathering operations and to keep it secret’. President Von der Leyen concluded that Chinese focus on military, tech and economic security would increasingly trump the appeal of free markets and open trade.

However, President Von de Leyen made clear that the EU did not seek to ‘cut economic, societal, political or scientific ties’, but rather to ‘rebalance the relationship on the basis of transparency, predictability and reciprocity.’ Using language reminiscent of President Macron’s call for the EU to seek greater ‘strategic autonomy’, President Von der Leyen argued that the new relationship would require the EU’s economy and industry to be more competitive and resilient in the cyber and maritime, space and digital, defence, innovation, health, digital and clean-tech sectors. President Von der Leyen pointed to the Net-Zero Industry and the Critical Raw Materials Acts as examples of the EU’s determination to respond to Chinese domination of these critical sectors.…

Continue Reading China and Europe: De-Risking the Relationship

On July 3, 2023, China’s Ministry of Commerce (“MOFCOM”) and General Administration of Customs (“GAC”) announced restrictions on the export of gallium and germanium. Starting August 1, 2023, Chinese exporters of gallium, germanium, and certain related chemical compounds must obtain export licenses from MOFCOM before exporting these materials.

Gallium and germanium are “minor metals” produced as a byproduct during the refining process of other metals, such as zinc and aluminum. Gallium and germanium are integral to producing semiconductor wafers, integrated circuits, light-emitting diodes, electric vehicles, solar cells, fiber-optic cables, and other electronic components. The United States classifies both metals as critical to U.S. economic and national security.

While China’s announcement does not explicitly target any country, the government has said the restrictions are necessary to protect China’s national security, leading many observers to believe they may be a response to export controls on semiconductors imposed by the United States in October 2022 and similar measures undertaken by U.S. allies, including Japan and the Netherlands. The China Daily quoted a former Chinese vice minister of commerce as saying, “This is just the beginning of China’s countermeasures, and China’s tool box has many more types of measures available. If the high-tech restrictions on China become tougher in the future, China’s countermeasures will also escalate.” 

China’s Latest Export Measures

These new export restrictions are partly based on China’s Foreign Trade Law and, in particular, the 2020 Export Control Law, which authorizes the government to impose restrictions on exports of certain items to “safeguard national security and interests, fulfill international obligations such as non-proliferation, and strengthen and standardize export controls.”  According to the announcement, beginning August 1, 2023, exporters of gallium metal, germanium metal, and 12 associated compounds will be required to obtain licenses from MOFCOM prior to export from China. The announcement of the export restrictions details the specific customs classification codes of covered commodities to help exporters determine whether an item will be subject to the new restrictions. Notably, the new rules apply only to these specific commodities, not to finished products that incorporate them.…

Continue Reading China Slaps Export Restrictions on Two Critical Metals

This week’s report by the World Meteorological Organisation makes for alarming reading.  The report warns there is a 66% likelihood of exceeding the 1.5°C threshold in at least one year between 2023 and 2027 and notes that such a rapid change in global temperatures will take the world into ‘uncharted territory’, with an anticipated El Nino weather system likely to push already high temperatures even higher this year.  Since we have already seen the impact of a 1.1°C rise, the conclusions of the WMO report are deeply uncomfortable.

This blog looks at some of the data which give context to the Report’s conclusions.

Gas

Russia is the world’s largest natural gas exporter; the second-largest exporter of crude oil; and the third-largest producer of crude oil.  The Russian invasion of Ukraine spooked global gas markets and pushed prices to record highs – the TTF European gas price peaked at a record €343/MWh in August (equivalent in oil terms to more than $500 a barrel).  But as world gas markets have adjusted, the price has fallen – €75 per megawatt hour at the end of December and under €50/MWh by the end of April 2023.

Like global markets, the EU has demonstrated remarkable agility in its response to Russia’s invasion. In 2020, Russia supplied nearly 43% of all EU energy imports. The EU set itself the target of reducing Russian gas imports to 55 bcm/year by March 2023 (down from 158 bcm in 2021).   At the time, this seemed ambitious, but in the event, the EU easily exceeded that target and, by October 2022, the EU’s Russian gas imports had fallen to 38 bcm (12 % of the EU’s energy consumption).

Last spring, the EU required that Member States’ winter storage be 90% full by the end of autumn.  Again, at the time, that seemed a tough ask in the face of global constraints on alternative supplies. But in any event, the EU easily exceed the target, reaching 96% by the beginning of November 2022.

A combination of factors means the outlook for the EU is more positive than expected:

  • A mild winter meant the EU emerged with record high gas inventories (EU storage was 56% full);
  • The success of demand-side efficiencies (the Commission set a cross-EU efficiency target of 15% reduction in demand: the EU reduced demand by an average 19%);
  • Global gas markets have been nimble in responding to EU demand for non-Russian gas.  New and alternative supplies flowed in from Norway, Qatar, the US and (importantly) Algeria through existing, but under-used pipelines and new LNG capacity;
  • The EU has built new LNG infrastructure at record speed – with Germany opening its first LNG jetty in November 2022.

…
Continue Reading The Climate Crisis

Congressional scrutiny of the U.S. relationship with China marched forward this week as Representatives Rosa DeLauro (D-CT), Bill Pascrell (D-NJ), and Brian Fitzpatrick (R-PA) reintroduced a new and expanded version of the National Critical Capabilities Defense Act (NCCDA)—legislation to create a national security review process for “outbound” transactions by U.S. companies investing overseas.

The bill…

On April 11, 2023, the Cyberspace Administration of China (“CAC”) released draft Administrative Measures for Generative Artificial Intelligence Services (《生成式人工智能服务管理办法（征求意见稿）》) (“draft Measures”) (official Chinese version available here) for public consultation.  The deadline for submitting comments is May 10, 2023.

The draft Measures would regulate generative Artificial Intelligence (“AI”) services that are “provided to the public in mainland China.”  These requirements cover a wide range of issues that are frequently debated in relation to the governance of generative AI globally, such as data protection, non-discrimination, bias and the quality of training data.  The draft Measures also highlight issues arising from the use of generative AI that are of particular concern to the Chinese government, such as content moderation, the completion of a security assessment for new technologies, and algorithmic transparency.  The draft Measures thus reflect the Chinese government’s objective to craft its own governance model for new technologies such as generative AI.

Further, and notwithstanding the requirements introduced by the draft Measures (as described in greater detail below), the text states that the government encourages the (indigenous) development of (and international cooperation in relation to) generative AI technology, and encourages companies to adopt “secure and trustworthy software, tools, computing and data resources” to that end. 

Notably, the draft Measures do not make a distinction between generative AI services offered to individual consumers or enterprise customers, although certain requirements appear to be more directed to consumer-facing services than enterprise services.…

Continue Reading China Proposes Draft Measures to Regulate Generative AI

On March 7, 2023, during the annual National People’s Congress (“NPC”) sessions, China’s State Council revealed its plan to establish a National Data Bureau (NDB) as part of a broader reorganization of government agencies. The plan is being deliberated by the NPC and is expected to be finalized soon. 

According to the draft plan, the new National Data Bureau will be a deputy ministry-level agency under the National Development and Reform Commission (“NDRC”), China’s main economic planning agency that is in charge of industrial policies.  The new bureau will be responsible for, among other areas, “coordinating the integration, sharing, development, and utilization of data resources,” and “pushing forward the planning and building of a Digital China, a digital economy, and a digital society.” 

The plan specifies the new agency will take over certain portfolios currently managed by the Communist Party’s Central Cyberspace Affairs Commission (the party organ that supervises the Cyberspace Administration of China, “CAC”) and the NDRC. Specifically, the NDB will assume responsibility for “coordinating the development, utilization, and sharing of important national data resources, and promoting the exchange of data resources across industries and across departments,” a function currently performed by CAC.  The NDB will also absorb the NDRC teams responsible for promoting the development of the digital economy and implementing the national “big data” strategy.…

Continue Reading China Reveals Plan to Establish a National Data Bureau

On February 7, 2023, the House Committee on Armed Services (the “Committee”) held a hearing entitled “The Pressing Threat of the Chinese Communist Party to U.S. National Defense.” This hearing marked the Committee’s first in the 118th Congress and it focused on U.S. strategic competition with the Chinese Communist Party (“CCP”) of the People’s Republic of China (“PRC”). This overview is the first in a series of legislative updates we will provide on congressional oversight activities related to China throughout the Congress, including specific activities focused on trade controls, supply chain dependencies, and PRC-sourced telecommunications infrastructure in U.S. networks.

Admiral Harry Harris, USN (Ret.), former commander of U.S. Pacific Command, and Dr. Melanie Sisson, Foreign Policy Fellow at the Strobe Talbott Center for Security, Strategy, and Technology, appeared before the committee as witnesses. The substance and tenor of their testimony, reflected throughout the hearing from member statements, was bipartisan agreement that the PRC and the CCP pose a significant threat to the United States and its way of life.

Key members to watch this Congress, all of whom participated in the hearing, include, Representative Mike Gallagher (R-WI), HASC Member and Chairman of the House Select Committee on the Strategic Competition between the United States and the CCP, as well as Select Committee Members Rob Wittman (R-VA), Jim Banks (R-IN), Seth Moulton (D-MA), Andy Kim (D-NJ), Mikie Sherrill (D-NJ), and newly elected Carlos Gimenez (R-FL).

We expect these members will work together over the coming months to advance legislative measures in the defense authorization bill to address perceived threats posed by the CCP, particularly after its recent deployment of a surveillance balloon over the United States and military exercises near “Taiwan”.…

Continue Reading Public Policy Update:  Key Takeaways from the House Armed Services Committee Hearing on the Chinese Communist Party Threat to U.S. National Defense