MOFCOM Explained China's Export Control and Responded to the U.S.

A new stage of the trade war that recently hit markets continues: MOFCOM explained China's export control and responded to the U.S. MOFCOM states that the export control measures on rare earth elements and related items announced on October 9 are a "legitimate action" to refine its own control system in accordance with laws and regulations. They link the decision to the important uses of medium and heavy rare earths and related items in the military field and declare the goal to better defend world peace and regional stability while observing international non-proliferation obligations.

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MOFCOM Insists: Not Bans, but a Regime of Control and Licensing

MOFCOM emphasizes:

"China's export controls are not export bans. Licenses will be granted for eligible applications."

Before the measures were announced, China already notified relevant countries and regions through bilateral export control dialogue mechanisms and stands ready to work with the rest of the world to step up export control dialogue and exchange, to safeguard the security and stability of global industrial and supply chains. They also promise reviews in accordance with the law, the issuance of licenses to eligible applicants, and consideration of facilitation mechanisms such as "general licenses and license exemptions" to support legitimate trade.

At the same time, Beijing quite unambiguously criticizes the U.S. In response to Washington's announcement of a 100% tariff and export control on all critical software, MOFCOM points to double standards and lists previously adopted U.S. restrictions - from expansion of the CCL to unilateral long-arm jurisdiction measures and a de minimis threshold at 0%. According to the Chinese side, such steps:

"Severely disrupted the international economic and trade order, and gravely undermined the security and stability of global industrial and supply chains."

Accordingly, MOFCOM separately indicates the scale of differences between the regimes:

"The U.S. Commerce Control List (CCL) covers over 3000 items, whereas China's Export Control List of Dual-use Items only covers about 900."

In their view, this is confirmation of China's prudent and moderate approach - with prior assessment of the impact on supply chains and the conviction that the related impact is very limited.

With all that, MOFCOM signals that it doesn't seek escalation of the trade war:

"Willful threats of high tariffs are not the right way to get along with China... we do not want it, but we are not afraid of it."

MOFCOM urges the U.S. to promptly correct its wrong practices and to manage differences through dialogues based on mutual respect and equal-footed consultation, to ensure the stable, sound, and sustainable development of the China-U.S. economic and trade relationship.

Of course, if the U.S. does not heed this, Beijing is set to take countermeasures to protect legitimate rights and interests. MOFCOM devoted separate attention to port fees on vessels linked to China. They note that the U.S. intends to introduce such fees starting October 14, and call this practice one that severely violates the WTO rules and a typical act of unilateralism. As a countermeasure, China will introduce.

"Special port fees on U.S.-linked vessels in accordance with the Regulations of the People's Republic of China on International Ocean Shipping and other laws and regulations. Those are necessary acts of passive defense to maintain the level playing field of the international shipping and shipbuilding markets."

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The U.S.-China Standoff Does Not Seem to Be Stopping

Objectively speaking, MOFCOM's position appears fairly reasoned and consistent. Of course, there are many high and sharp statements here, such as measures as a fine-tuned calibration of control with a priority on licensing, advance notification of partners, and maintaining supply chain stability, while the U.S. escalation steps are described as violating international rules and undermining the predictability of trade. But the U.S. is also quite tough in its position, so markets will likely have to go through more turbulence yet. Stay tuned for the latest updates and opportunities in the new economy, crypto industry, and blockchain developments.