The business model has been highly profitable: foreign companies invest in China, take advantage of its low-cost resources, and then export their products worldwide with attractive margins. In the eyes of the Chinese government, a similar pattern is now emerging in research and development—foreign companies are tapping into China’s knowledge resources through their R&D centers and contracts with cost-effective Chinese research institutes, benefiting from the country’s innovation boom. They rely on China’s vast pool of talented scientists and engineers, many of whom have studied and worked abroad but are significantly cheaper to employ in China. A freshly graduated PhD scientist working at an international company in China earns only about one-third of what they would receive in the United States.
Beijing now seeks to curb this outflow of intellectual capital, aiming to keep Chinese knowledge within the country—to “keep the genie in the bottle.” Stricter export regulations and security laws are being implemented to prevent intellectual property generated in China from being transferred abroad. At the center of these efforts is the Export Control Law, which covers not only physical products but also related intangible assets such as data, information, and know-how. A recent example is the export of software for speech and text recognition, which now requires approval from the Ministry of Commerce. Additionally, the Counter-Espionage Law explicitly aims to retain Chinese knowledge within national borders.
The updated Catalogue of Technologies Prohibited or Restricted from Export extends beyond products to include technologies essential for their manufacturing, processing, or application. Vague wording in areas such as artificial intelligence, semiconductors, biotechnology, and data processing makes legal interpretation difficult for companies, increasing risks if controlled technologies are exported without the necessary licenses.
For example, rare earth elements, which are crucial for high-tech products such as batteries, electric vehicles, wind turbines, and military equipment, have become a focal point of these restrictions. Not only the raw materials themselves but also technologies for their extraction, purification, and processing are subject to strict controls. Certain methods for producing high-performance materials could be classified as requiring government approval. Specialized technologies for battery material production frequently fall under export control. Another critical aspect is the extraterritorial reach of the law: violations can be prosecuted even outside China if the affected technologies or services originate from China.
China Intellectual Property Blog 