What China’s new counter-espionage law means for foreign firms 

CHINA has recently amended its anti-espionage law, addressing key challenges that existed in its previous implementation. These amendments aim to broaden the scope of espionage activities, strengthen security protocols, and enhance the authority of administrative enforcement.

The enforcement landscape has become relatively more active, as reported by the media. These developments reflect China’s proactive approach in combating espionage and regulating the related industries to ensure national security.

The most significant change is the expansion of the definition of espionage to include the theft, probing, bribery, or illegal provision of state secrets, intelligence, or other information related to national security and interests by non-spy organisations, individuals, and foreign organisations.

This implies that even if no espionage organisation is involved, the acquisition of non-state secret information in China could be considered a violation of the law if it affects the nation’s security or interests.

On the enforcement side, the law also gives Chinese law enforcement agencies additional administrative enforcement measures, such as data retrieval, summons, asset searches, and international travel restrictions. Furthermore, new criminal offences have been created, including providing commercial secrets to foreign entities.

As a result, it is increasingly important for foreign companies to be aware of the types of information they collect and, more importantly, how they collect it in China.

While the export of personal information and other important information remains the major subject of regulation, state secrets, intelligence, and commercial secrets are red lines that must not be crossed, and those who provide them to foreign countries or entities face the risk of criminal charges.

What kinds of behaviour are more likely to attract government attention? Firstly, the grey area between internal investigation, market research, and social research becomes more of a concern. Market research and social research are already strictly regulated, and violations can result in “illegal business operations” charges, which can lead to criminal penalties.

Secondly, due diligence companies, especially those involved in sensitive industries such as biotechnology, clean energy, 5G communication, artificial intelligence and quantum computing, are more likely to attract government attention. Furthermore, some foreign-based companies that are subject to US legal requirements for supply-chain risk management may also cross the line when conducting assessments of their Chinese business partners.

Foreign companies operating in China should not be overly worried about the recent regulatory changes. The Chinese government has always welcomed foreign investment, and foreign investment continues to play an important role in China’s economy. Rather than completely expelling these industries from the country, we anticipate that the government’s goal is to increase transparency and regulate them properly.

Here are some tips for the companies that might have concerns: First, comply with local laws and regulations, and ensure that your business practices touch no grey areas. This includes being cautious when gathering information, as unclear legal regulations can result in unfavourable interpretations.

Second, conduct risk assessments related to national security concerns to avoid gathering sensitive information or gathering information in a way that may raise the government’s concerns. Third, it is important for foreign companies to have emergency plans in place, specifically geared towards increasing government trust during the investigation process and thus reducing regulatory risks. CAIXIN GLOBAL

The writer is a counsel at Fangda Partners, specialising in regulatory compliance and government investigations, particularly in the areas of white-collar crime in China.