China steps up vigilance against overseas technology leaks as advanced industries grow
Controls expand from trade and investment sanctions to overseas travel restrictions on key personnel
U.S. restrictions on investment in China intensify bilateral competition to secure technology

China is drafting rules to directly sanction foreign companies and individuals to prevent leaks of critical technology. The plan would impose trade and investment restrictions and entry bans on entities that infringe Chinese trade secrets and threaten national security and industrial development. After tightening restrictions on technology exports and overseas investment, China is also monitoring the overseas movement of key personnel, systematically closing off potential channels for technology outflows. The moves are seen as an effort to prevent the competitive advantages it has built in artificial intelligence (AI), electric vehicles and batteries from passing to overseas rivals. With the United States also expanding restrictions on advanced semiconductor exports and investment in China, the two countries’ struggle over the movement of technology, capital and talent is intensifying.

China Moves to Directly Sanction Foreign Companies for Trade Secret Infringement

According to Reuters on the 26th (all dates local), the Chinese government released draft Special Provisions on the Protection of Chinese Trade Secrets that would impose trade and investment restrictions on foreign companies, organizations and individuals that infringe Chinese trade secrets. The rules would apply to infringement of Chinese trade secrets in international trade and related economic activities that harms, or poses a tangible threat to, China’s national sovereignty, security or development interests. Protected rights holders include both trade secret owners and entities authorized by those owners to use the secrets. The Ministry of Commerce will enforce the rules alongside relevant government departments and will accept public comments until the 24th of next month.

The sanctions in the draft cover the companies’ China-related transactions and new investments, as well as the entry and stay of associated individuals. Specified measures include restricting or banning imports and exports of goods and technology and international trade in services, and blocking exports of certain items to the companies concerned. Bans on new investment in China and entry restrictions on associated individuals and means of transport are also listed. The draft additionally provides for restricting or revoking associated individuals’ work permits and permission to stay or reside in China, and imposing fines based on the severity of the violation. The Ministry of Commerce would be authorized to apply multiple measures together depending on the case.

The draft requires foreign companies to submit documents and cooperate during investigations. Once the Ministry of Commerce opens an investigation, the company concerned must answer questions and provide relevant materials, while also being given an opportunity to state or explain its position. If a company fails to cooperate or obstructs an investigation, the ministry may determine the measures to impose based on the facts already available. Applications to modify or lift sanctions must provide facts and reasons supporting corrective action, including ending the infringement, eliminating risks and compensating for damages. A separate exemption application procedure would allow Chinese companies with special circumstances requiring transactions with sanctioned entities to conduct such business with the ministry’s approval.

Controls Expand from Advance Registration of Technology Exports to Overseas Investment Reviews

Alongside establishing sanctions for trade secret infringement, China is working to control overseas transfers of critical technology. On the 16th, the Ministry of Commerce and the Ministry of Science and Technology released proposed revisions adding 40 technologies in AI, biopharmaceuticals and solar power to the list of prohibited or restricted exports. These comprise 23 AI-related technologies, including large-scale AI models, agents and computing clusters; five biopharmaceutical technologies, including cell and gene therapies; and 12 technologies related to manufacturing polysilicon, wafers and solar cells. Of these, 14 were classified as prohibited exports and 26 as restricted exports requiring approval. Although public comments will be accepted until the 15th of next month, temporary measures requiring advance registration of overseas ownership transfers and licensing of these technologies took effect on the day of the announcement. Technologies already publicly disclosed through academic papers or open-source releases were excluded from the restrictions. Overseas users accessing AI services through apps or websites will also not be considered technology exports.

China has also introduced controls on channels through which technology is transferred during overseas investment, such as staff assignments and training. The Regulations on Overseas Investment, promulgated by China’s State Council in June and effective from July 1, prohibit transfers of technologies, data and other items banned from export in connection with overseas investment, and require prior approval for restricted items. They also prohibit transferring controlled technologies and data without approval by sending technical personnel abroad or conducting training overseas. A new review procedure covers overseas investments affecting national security and the transfer or disposal of related assets, rights and interests. Depending on the violation, penalties may include orders to suspend investment or dispose of equity stakes and assets, as well as confiscation of illegal proceeds. Fines are capped at 1% of the investment amount.

Table 1. China’s Efforts to Protect Advanced Industrial Technologies and Its Competitiveness

Developing Homegrown AI as a National Strategic Asset

Underlying China’s efforts to prevent technology leaks is confidence in the competitiveness of its advanced industries. According to the Financial Times (FT) in July, China’s Ministry of Commerce held consultations with major AI companies, including Alibaba, ByteDance and Zhipu, on preventing Western companies from acquiring critical technologies and promising startups. The discussions included proposals to restrict overseas transfers of critical AI training data and foreign users’ downloads of model weights. Model weights are numerical information accumulated during training; obtaining them allows users to run or modify a model on their own servers. The discussions are seen as a sign that Chinese authorities have begun to view AI development achievements as strategic assets requiring national-level protection.

Performance improvements by Chinese AI companies are bolstering the case for technology protection. According to the Stanford Institute for Human-Centered Artificial Intelligence’s (HAI) “2026 AI Index,” DeepSeek’s R1 reasoning model reached parity with the leading U.S. models at the time in major performance evaluations in February last year. As of March this year, the evaluation score gap between the top U.S. and Chinese models tracked by the report was just 2.7%. China also led in AI paper counts, citations and patent output, indicating an expansion of its research base. The combination of individual companies’ model development achievements and accumulated research and patents supports the assessment that China is developing the capacity to sustain an independent AI ecosystem.

China-Centered Supply Chains Take Hold, from Materials to Finished Vehicles

In electric vehicles and batteries, supply chains that dominate global production are reinforcing China’s confidence in its technological competitiveness. According to the International Energy Agency (IEA), China accounted for 70% of global electric vehicle production and more than 80% of battery cell production last year. Its share of production of cathode active materials used in EV batteries was about 85%, while its share of anode active materials exceeded 90%. The production network, spanning critical mineral refining through materials, batteries and finished vehicle manufacturing, is concentrated within China. The IEA assessed that battery material production capacity outside China alone would struggle to meet demand outside the country, highlighting the substantial dependence of other countries’ EV industries on Chinese materials and components.

China’s leadership has outlined plans to consolidate its lead in next-generation industries by building on its existing technological and production base. The 15th Five-Year Plan, released in March this year, mentioned AI more than 50 times and included an “AI Plus” policy to apply the technology across the economy, including manufacturing, logistics, education and healthcare. In a separate report at the time, the National Development and Reform Commission also assessed that China was leading research and development (R&D) and applications in AI, biopharmaceuticals, robotics and quantum technology. To support these efforts, China has set a target of increasing R&D spending by an annual average of at least 7% from 2026 to 2030. Specific initiatives include expanding large-scale computing clusters and developing humanoid robots, 6G and brain-computer interfaces. It also plans to deploy robots in industries facing labor shortages and expand the use of AI agents that perform tasks with minimal instructions.

U.S.–China Competition for Technological Supremacy Intensifies Controls on Investment and Talent

China’s tighter controls on technology and talent outflows are seen as a strategic move with long-term competition for technological supremacy against the United States in mind. After restricting exports of advanced semiconductors and manufacturing equipment to China, the United States is also expanding controls on U.S. capital flowing into China’s advanced industries. Proposed rules released by the U.S. Treasury Department on the 22nd would restrict investment in China’s biotechnology and supercomputing sectors, among others, in addition to existing controls covering semiconductors, quantum technology and AI. The aim is to prevent U.S. funding and the expertise accompanying investment from being used to strengthen China’s military and intelligence capabilities. As China’s channels for obtaining overseas technology and capital narrow, it appears to be seeking to control routes through which its homegrown technologies and talent could flow to the United States.

Measures directly controlling the overseas movement of key personnel also suggest an intention to retain technological competitiveness at home. According to Bloomberg in May, some specialists engaged in strategically important AI work at private companies, including Alibaba and DeepSeek, were required to obtain approval from authorities before traveling abroad. Last month, spouses and children of executives at certain AI and semiconductor companies deemed important to national security were also reportedly required to obtain approval before even short overseas trips. People cited by Bloomberg described the measures as an effort to prevent critical technology and information from leaking to the United States. Those covered include founders of prominent startups and leaders of strategic technology companies, and authorities have reportedly already notified several individuals of the approval requirement for their families’ overseas travel.