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The US government’s National Counterintelligence and Security Centre (NCSC) has expressed concerns over China’s newly amended security law, which came into effect on July 1 and extends the scope of the state’s powers.
Passed in April this year by the National People’s Congress (NPC) Standing Committee, the counter-espionage law first came into effect in 2014. State media agency Xinhua described it as a “special law”, meant to safeguard against espionage or spying in the interests of national security.
While concerns have earlier been expressed by the US on other such laws passed in China over the years, a novel aspect here is how the law may impact foreign businesses operating in China.
Xinhua said that “The revised law refines the definition of espionage, specifying acts such as carrying out cyber attacks against state organs, confidential organs or crucial information infrastructure as acts of espionage.”
Additionally, it states that targets of espionage would now include all documents, data, materials and articles that concern “national security and interests”. This has been interpreted to mean that the government can now demand to look at private information of individuals and organisations, citing this law, and documents and such materials can now constitute spying.
According to a post from Jeremy Daum, a Senior Fellow of the Yale Law School Paul Tsai China Centre, the amendment also mentioned “Attempts to illegally obtain or share state secrets, intelligence, or other data, materials, or items related to national security or national interests.” Here, the words “or other data, materials, or items related to national security or national interests” are newer additions.
This has raised alarm bells for corporate ‘due diligence’ companies, those who carry out risk analysis for doing business with another company or in a particular environment. For this, they need to go through documents associated with a company and its employees. Under China’s new laws, an attempt to carry out this research work can be classified as an attempt at espionage of Chinese nationals.
Daum explains, “The added language is a clear expansion of the scope of protected materials, and unworkably vague on its face; at the same time, the law was already so broad and unworkably vague, that it is not immediately clear what the expansion include.” He argues that while the amendments are cause for concern, the law was always expansive. Critics of Chinese President Xi Jinping say that since he came to power in 2013, authoritarian regulations have been introduced and invoked more frequently.
The law also “requires efforts to strengthen people’s awareness of counter-espionage and national security”, and “enhances supervision over the personnel of national security organs.”
What has the US said on this law?
According to the NCSC, the law has:
*Potential to create legal risks or uncertainty for foreign companies, journalists, academics, and researchers,
*Any documents, data, materials, or items could be considered relevant to the People’s Republic of China’s national security due to ambiguities in the law
The Wall Street Journal also quoted the NCSC director Mirriam-Grace MacIntyre as saying that the law does not define espionage clearly, which could become “deeply problematic for private sector companies.” The centre has been briefing US business leaders in this regard since April, she said.
Why has it been claimed that businesses are at risk?
Even as China-US relations have deteriorated in recent years, there are notable business links between the world’s two largest economies. This week, Federal Reserve (the central bank of the US) chair Janet Yellen is set to visit China, a few weeks after the visit of Tesla owner and billionaire entrepreneur Elon Musk.
Citing security concerns, the US said earlier this year that it plans to “de-risk” its economy from China or reduce its dependence on it for specific materials like semiconductors. This has led to criticism and backlash from China.
American businesses in China have of late witnessed questioning from the authorities. In April, consultancy firm Bain & Co.’s Shanghai office was raided. A month prior, the Mintz Group, a due diligence firm, said officials detained five of its Chinese staff.
Espionage has been used as grounds to arrest a Japanese employee of the pharmaceutical company Astellas Pharma Inc. this year. Japan has asked for release and the case has been used to allege that China uses its law for coercive purposes.
Similarly, amid a row with Canada in 2018, after its authorities helped arrest a Huawei executive over charges of theft of technology, within two weeks, China arrested two Canadian men on allegations of spying.
