CNBC’s The China Connection newsletter: Tech controls apply to workers

Hi, this is Evelyn, writing to you from Beijing. Welcome to the latest edition of The China Connection — a snapshot of what I’m seeing and hearing from local businesses.

I’m joined this week by my Singapore-based colleague Anniek Bao, as we look at Beijing’s growing oversight of tech outflows. What’s the actual impact on companies?

Forget chips and rare earths. Starting Tuesday, China is formally restricting its citizens from leaving the country if they violate tech export controls.

It reflects how Chinese businesses today have more advanced technological know-how than the past — and have been ramping up overseas expansion. The new rules build on measures strengthening oversight of overseas investment that took effect July 1.

All companies going global need to think about whether they are compliant, especially if executives are handling negotiations abroad, said Shuai Peng, CEO of Lex Magister, a platform connecting Chinese businesses and lawyers internationally.

While semiconductor and artificial intelligence companies are most impacted, the new rules cover all industries, as reflected in lists such as the Commerce Ministry’s export controls, Peng said. He doesn’t expect much restriction on the ability of businesses to participate in international conferences such as the annual Consumer Electronics Show in Las Vegas.

The key is eliminating loopholes that allowed people — and money — to leave China without Beijing’s oversight. Many Chinese businesses have used Singapore or other jurisdictions to set up overseas operations.

“I think the impact will likely be concentrated in Singapore and Japan, given Beijing’s concerns about uncontrolled technology transfers to Singapore and illegal rare-earth exports to Japan,” said Guo Shan, partner at China-focused Hutong Research. “I don’t think the rules will materially affect broader global business sentiment toward China.”

Beijing’s new exit-entry rules were announced in late July. Also, the U.S. Department of Homeland Security had announced earlier that month that on Sept. 15, holders of student visas will face reduced grace periods before having to leave the U.S.

“An open education environment in the United States offers benefits, but it also places research universities and the nation at risk for economic, academic, or military espionage by foreign students,” the U.S. rules said, noting a 2022 government study that recommended greater scrutiny of foreign scholars for risks of technology transfer.

The new U.S. rules also reduce visa terms for mainland Chinese journalists to 90 days, down from one year.

Growing scrutiny on tech talent comes as several of China’s AI companies attract U.S.-trained scientists. U.S. President Donald Trump and Chinese President Xi Jinping are also expected to discuss AI safety if they meet this month.

And Washington is stepping up the rhetoric, from naming Chinese companies for allegedly distilling U.S. AI capabilities, to reportedly saying Chinese companies in AI, chips and biotech are a legitimate target for U.S. espionage.

China’s Commerce Ministry responded Friday by warning the U.S. to stop such efforts, and said Beijing may punish illegal activities in this area.

State scrutiny on tech and its talent flows between the world’s two largest economies is only growing.

Sept. 15: Retail sales, industrial production and fixed-asset investment data

Sept. 17-19: Huawei’s annual “Connect” tech infrastructure event in Shanghai