Developments in Mainland China and Hong Kong

Introduction

This chapter provides an overview of the export control regime, the technology export administration regime and the sanction and countermeasure regimes in mainland China, with a particular focus on developments in 2021. It also surveys export controls and sanctions in the Hong Kong Special Administrative Region (HKSAR).

Export controls in mainland China

On 29 December 2021, the State Council Information Office released the ‘China’s Export Controls’ white paper,^[2] which sets out China’s basic positions upholding multilateral, fair and non-discriminatory export controls. The main purpose of China’s export control regime is to safeguard the country’s national security and to fulfil its non-proliferation and other international obligations. China endeavours to maintain a balance between development and opening up to the international economy, on the one hand, and security, on the other hand, and stands firmly against the proliferation of all forms of weapons of mass destruction (WMD) and their delivery systems. Further, China advocates increased representation for emerging markets and developing countries in international coordination on export controls, and opposes the abuse of export control measures (i.e., export controls should not undermine the legitimate right of other countries to the peaceful use of controlled items, obstruct normal international science and technology exchanges and economic and trade cooperation, or disrupt the secure and smooth operation of global industrial and supply chains).

Based on these positions, China currently maintains a relatively modest export control regime. As for the scope of controlled items, items on the multilateral non-proliferation control list constitute the main body of China’s dual-use export control list, as China does not participate in the dual-use control list under the Wassenaar Arrangement. As for jurisdiction, China’s Export Control Law (ECL)^[3] limits its extraterritorial jurisdiction, and it is expected that, in the absence of abuse of export control measures by other countries against China, the Chinese government would show self-constraint in enforcing those provisions with extraterritorial effect.

Nevertheless, the ECL, drawing upon the experiences of the United States and other countries, has comprehensively enhanced China’s export control regime. As shown below, the ECL: expands the scope of controlled items; covers re-exports and deemed exports in addition to exports; strengthens the controls on end users and end use (e.g., establishing a restricted name list); grants broad enforcement and investigative powers to export control authorities; and significantly increases the penalties on export control violations. It is therefore advised that export operators in China (including Chinese subsidiaries of foreign companies), as well as overseas importers, end users and re-exporters, establish and implement an internal compliance programme (ICP).

Laws and regulations^[4]

The ECL, with effect from 1 December 2020, has unified the previous, fragmented export control regime in China with a comprehensive new framework for regulating exports of goods, technologies and services.

Under the ECL, six existing administrative regulations, issued by the State Council,^[5] and their implementing rules remain effective:

1. Regulations on the Administration of Controlled Chemicals;
2. Regulations on the Control of Nuclear Export;
3. Regulations on Administration of Arms Export;
4. Regulations on the Control of Nuclear Dual-use Items and Related Technologies Export;
5. Regulations on Export Control of Missiles and Missile-related Items and Technologies; and
6. Regulations on Export Control of Dual-use Biological Agents and Related Equipment and Technologies.^[6]

In addition, China’s Foreign Trade Law, National Security Law, Data Security Law, Nuclear Safety Law, Customs Law, Administrative Licensing Law, Administrative Punishment Law and Criminal Law also provide legal bases for the enforcement of export control measures.

Competent authorities

According to the ECL, the departments of the State Council and of the Central Military Commission that perform the export control functions (collectively, the State Export Control Administrative Departments (SECADs)) shall be responsible for tasks relating to export control according to their assigned duties.^[7] The respective responsibilities of the SECADs are set forth below.

Controlled items

The ECL applies to the following ‘controlled items’:

• dual-use items, which refer to goods, technologies, services and other items that have both civil and military uses or contribute to the enhancement of military potential, including, particularly, those that can be used to design, develop, produce or deploy WMD and their means of delivery;
• military items, which refer to equipment, special production facilities and other relevant goods, technologies and services used for military purposes;
• nuclear items, which refer to nuclear materials, nuclear equipment, non-nuclear materials for reactors and related technologies and services; and
• other goods, technologies, services and other items related to safeguarding national security and interests and fulfilling international obligations such as non-proliferation.^[8]

An item is not automatically subject to control measures merely because it falls within the above general definition of ‘controlled items’; it depends on whether the item is:

• included in an export control list;^[9]
• subject to temporary controls;^[10]
• prohibited from exporting;^[11] or
• subject to the catch-all control.^[12]

The control lists are formulated and promulgated by the SECADs jointly with other relevant departments following prescribed procedures.^[13] Control lists that are currently in force include the following:

• Arms Export Control List (2002);
• Nuclear Export Control List (2018);
• Nuclear Dual-use Items and Related Technologies Export Control List (2017);
• Biological Dual-Use Items and Related Equipment and Technologies Export Control List (2006);
• List of Schedules of Controlled Chemicals (2020);
• Certain Chemicals and Related Equipment and Technologies Export Control List (2002);
• Missiles and Missile-related Items and Technologies Export Control List (2002); and
• Commercial Cryptography Export Control List (2020).

Upon approval of the State Council, or both the State Council and the Central Military Commission (CMC), SECADs may impose temporary controls or prohibitions by making announcements. For example, the export of potassium perchlorate (HS Code: 2829900020) has been controlled since 1 April 2022;^[14] and the export of certain dual-use items and technologies to North Korea has been prohibited since 2013 for the purpose of implementing UN Security Council resolutions.^[15]

In general, all the above-mentioned control lists (except for the Arms Export Control List) and temporary controls^[16] are consolidated into a Catalogue of Dual-use Items and Technologies Subject to Export Licence Management, the latest version of which was promulgated by the Ministry of Commerce (MOFCOM) and the General Administration of Customs on 31 December 2021.^[17]

Like other countries, China adopts catch-all controls. Specifically, any item outside the control lists and temporary controls will be subject to the export control licensing requirement where an export operator is, or should be aware, or is notified by the SECADs, that the item may pose any of the following risks:

• endangering national security and interests;
• being used to design, develop, produce or use WMD and their means of delivery; and
• being used for the purposes of terrorism.^[18]

Covered activities

The ECL applies to the following activities:

• transferring controlled items from within the territory of China to outside China (‘cross-border transfer’);^[19]
• providing controlled items to foreign natural persons or entities by Chinese citizens or entities (‘providing controlled items to foreigners’);^[20]
• transit, transshipment and through-shipment of controlled items;^[21]
• re-export of controlled items;^[22] and
• facilitation of export control violations.^[23]

‘Cross-border transfers’ are not limited to exports in trade, they also include transfers that occur in overseas investments, exhibitions abroad, international scientific and technological cooperation and foreign aid.^[24] In addition to physical border crossings, technology and data may cross the border by email, instant messaging, uploading to offshore websites, etc.

The scope of ‘providing controlled items to foreigners’ seems to be broader than that of ‘deemed export’ under the US export control law, because on its face: (1) it applies to goods and services, in addition to technologies and software; and (2) it could take place either within or outside China. It is particularly relevant to technology companies, and may cause difficulties in respect of inter-company research and development where employees of different nationalities work together. The precise coverage of ‘providing controlled items to foreigners’ is expected to be clarified in the implementing regulations that are yet to be promulgated.^[25]

Re-export under Article 45 seems to only cover export of Chinese-origin controlled items (as opposed to any foreign products that contain a certain percentage of Chinese-origin controlled items) from one foreign country or region to another, subject to future clarifications in the implementing regulations that are yet to be promulgated.^[26]

Article 20 prohibits any organisations or persons from facilitating violations of export controls by acting as an agent or providing freight, delivery, customs declarations, third party e-commerce trading platforms, financial services or other services. Article 36 further provides corresponding legal liabilities.

Control measures

The ECL establishes a range of control measures, including qualification, licensing requirement, ‘end users and end uses’ control and a restricted names list.

Qualification

Military items must be exclusively exported by export business operators (EBOs) with export monopoly qualifications for military items^[27] (i.e., arms trading companies approved by the Ministry of Industry and Information Technology (MIIT) and the CMC’s Equipment Development Department).^[28] The qualifications of EBOs for dual-use items, nuclear items and other controlled items are subject to requirements of other laws and regulations.^[29] Currently, EBOs wishing to engage in the export of all dual-use items are required to be registered with MOFCOM;^[30] the export of certain controlled chemicals can only be undertaken by entities designated by both MIIT and MOFCOM.^[31] The export of nuclear items can only be undertaken by entities designated by the State Council.^[32]

Licensing

Article 12 imposes a licensing requirement for the export of controlled items that are on a control list, subject to temporary controls or within the scope of the catch-all control. Transit, transshipment, through-shipment and re-export of these items may also require a licence.^[33] A licence application will be examined by MOFCOM^[34] or other competent SECADs. For certain significant exports, approval by the State Council or the CMC, or both, is also required.

The SECADs should consider the following factors when determining whether to grant licences:

• national security and interests;
• international obligations and commitments;
• type of export;
• sensitivity of controlled items;
• destination country or region of export;
• end users and end uses;
• the exporter’s relevant credit record; and
• other factors as prescribed by laws and administrative regulations.^[35]

In addition to licences authorising individual export transactions, SECADs may issue general licences to EBOs that have established internal export compliance programmes,^[36] authorising multiple export transactions within a period of three years.^[37]

End users and end uses

The ECL attaches great importance to the management of ‘end users and end uses’. In particular:

• EBOs are required to submit end-user and end-use statements to the SECADs;^[38]
• end users must undertake not to alter the end use of the controlled items concerned or assign the items to any third party without the approval of the SECADs;^[39]
• EBOs and importers are required to immediately report to the SECADs when they become aware of any possible change of the end user or end use;^[40] and
• the SECADs should establish a risk management system to assess and verify the end users and end uses,^[41] which implies that the SECADs may conduct on-site verification when necessary.

Restricted names list

SECADs are authorised under Article 18 to establish a restricted names list, listing foreign importers and end users that are caught by any of the following:

• violating the requirements regarding the management of end users or end uses;
• potentially endangering national security or interests; and
• using controlled items for any terrorism purpose.

The SECADs may, among other things, prohibit or restrict the listed parties from engaging in transactions relating to relevant controlled items, or order the suspension of the export of controlled items. The term ‘transactions’ seems to cover more than export. However, given that the scope of controlled items is narrower than the items subject to the US Export Administration Regulations, the consequence of being listed in the restricted names list seems less severe, compared with that of being listed in the US Commerce Department’s Bureau of Industry and Security (BIS) Entity List.

Enforcement and investigation

According to Article 28 of the ECL, the SECADs may take the following measures when conducting an investigation of suspected violations of the ECL:

• enter the business premises of the investigation subject or other relevant premises for inspection;
• make enquires of the investigation subject, interested parties and other relevant organisations or individuals, and request that they explain matters related to the event under investigation;
• consult and copy relevant documents, agreements, accounting books, business correspondence and other documents and materials of the investigation subject, interested parties and other relevant organisations or individuals;
• inspect the means of transport used for export, stop the loading of suspicious export items and order the return of illegally exported items;
• seal up and seize relevant items involved in the case; and
• examine the investigation subject’s bank accounts.

Article 19 of the ECL further requires that:

• relevant departments of the State Council and local governments should assist the SECADs in carrying out their duties in accordance with the law; and
• relevant organisations and persons should cooperate and should not reject or impede the supervision and administration work of the SECADs.

Penalties

Articles 33 to 38 of the ECL provide seven types of administrative penalties for nine types of violations, respectively, including warnings, orders to stop illegal activities, confiscation of illegal gains, fines, orders to suspend business for rectification, revocation of licences and revocation of the qualification for exporting relevant controlled items.

Notably, fines apply to all nine types of violations and the amount of the fines prescribed is relatively high. For example, an EBO that exports controlled items without obtaining the required qualification, without a licence or beyond the scope of the licence will be subject to a fine of not less than five times and not more than 10 times the amount of the EBO’s illegal turnover.^[42] Consequently, assuming that the illegal turnover is 100 million yuan, the fine could be up to 1 billion yuan. Any person facilitating export control violations may be fined three to five times the illegal turnover, while an EBO entering into a transaction with an importer or end user on the restricted names list may face a fine of 10 to 20 times the illegal turnover.

Apart from the above administrative penalties, the SECADs may refuse to accept a licence application submitted by an EBO that has been penalised for export control violations for up to five years, while persons in charge of the EBO and other persons who are directly responsible for the violations may be prohibited from engaging in the relevant export business activities for five years, or even for life for those who have been charged with criminal offences.^[43]

Additionally, persons who export items prohibited from exportation, or export controlled items without approval, could be found criminally liable in accordance with the law.^[44] ‘Criminal liability’ in this context may refer to, inter alia, smuggling or illegal business operations under China’s Criminal Law 1997 (last revised in 2020).

In 2021, there were several instances where EBOs violated the ECL for exporting controlled items (such as synthetic graphite and camouflage-style backpacks) without licences, and Chinese customs authorities imposed fines in accordance with Article 34 of the Law.^[45] To date, neither MOFCOM nor other SECADs have imposed fines or other penalties under the ECL.

Internal compliance programme

In 2021, MOFCOM issued the Guiding Opinions on the Establishment of Internal Compliance Mechanisms for Export Control by Exporters of Dual-use Items,^[46] with a detailed 37-page Guide to Internal Compliance with Export Controls of Dual-use Items as an appendix thereto.^[47]

EBOs are advised to establish an ICP with the following nine elements:

• compliance policy;
• compliance governance structure;
• comprehensive risk assessment;
• transaction review procedure;
• emergency response measures (i.e., handling violations and taking corrective measures);
• education and training;
• audits;
• record-keeping; and
• building and maintaining an export compliance manual.

These elements are largely identical or similar to those in other jurisdictions such as the United States and the EU, although they differ in the detail. Therefore, Chinese subsidiaries of multinational companies that have established ICPs based on requirements or guidelines of other jurisdictions would normally not find it difficult to adapt their existing ICPs to MOFCOM’s Guiding Opinions in terms of general methodologies and structure, while most of the adaption or adjustment would focus on the features of China’s export control regime, as noted above.

Administration of technology export in mainland China

In addition to the above-mentioned export control regime, China maintains a separate administration regime for technology export under the Regulations on the Administration of Technology Import and Export (the Regulations).^[48]

The Regulations apply to the transfer of technologies from inside the territory of China to outside the territory of China by way of trade, investment or economic and technological cooperation, including the transfer of patent rights, patent application rights, patent licensing, know-how and technology services.^[49] However, export of nuclear technologies, dual-use nuclear technologies, technologies concerning the production of controlled chemicals, military technologies and other export control technologies is subject to the ECL and its implementing regulations.^[50]

Under the Regulations, technologies are divided into three categories: permitted (i.e., no restriction), restricted and prohibited. Contracts of permitted technology export shall be reported to the competent authority for record-filing; restricted technology shall not be exported without an export licence; and technologies within the prohibited category are forbidden from export.^[51] The Catalogue of Technologies Prohibited and Restricted from Export (the Catalogue) was promulgated by MOFCOM and the Ministry of Science and Technology in 2001, and amended in 2008 and 2020, respectively. The 2020 version of the Catalogue, while removing certain technologies from the prohibited and restricted categories, added a number of technologies to the restricted category, including some emerging technologies such as 3D printing technology, unmanned aerial vehicle technology, information defence technology, artificial intelligence interactive interface technology and personalised push service technology based on data analysis.^[52]

Since 2007, MOFCOM has delegated the authority for reviewing and approving the export of restricted technologies to commercial departments at the provincial level.^[53] Upon receipt of an application for technology export, the competent commercial department shall, within 30 working days, review the application in conjunction with the competent science and technology department, make a decision on approval or non-approval, and, in the case of approval, issue a letter of intent for technology export licence. An applicant may engage in substantive negotiations and sign a technology export contract with foreign parties only after having obtained the aforesaid letter of intent. After having signed a technology export contract, the applicant shall apply for the technology export licence. The competent commercial department shall examine the authenticity of the technology export contract, and decide whether to grant the technology export licence within 15 working days of receipt of the application. The relevant technology export contract shall come into effect as of the date of issuance of the technology export licence.^[54]

Sanctions and countermeasures in mainland China

China’s economic sanctions regime is defensive rather than offensive in nature. Apart from following the multilateral sanctions adopted by the United Nations Security Council, it primarily aims at countering sanctions by foreign countries against China perceived as abusive. In terms of countermeasures, MOFCOM has issued two departmental rules, namely, (1) the Provisions on the Unreliable Entity List (the UEL Provisions), which target certain foreign entities that impose discriminatory measures against Chinese entities,^[55] and (2) the Rules on Counteracting Unjustified Extraterritorial Application of Foreign Legislation and Other Measures (the Counteracting Rules),^[56] which block certain foreign legislation or measures prohibiting or restricting normal economic activities between Chinese entities and third-state parties. Furthermore, under the Anti-Foreign Sanctions Law (AFSL),^[57] individuals and entities advancing discriminatory restrictive measures that interfere in China’s internal affairs (intrusive measures) may be sanctioned by China.

As a compliance measure, entities in China are recommended to screen their counterparties against the United Nations Security Council sanctions lists and China’s AFSL List and Unreliable Entity List (UEL) and avoid transactions with the designated parties on these sanctions lists. Both Chinese and foreign entities also need to proactively identify, assess and prevent the risk of being sued in China by implementing the intrusive measures.

Anti-Foreign Sanctions Law

The AFSL mainly targets intrusive measures, which are (1) adopted by foreign countries against Chinese citizens or organisations; (2) in violation of international law and the basic norms of international relations; (3) interfering in China’s internal affairs; and (4) in order to contain or suppress China.^[58] In practice, those sanctions imposed by western countries upon state organs, organisations and individuals (including public servants) of China in respect of Xinjiang, Tibet, Taiwan and Hong Kong-related issues are most likely to fall within the scope of intrusive measures. Additionally, the AFSL is also applicable to actions that endanger the national sovereignty, security and development interests of China.^[59]

To counter intrusive measures, the AFSL authorises the relevant departments of the State Council to designate individuals and organisations directly or indirectly involved in the formulation, decision and enforcement of intrusive measures (listed persons) into the AFSL List^[60] and imposes the following countermeasures:

• denial of issuance of visas, denial of entry, cancellation of visas or deportation;
• sealing up, distraining and freezing movable and immovable property and other types of property within the territory of China;
• prohibiting or restricting organisations and individuals within the territory of China from conducting relevant transactions, cooperating or carrying out other activities with them; and
• other necessary measures.^[61]

Article 5 of the AFSL further authorises relevant departments of the State Council to take countermeasures against persons that have certain connections with the listed persons, including:

• the spouse and direct lineal family members of the individuals included in the AFSL List;
• the senior managers or actual controllers of the organisations included in the AFSL List;
• the organisations in which the individuals included in the AFSL List serve as senior managers; and
• the organisation that the individuals or organisations included in the AFSL List actually control or participate in the establishment and operation of.

Article 12 of the AFSL has been widely discussed for its ‘blocking law’ nature. Under Article 12(1), any organisation and individual shall not implement or assist in the implementation of intrusive measures. Article 12(2) provides that where any organisation or individual violates Article 12(1) and thus infringes the legitimate rights and interests of any Chinese citizen or organisation, the Chinese citizen and organisation may, in accordance with law, file a lawsuit with a Chinese court to request the cessation of infringement and compensation for any loss. To the best of the authors’ knowledge, there have been no lawsuits initiated under this provision. How the Chinese courts will apply this provision remains to be seen.

Prior to the adoption of the AFSL, the Ministry of Foreign Affairs (MFA) had announced several countermeasures in response to foreign sanctions and interference.^[62] In the following countermeasures introduced after the AFSL entered into force, the MFA expressly invoked the AFSL as the legal basis for its actions.

• 21 February 2022: China imposed countermeasures on Raytheon Technologies Corporation and Lockheed Martin Corporation, which participated in US arms sales to Taiwan.^[63]
• 30 December 2021: in response to US sanctions on Chinese individuals in connection with Hong Kong, China imposed countermeasures on five individuals on the US side. These individuals are prohibited from entering mainland China, Hong Kong and Macao. Their property within the territory of China is frozen. Organisations and individuals within the territory of China are prohibited from conducting transactions with them.^[64]
• 21 December 2021: in response to US sanctions on Chinese individuals and entities in connection with Xinjiang, China imposed countermeasures (similar to those imposed by the 30 December 2021 announcement, above) on four individuals on the US side.^[65]
• 23 July 2021, in response to US sanctions on Chinese individuals in connection with Hong Kong, China imposed countermeasures on seven individuals and an organisation on the US side (the announcement did not specify what countermeasures had been taken).^[66]

Unreliable Entity List

Under the UEL Provisions, a foreign entity or individual may be added to the UEL by the Chinese government if it (1) endangers the national sovereignty, security or development interests of China; and/or^[67] (2) stops, in violation of normal market transaction principles, supplying to, or discriminates against, a Chinese company that suffers serious damage as a result.^[68]

If included on the UEL, a foreign entity or individual may, among other things, not be able to trade with or invest in China if the Chinese government so determines at its own discretion.^[69] Accordingly, the UEL listing may have a far-reaching impact, if compared with inclusion on the restricted names list under the ECL. As mentioned above, the restricted names list only impacts the export of controlled items.

It is not clear whether the UEL Provisions apply to foreign entities that stop supplying to Chinese companies on the Entity List of the BIS. If so, foreign entities may have to explore ways of managing conflicting requirements from the US and the Chinese sides (e.g., to find another supply chain without any commodity, technology or software of US origin).

To date, no foreign entity or individual has been listed on the UEL, which may be seen as self-restraint by the Chinese government in implementing the UEL Provisions.

Counteracting Rules

The Counteracting Rules apply to situations where the extraterritorial application of foreign legislation and other measures, in violation of international law and the basic principles of international relations, unjustifiably prohibits or restricts Chinese entities or individuals from engaging in normal economic, trade and related activities with a third state (or region) or its entities or individuals.^[70]

Unlike the approach of the EU Blocking Statute, the Counteracting Rules do not identify which foreign legislation or other measures are blocked, but provide a working mechanism led by MOFCOM to determine which foreign legislation or other measures shall be blocked.^[71] It has thus led to different readings as to the scope of its application. It is commonly held that the Counteracting Rules apply to US ‘secondary sanctions’ as these sanctions prohibit or restrict Chinese parties from entering into certain transactions with third-state or third-region parties. However, it is unclear whether the Counteracting Rules may also apply to other circumstances. For example, it remains to be seen whether the Counteracting Rules apply to (1) some US primary sanctions to the extent they prohibit or restrict Chinese parties’ transactions with third-state or third-region parties with a ‘US-nexus’ (e.g., US dollar payment/transfer through the US financial system), or (2) some US export control rules to the extent that they prohibit or restrict Chinese parties from re-exporting Chinese-origin products with US content (e.g., de minimis rule and the direct product rule). Further, there are discussions regarding whether Chinese companies blacklisted by the US Treasury Department’s Office of Foreign Assets Control (OFAC) or BIS on their Specially Designated Nationals and Blocked Persons List (the SDN List) or the Entity List may also invoke the Counteracting Rules.

The Counteracting Rules establish a reporting requirement; namely, any Chinese party that encounters the above-mentioned prohibition or restriction by foreign legislation and other measures must truthfully report these matters to MOFCOM within 30 days.^[72]

The Counteracting Rules establish the working mechanism to determine whether the prohibition or restriction constitutes unjustified extraterritorial application,^[73] and, if so, to issue a prohibition order to the effect that the relevant foreign legislation and other measures shall not be recognised, executed or complied with.^[74] Chinese parties are required to comply with these prohibition orders; that is, they are prohibited from complying with the foreign law or measure within the scope of the prohibition order, unless they obtain an exemption from MOFCOM.^[75] Otherwise, a penalty and suit for damages may follow.^[76]

A foreign party may also risk facing a lawsuit in China, to redress any benefits gained from a foreign suit derived from the foreign legislation blocked by China.^[77]

To date, no prohibition orders have been issued.

Implementation of UN sanctions

After a UN sanctions-related resolution is adopted or a UN sanctions list is updated, the MFA will issue a notice publicising the resolution or list. For example, the Notice on the Implementation of the Sanctions List of the UN Security Council ISIL (Da’esh) and Al-Qaida Sanctions Committee^[78] was issued by the MFA to notify relevant parties that the sanctions list had been updated, and all relevant authorities and entities were requested to take corresponding measures to implement the updated sanctions list.

Thereafter, relevant authorities may, within their own jurisdiction, issue further notices or take other measures to implement UN sanctions. For instance, to implement UN sanctions against North Korea, MOFCOM, along with other authorities, has promulgated the following announcements since 2017:

• Announcements No. 9 [2017], No. 17 [2018] and No. 36 [2018], prohibiting exports of certain dual-use items and technologies to North Korea;
• Announcements No. 47 [2017] and No. 55 [2017], prohibiting new investment from North Korea to China, or vice versa, and requiring the closure of existing North Korean-invested enterprises in China and overseas joint ventures established by and between Chinese enterprises and North Korean entities or individuals; and
• Announcements No. 40 [2017] and No. 52 [2017], prohibiting imports of coal, iron, iron ore, lead, lead ore, water and seafood, and textile products from North Korea, prohibiting exports of condensate and liquefied natural gas to North Korea, and restricting exports of refined petroleum products to North Korea.

Notably, there is a general requirement for the banking sector to implement UN sanctions.^[79]

HKSAR: Gateway to the East and West

HKSAR implements strategic trade control in accordance with the Import and Export Ordinance (Cap 60) and its subsidiary legislation, the Import and Export (Strategic Commodities) Regulations (Cap 60G), Schedule 1 of which sets out the lists of strategic commodities, namely, the Strategic Commodities Control List.^[80]

HKSAR also implements UN sanctions in accordance with the United Nations Sanctions Ordinance (UNSO) (Cap 537), which, by its terms, excludes sanctions targeting China.

Competent authorities

The strategic trade control system in HKSAR is made up of a licensing system and an enforcement system. The Trade and Industry Department is responsible for issuing licences covering the import, export, re-export and transshipment of strategic commodities as well as the transit of ‘sensitive’ items. Other government departments with an interest may be consulted as and when necessary. The Customs and Excise Department (C&ED) is responsible for the enforcement of strategic trade controls in HKSAR.

With respect to sanctions, the Commerce and Economic Development Bureau (CEDB) is responsible for maintaining lists of designated individuals and entities under the UNSO. The Hong Kong Monetary Authority (HKMA) is the competent authority for supervisory and enforcement measures over authorised institutions (AIs), such as banks, for the implementation of UN sanctions, as well as to combat money laundering and terrorism financing under the HKSAR Anti-Money Laundering Ordinance and related statutes. The HKMA issues statutory and regulatory guidance to provide specific requirements for compliance with UN sanctions by AIs. It is also empowered to take administrative and prudential measures, ranging from warnings to the imposition of restrictions on the business of AIs and financial penalties.^[81] The Securities and Futures Commission is responsible for anti-money laundering and counter-terrorism financing in the securities and futures sector. It has the power to issue public reprimands or impose fines on regulated entities that violate relevant rules and requirements.^[82] Finally, the Hong Kong Police Force (HKPF) and the C&ED are the law enforcement agencies for the purposes of the UNSO. Generally speaking, the HKPF is responsible for investigating financial matters, while the C&ED is mainly responsible for enforcement concerning the supply, sale or transfer of arms and other controlled items.^[83]

PRC control over HKSAR policy

As part of China, HKSAR implements UN sanctions as well as unilateral sanctions under the instructions of the Central People’s Government.

With respect to the UN sanctions, the MFA may give an instruction to the chief executive (CE) of HKSAR to implement the sanctions specified in the instruction, or when sanctions have been so implemented, to cease or modify the implementation of those sanctions or replace the sanctions specified in the instruction. Upon receipt of these instructions, the CE shall make regulations to give effect to the relevant instructions, including by prescribing penalties thereunder.^[84]

Currently, the UN Security Council imposes sanctions or restrictions against 14 territories and two terrorist organisations. The CE and relevant agencies have issued regulations under the UNSO and at the instruction of the MFA to implement UN sanctions or restrictions against each of the UN targets, respectively. The Commerce, Industry and Tourism Branch of the CEDB maintains lists of designated individuals and entities under the UNSO.^[85]

The AFSL has not yet been included in Annex III of the HKSAR Basic Law.^[86] Nevertheless, certain countermeasures taken by the Central People’s Government under the AFSL have already had implications for HKSAR. For example, on 30 December 2021, the MFA announced countermeasures against five US individuals, prohibiting them from entering China, ‘including Hong Kong and Macao of China’.^[87]

Although certain countries may impose unilateral sanctions that apply to their nationals in HKSAR, it has been clarified that ‘HKSAR does not have the responsibility nor the authority to enforce these unilateral sanctions or investigate related cases’.^[88]

Non-PRC influences over HKSAR sanctions and export controls

After the promulgation and implementation of the Law of the People’s Republic of China on Safeguarding National Security in the Hong Kong Special Administrative Region (the HK National Security Law) on 30 June 2020, the United States and certain other foreign governments changed their policies towards Hong Kong in relation to export controls and sanctions.

In respect of export control, HKSAR was once treated as a separate territory under US law. In certain situations, items that require a licence for export to mainland China did not require a licence for export to HKSAR. After the HK National Security Law came into force, the US government, through the Executive Order on Hong Kong Normalisation (EO 13936) of 14 July 2020 and related measures, revoked this treatment of Hong Kong. Hong Kong is now subject to the same licence requirements, licensing exceptions and provisions as mainland China under the US export control regime.

As for sanctions, according to its 2022 Hong Kong Policy Act Report, the United States communicated regularly with HKSAR through démarches and notifications on issues involving sanctions implementation, including on actions taken by the Department of the Treasury against several Hong Kong-registered entities under sanctions authorities related to China and counterterrorism.^[89] In the past three years, the Hong Kong Policy Act Report has not mentioned cooperation regarding strategic trade controls and counter-proliferation as the previous reports had.

US sanctions over HKSAR

Since the promulgation of the HK National Security Law, the US government has imposed a series of sanctions on mainland China and HKSAR.

On 14 July 2020, the US president issued EO 13936 and signed the 2020 Hong Kong Autonomy Act (HKAA) into law. EO 13936 authorises the Treasury and State Departments to impose blocking sanctions on property of foreign persons in relation to certain events in HKSAR, while the HKAA authorises (and in certain circumstances, requires) the Executive Branch to impose sanctions on any foreign person identified in a report submitted by the State Department to Congress and to impose at least five of 10 enumerated sanctions on any foreign financial institution included in a report submitted by the Treasury Department to Congress. On 15 January 2021, the US Treasury issued Hong Kong-related sanctions regulations to implement EO 13936.^[90]

To date, 42 HKSAR and mainland China officials have been designated to the OFAC SDN List, and 39 of these have been identified by the State Department under the HKAA. No foreign financial institution has yet been identified under the HKAA.

Footnotes