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On December 16, 2022, the U.S. Commerce Department’s Bureau of Industry and Security (“BIS”) published a rule adding 35 entities from China and one entity from Japan to the Entity List for supporting China’s military modernization efforts, human rights violations, and risk of diversion. These designations follow BIS’s advanced computing and semiconductor export controls unveiled in October 2022, which are designed to severely curtail China’s ability to access advanced technologies and utilize artificial intelligence to modernize its military and commit human rights abuses.

In addition, BIS issued a second rule removing 26 Chinese entities from the Unverified List (“UVL”) following successful verification of the parties’ bona fides and moved nine Russian entities from the UVL to the Entity List for their failure to complete satisfactory end-use checks and BIS’ inability to verify their bona fides.

Supporting China’s Military Modernization Efforts

The following 21 entities were added to the Entity List because of their status as or close ties to government organizations that support the Chinese military and defense industry. These entities also received a Footnote 4 designation under the Entity List Foreign Direct Product Rule found in 15 C.F.R. § 734.9(e)(2), which will limit these entities’ access to foreign-produced technologies and items which are produced from specific U.S. origin technology or software related to semiconductors or the semiconductor production process.

  • Anhui Cambricon Information Technology Co., Ltd.
  • Cambricon (Hong Kong) Co., Ltd.
  • Cambricon (Kunshan) Information Technology Co., Ltd.
  • Cambricon Jixingge (Nanjing) Technology Co., Ltd.
  • Cambricon (Nanjing) Information Technology Co., Ltd.
  • Cambricon Technologies Corporation Limited
  • Cambricon (Xi’an) Integrated Circuit Co., Ltd.;
  • CETC Cloud (Beijing) Technology Co., Ltd.
  • CETC LES Information System Group Co., Ltd.
  • China Electronics Technology Group Corporation No. 28 Institute;
  • Chinese Academy of Sciences Institute of Computing Technology
  • Guangdong Qinzhi Technology Research Institute Co., Ltd.
  • Key Laboratory of Information Systems Engineering;
  • Nanjing Aixi Information Technology Co., Ltd.
  • Nanjing LES Cybersecurity and Information Technology Research Institute Co., Ltd.
  • Nanjing LES Electronic Equipment Co., Ltd.
  • Nanjing LES Information Technology Co., Ltd.
  • Shanghai Cambricon Information Technology Co., Ltd.
  • Suzhou Cambricon Information Technology Co., Ltd.
  • System Equipment Co., Ltd. of the 28th Research Institute (Liyang)
  • Xiong’an Cambricon Technology Co., Ltd.

BIS also added Shanghai Integrated Circuit Research and Development Center and Shanghai Micro Electronics Equipment (Group) Co., Ltd. for, broadly, acquiring and attempting to acquire U.S.-origin items in support of China’s military modernization. In addition, BIS added seven parties found to have demonstrable ties to activities of concern, such as hypersonic weapons development, and to otherwise support military civil-fusion efforts tied to the People’s Liberation Army, Air Force, and Navy. These parties are:

  • AVIC Research Institute for Special Structures of Aeronautical Composites
  • AZUP International Group Co., Ltd.; Beijing HiFar Technology Co., Ltd.
  • Beijing Machinery Industry Automation Research Institute Co., Ltd.
  • Beijing Vision Strategy Technology Co., Ltd.
  • Shanghai Suowei Information Technology Co., Ltd.
  • Zhongke Xinliang (Beijing) Technology Co., Ltd.

Risk of Diversion and Human Rights Violations

BIS added the following four entities for their significant risk of diverting items to other entities on the Entity List: PXW Semiconductor Manufactory Co., Ltd., Hefei Core Storage Electronic Limited, Yangtze Memory Technologies Co., Ltd., and Yangtze Memory Technologies (Japan) Inc. BIS added Tianjin Tiandi Weiye Technologies Co., Ltd. under the destination of China to the Entity List for its involvement in or support of China’s human rights violations against members of Muslim minority groups in the Xinjiang Uyghur Autonomous Region (“XUAR”).

Supporting Iran’s Drone Production

BIS added Beijing UniStrong Science & Technology Co., Ltd. to the Entity List under the destination of China for its facilitating the illegal export of U.S.-origin electronics controlled under ECCN 7A994 for use in the production of military systems used in attacks throughout the Middle East.

Applicable Restrictions and License Review Policies

The above additions to the Entity List restrict access to all items subject to the EAR. As a result, an export license is required to export, reexport, or transfer (in-country) any item subject to the EAR to these listed entities. BIS will review the license applications for all items subject to the EAR under a policy of denial.

Revisions to the Entity List – Russia “Backfillers”

BIS revised the entry for two Chinese entities listed on the Entity List since 2018, China Electronics Technology Group Corporation 13th Research Institute (“CETC 13”) and Micro Electronic Technology, now designating them as Russian “military end users” with a Footnote 3 designation. BIS found these entities to have supported Russia’s military since the issuance of new export controls. This designation subjects CETC 13 and Micro Electronic Technology to the Russia/Belarus-Military End User foreign “direct product” (“FDP”) rule, detailed in § 734.9(g). BIS will review export licenses for these two companies under a policy of denial for all items subject to the EAR, except for food and medicine designated as EAR99, which will be reviewed on a case-by-case basis.

Changes to the Unverified List

In its second rule, BIS removed nine Russian entities from the UVL and added them to the Entity List because of the Russian government’s lack of cooperation in facilitating timely end-use checks and BIS’ inability to verify the companies’ bona fides. Importantly, these are the first Entity List designations issued pursuant to BIS’s October 2022 rule clarifying the grounds under which an entity may be added to the Entity List. Specifically, the rule provided that a host government’s “sustained lack of cooperation” that effectively prevents BIS from determining compliance with the EAR, such as the satisfactory completion of end-use checks within 60 days of an entity being added to the UVL, may lead to an entity being removed from the UVL and added to the Entity List. The added entities are:

  • Alliance EG Ltd.
  • FSUE Rosmorport Far Eastern Basin Branch
  • Intercom Ltd.
  • Nasosy Ampika; Nuclin LLC
  • SDB IRE RAS; Security 2 Business Academy
  • Tavrida Microelectronics
  • VIP Technology Ltd.

Exports, reexport, or transfers (in-country) to these entities will require a license for all items subject to the EAR. BIS will review these license applications under a policy of denial.

On the other hand, BIS removed 27 entities from the UVL due to BIS’ successful verification of the companies’ bona fides. Although BIS’s October 2022 rule appeared to be in direct response to the Chinese government’s increasing frustration of BIS’ efforts to conduct end-use checks within its borders, BIS indicates the recent removals are the result of a demonstrated change in cooperation by the Chinese government.

“Our new end-use check policy requiring the timely completion of end-use checks by host governments to avoid placement on our Unverified and Entity Lists is yielding results,” said Assistant Secretary of Commerce for Export Enforcement Matthew S. Axelrod. “When a host government facilitates a check that results in our ability to confirm a company’s bona fides, the company comes off the Unverified List, as demonstrated by today’s 25 removals of Chinese companies from our restricted party lists.  But when a host government persists in preventing a check, there are real consequences, as demonstrated by today’s addition of 9 Russian parties to the Entity List.”

The rule removes ENGRO Polymer & Chemicals Limited under the destination of Pakistan and also removes the following 26 Chinese entities:

  • Beijing Naura Magnetoelectric Technology Co., Ltd.
  • CCIC Southern Electronic Product Testing Co., Ltd.
  • Center for High Pressure Science and Technology Advanced Research
  • Changchun National Extreme Precision Optics Co., Ltd.
  • Chinese Academy of Geological Sciences, Institute of Mineral Resources
  • Chinese Academy of Science (CAS) Institute of Chemistry
  • Dongguan Durun Optical Technology Co., Ltd.
  • Foshan Huaguo Optical Co., Ltd.
  • Guangdong University of Technology
  • Guangxi Intai Technology Co., Ltd.
  • Guangxi Yuchai Machinery Co., Ltd.
  • Guangzhou Hymson Laser Technology Co., Ltd.
  • Heshan Deren Electronic Technology Co., Ltd.
  • Hubei Longchang Optical Co., Ltd.
  • Hubei Sinophorus Electronic Materials Co., Ltd.
  • Kunshan Heng Rui Cheng Industrial Technology
  • Shanghai Fansheng Optoelectronic Science & Technology Co. Ltd.
  • Shanghai Micro Electronics Equipment (Group) Co., Ltd.
  • ShanghaiTech University
  • Southern University of Science and Technology, Department of Mechanical and Energy Engineering
  • University of Chinese Academy of Sciences, School of Chemical Sciences
  • University of Shanghai for Science and Technology
  • Vital Advanced Materials Co., Ltd.
  • Wuhan Juhere Photonic Tech Co., Ltd.
  • Wuxi Biologics (Shanghai) Co., Ltd.
  • Zhongshan Thincloud Optics Co., Ltd.

BIS’s full announcement can be found here.

Husch Blackwell’s Export Controls and Economic Sanctions Team continues to closely monitor all export controls developments and designations concerning China and Russia and will provide further updates as conditions change.  Should you have any questions or concerns, please contact Cortney Morgan, Grant Leach, Emily Mikes or Eric Dama  of our Export Controls and Economic Sanctions Team.