CNBC’s The China Connection Newsletter: Tech regulations apply to workers

Hello, I’m Evelyn. I am writing to you from Beijing. Welcome to the latest edition of The China Connection. This is a snapshot of what I’ve seen and heard from local businesses.

This week, my Singapore-based colleague Anik Bao and I look at the Chinese government’s increased scrutiny of technology leaks. What is the real impact on businesses?

Forget about chips and rare earths. Starting Tuesday, China is formally restricting the departure of citizens who violate technology export controls.

This reflects the fact that Chinese companies today have more advanced technological know-how than in the past and are stepping up their overseas expansion. The new rules are based on measures to strengthen oversight of foreign investments that came into effect on July 1.

Shuai Peng, CEO of Lex Magister, a platform that connects Chinese companies and lawyers internationally, said all companies expanding globally need to think about whether they are compliant, especially if executives are responsible for negotiations overseas.

Semiconductor and artificial intelligence companies will be most affected, but the new rules will cover all industries, as reflected in the Commerce Department’s export control list, Peng said. He doesn’t expect there to be major restrictions on companies’ ability to attend international conferences such as the annual Consumer Electronics Show in Las Vegas.

The key is to eliminate loopholes that allow people and money to leave China without Beijing’s oversight. Many Chinese companies use Singapore and other jurisdictions to set up overseas operations.

“Given the Chinese government’s concerns about unchecked technology transfer to Singapore and illegal rare earth exports to Japan, I think the impact is likely to be concentrated in Singapore and Japan,” said Guo Xiang, a partner at Hutong Research who specializes in China. “We do not believe this rule will have a material impact on broader global business sentiment toward China.”

Beijing’s new entry and exit rules were announced in late July. Additionally, the US Department of Homeland Security announced earlier in the month that student visa holders will have a shorter grace period before leaving the US starting September 15th.

“The United States’ open educational environment has its benefits, but it also exposes research universities and the nation to the risk of economic, academic, and military espionage by foreign students,” the U.S. regulation said, pointing to a 2022 government study that recommended increased oversight of foreign scholars for technology transfer risks.

The new U.S. rules also shorten visa lengths for mainland Chinese journalists from one year to 90 days.

High-tech talent has come under increased scrutiny as some Chinese AI companies attract U.S.-trained scientists. US President Donald Trump and Chinese President Xi Jinping are also expected to discuss AI safety when they meet this month.

And the U.S. government has stepped up its rhetoric, naming Chinese companies that allegedly extracted U.S. AI capabilities, reportedly saying that Chinese companies in the AI, chip, and biotech sectors are legitimate targets for U.S. espionage.

In response, China’s Ministry of Commerce on Friday warned the United States to halt such efforts and said Beijing could punish illegal activities in this area.

State scrutiny of the flow of technology and talent between the world’s two largest economies will only increase.

September 15: Retail sales, industrial production and fixed asset investment data

September 17th-19th: Huawei’s annual “Connect” technology infrastructure event in Shanghai