Economic Dependency China plans export restrictions for high technologies

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The world has become economically dependent on China in many sectors. Now, the Middle Kingdom is turning off the tap. This will have repercussions not only on the German photovoltaic industry but may also complicate the fight against climate change.

Similar to Washington's chip boycotts, China is considering restricting the export of its own high technologies. The Ministry of Commerce in Beijing has prepared a corresponding list, which includes various silicon technologies for the production of solar wafers, 97% of which are manufactured in China globally. According to the plan, technology for the production of Lidar devices for autonomous or assisted driving, solutions from biomedicine, and other Chinese high technologies may be limited or, in certain cases, not imported from China at all in the future. 
The upcoming export controls, especially those for technology related to the production of silicon wafers for solar panels, could cause significant damage to the global photovoltaic industry. In the EU, the USA, and India, efforts are currently underway to establish their own solar supply chains to reduce dependence on imports from China.

Solar Industry in Focus

The new export restrictions from China could complicate the establishment of independent solar energy industries outside of China. The severity of the impact will depend on how restrictively Beijing limits the export of specific manufacturing processes and devices. 
The wafer technology is not on the list of items prohibited for export but is classified as "restricted" for export, making it theoretically possible with special permits—similar to Washington's chip boycotts against the People's Republic of China. 
Market observers nonetheless fear that the planned export restrictions could drive up the costs of solar panels worldwide. If this happens, it could also be a setback for the global fight against climate change. There is a parallel here with Washington's chip boycotts as well. The advanced semiconductors currently denied to China by the USA are missing in the expansion of climate-friendly industries such as renewable energy or e-mobility. 
On Beijing's latest "blacklist," which still needs formal approval, several core technologies for the production of advanced solar panels are now listed, including those for large and black panels, as well as "cast-mono" silicon wafers.

Seven technologies are currently on the blacklist

Since the beginning of this year, the Chinese Ministry of Commerce has added seven new technologies to its "Catalogue of Technologies Prohibited and Restricted from Export in China." A corresponding notice had been published, and the public had the opportunity to raise objections or suggest changes from December 30 to January 28, 2023. There is currently anticipation regarding when and in what final form the export restrictions will be officially decided.

Beijing consideration of denying other countries their own high technology would be a "mirror image of what the USA has done with lithography technology for semiconductors," commented the Asia Times in an analysis. China is applying the reversal of the Golden Rule, which states "do not do unto others what you would not have them do unto you," according to the renowned business magazine. 
In the midst of the "Chip Wars" initiated by Donald Trump against China, Washington banned the sale of advanced semiconductors to Chinese technology companies like Huawei. The current U.S. administration under Joe Biden has gradually expanded these tech boycotts—and continues to do so.

The USA to intensify tech boycotts against China - China retaliates

Earlier this year, the USA increased pressure on allied countries to further tighten tech boycotts against Beijing. The Dutch company ASML had already been prohibited since 2019 from supplying its most advanced Extreme Ultraviolet (EUV) lithography machines to China, which are not available for purchase anywhere else. Now, U.S. officials are urging the Dutch government to also ban ASML from exporting the slightly older Deep Ultraviolet (DUV) lithography technology to China. 
"Such hegemonic practices of bullying are a serious violation of market rules and disrupt the international trade order," said China's new Foreign Minister Qin Gang on February 1 in a phone call with his Dutch counterpart Wopke Hoekstra, discussing Washington's tech boycotts.

Tit for tat

While the People's Republic is vulnerable in semiconductors, Chinese photovoltaic companies like Longi Green Energy Technology, JA Solar Technology, and Trina Solar Co have, with state assistance, invested enormous sums in research and development for decades. They are now considered global leaders in silicon wafer manufacturing. 
Due to this Chinese dominance and the large volumes of their production, solar panel prices worldwide have drastically decreased. However, this situation has also nearly wiped out domestic solar industries in the USA and Europe. While this was challenging for the affected companies, the plummeting prices were undeniably a boon for the fight against global warming.

A world order filled with protectionism and trade boycotts is not a one-way street

Since 2011, the US Department of Commerce has penalized Chinese solar panels with import tariffs, accusing them of "dumping prices." In light of its own technological dominance in the sector, it is now considered "legitimate" for China to slow down the outflow of high technology in the industry abroad, according to a recent analysis by Daiwa Capital Markets. 
With the planned export restrictions, Beijing is hitting "two birds with one stone": Firstly, it vividly demonstrates to policymakers in the USA, as well as in Brussels and Berlin, that a new world order filled with protectionism and trade boycotts is not a one-way street.

China: Far More Than Just the Land of Copycats

China, as indicated by the political signal of the black export list in Beijing, is no longer just a land of copycats that can be economically brought to its knees with high-tech boycotts. Instead, over the past decade, the People's Republic has built highly innovative ecosystems of high-tech manufacturing in several industries. These ecosystems are quite suitable for retaliatory measures against protectionist efforts in the USA, the EU, and elsewhere. 
The list of goods that the Beijing Ministry of Commerce now intends to restrict for export almost demonstratively points to several key industries where foreign countries have become increasingly dependent on China, perhaps more so than the other way around. These include the photovoltaic industry (silicon wafers), electric mobility (affordable and powerful Lidar devices for driving assistance), and increasingly biotechnology (genome sequence editing). 
So far, only specific production technologies are under discussion for export restrictions in Beijing, and not yet finished end products produced in China. Nevertheless, the new list from the Beijing Ministry of Commerce should be understood as a red warning light that has just started to shine very brightly. (me)

_{*Henrik Bork is an analyst at Asia Waypoint, a consulting firm focused on the Asian market, based in Beijing.}