China targets AI technology exports with new controls as US trade truce frays

China has unveiled plans to impose export controls on 40 strategic technology systems, including 23 related to artificial intelligence, potentially challenging the fragile trade truce with the United States and intensifying the rivalry between the world's two largest economies. The proposed rules, revealed on Friday, would expand Beijing's oversight of technology transfers involving AI chips, large language models, solar energy, and biotechnology.

Most exports would still proceed without heavy restrictions, but licensing would be simplified and registration requirements would begin immediately, affecting ongoing shipments. Public consultation on the proposal will continue until November 15, after which China will finalize and announce the controls.

China's initiative aims to prevent the misuse of technology, but the announcement's breadth could take time to evaluate fully. The primary focus is on AI, which has become crucial for China's exports, growing by more than 36% year-on-year in September, outpacing the expected 25.5% increase. Industry experts anticipate significant consequences for China's economic engine and its trade strategy against the US, which is competing for AI leadership.

Last month, Washington and Beijing reached an agreement to reduce tariffs on $30 billion worth of goods and begin discussions on AI, following President Xi Jinping's visit to Washington.

The US Treasury's undersecretary for international affairs, Erin Browne, emphasized that the US is urging its IMF partners to rename AI as "super intelligence." China's move highlights the fragile nature of the trade truce and suggests that the US might respond with its own restrictions. Wendy Cutler, a senior vice president at the Asia Institute, warned that the situation is likely to escalate, with Beijing continuing to exert control over the export of strategic goods to the US and other countries.

Trade compliance specialist Ting Peng explained that the registration requirements extend beyond traditional technology transfers, encompassing cross-border intellectual property transfers, licensing arrangements, and changes in ownership or control of domestic technology to overseas entities. This may impact cross-border investments and corporate transactions, particularly in the biopharmaceutical sector, where significant mergers and acquisitions have occurred in recent years.