Clifford Chance
The Legal Landscape for Artificial Intelligence in Mainland China – Technology Export
PRC Technology Export Control Rules Concerning AI Technologies and Algorithms
The Administration of Technology Import and Export Regulations, commonly referred as TIER, was promulgated in 2002. The power to make such regulations is contained in the PRC Foreign Trade Law and the primary policy rationale is the safeguarding of national security. Whether or not the rise of technology giants such as TikTok was foreseen in 2002, TIER impacts on the transfer of technology from Mainland China abroad including in merger and acquisition, joint venture and licensing scenarios.
Pursuant to TIER (last amended in 2020), "Technology Export" includes transferring or assigning patent rights including patent application rights, licensing for patent exploitation, transferring technical secrets, and technical services, as well as other transfer of technology from Mainland China to a jurisdiction outside of Mainland China by way of trade, investment, or economic and technical cooperation. Given the broad scope of TIER, almost all technology transfer to outside of Mainland China by any means or in any form must comply with TIER.
TIER classifies technologies into three categories:
- prohibited – a prohibited technology must not be exported,
- restricted – export of a restricted technology requires the approval of the Ministry of Commerce ("MOFCOM"), and
- free – a technology neither prohibited nor restricted will be subject to post-contract filing and registration with MOFCOM.
However, TIER itself is silent on which technologies are subject to export prohibition or restriction. In this connection, MOFCOM publishes catalogues of technologies prohibited or restricted from export ("Catalogues").
There is currently no AI-related technology prohibited from export under the TIER regime. However, since 2020, there has been AI-related technology classified as restricted in the Catalogues.
One major development in 2020 was the then US president Mr Donald J Trump's signing of an executive order banning any transaction with ByteDance Ltd (TikTok's parent) effective within 45 days of the order (which has since been revoked by President Joe Biden in June 2021). Three weeks after Mr Trump's executive order, on 28 August 2020, MOFCOM issued amended Catalogues, which added AI-related technologies to the restricted list including "artificial intelligence interactive interface technology; personalized information push service technology based on data analysis".
In December 2022, a new draft of the Catalogues was published; there is now proposed some relaxation in respect of AI-related technologies:
| Catalogues (current) | Catalogues (2022 draft) | |
| 1 | Artificial intelligence interactive interface technology | Artificial intelligence interactive interface technology for Chinese and minority languages |
| 2 | Personalised information push service technology based on data analysis | Personalised information push service technology based on data analysis (including user personalised preference learning technology based on continuous training and optimisation of massive data, real-time perception technology of user personalised preference, information content feature modeling technology, user preference and information content matching analysis technology, large-scale distributed real-time computing technology used to support recommendation algorithms) |
The parts underlined in the above table represent the amendments which narrow the export restriction. In other words, "artificial intelligence interactive interface technology" in foreign languages are not subject to restriction. In respect of personalised information push service technology, the newly listed examples, whilst not exhaustive, will delineate its meaning to some extent.
It is possible that the proposed AI relaxation in the Catalogues will be implemented in 2024.
In any event, it is noted that post-contract filing and registration are still required for freely transferrable technologies. Even if the relevant technology transfer is not prohibited by TIER and the Catalogues, prior review and approval by MOFCOM will delay and complicate the process of transfer of restricted technology.
Infringement of TIER may lead to criminal liability. For exporting restricted technology without approval, a fine of 1 to 5 times of the illegal income may be imposed. For exporting restricted technology exceeding the scope of a valid license, a fine of 1 to 3 times of the illegal income may be imposed.
In light of the above, international companies that plan to buy or license-in AI-related technology from Mainland China are advised to review the updated Catalogues and evaluate the impact of the TIER regime.
II. Conclusion and Outlook
The recent proposed relaxation of the restricted AI technology classification in the Catalogues, if implemented, will stimulate the AI industry in Mainland China, in line with the PRC government's AI ambitions. Do contact our lawyers in APAC should advice be required on assignment or licensing of AI-related technology including in M&A, joint venture and other cross-border contexts.
