In early 2022 the European Union (EU) banned China from exporting submarines that included Germany’s MTU diesels. China's Song and Yuan-class SSKs for its own navy each have used three or four MTU 396s for years. MTU has several diesel factories in China (eg. in Suzhou).
Quiet submarine diesels take decades to develop, putting countries like Germany, which has relied on diesel submarines since 1914, way ahead of competitors, like China. China only began building diesel subs in the 1960s.
The ban on MTUs for China’s new submarine exports became public in April 2022 when Thailand said it wouldn’t accept 3 Yuan-class subs if they don't include the MTU diesels that China promised under contract. This is still the situation in early June 2022.
China has asked Thailand to alter the contract to allow China to substitute the MTUs with Chinese-made (possibly reverse-engineered) MWM 620s which China claims are of comparable quality. But Thailand is sticking to the contract’s MTU delivery terms.
The EU has long officially banned weapons exports, including components like submarine diesels to China, but European exporters and China have worked together to find loopholes around such bans.
The EU clampdown on such exports might amount to secondary economic sanctions against China due to China’s unhelpfully neutral position to Russia’s invasion of Ukraine. Tied to that is growing EU awareness of ongoing Chinese threats against Taiwan and China’s aggressive stance in the South China Sea and Pacific.
European submarine exporters might also see China as unwanted competition for submarine markets like Thailand. As German made MTUs are the worlds most common, tried and tested submarine diesels their existence in Chinese submarines would assist China in beating Germany’s own submarine export activities.
Other European sub exporters like France, Sweden and soon Spain would also suffer. South Korea is another exporter and Japan a potential one that would both prefer China was not so competitive.
The US, concerned about Ukraine and Taiwan, may have pressed for the EU export bans against China be honoured by EU countries.
It remains to be seen whether China plans to put MTUs in the 8 Yuan class subs being built for Pakistan. If China is planning to use MTUs will the EU also ban such a move?