China Expands Scope of State Secrets Law

Last year, soon after the end of zero-COVID measures, China expanded a counter-espionage law making it more vague and therefore more of a threat to any company or individual who falls under suspicion. Here’s what CNN reported about the new law last April:

The new language in the amendment suggests “any organization and anyone can be suspect … and anything can be counted as a threat to national security” in the arbitrary application of the law, [Professor Yasuhiro] Matsuda said. “This will definitely cause a chilling effect,” he said…

According to analysts, topics such as the origin of Covid, China’s real pandemic death toll, and authentic data on the Chinese economy could all fall within the crosshairs of the law.

“Before (some activities) used to be normal engagement, but now they could be espionage,” said Alfred Wu, an associate professor in Lee Kuan Yew School of Public Policy at National University of Singapore.

“Something like a local government budget you could broadly define as relating to national security, or even food security,” he said. “Researchers definitely need to be careful.”

And even as the law was being changed, China had already started targeting US companies including memory chip maker Micron Technology, due diligence firm Mintz Group and US consulting firm Bain & Company.

In a written statement, Bain said it is “cooperating as appropriate with the Chinese authorities,” but declined to comment on the nature of the investigation and whether its employees’ phones and computers had been seized during the visit…

It is a common business practice for companies to investigate local markets and do background research on potential partners or competitors before investing money. They often rely on advisory firms like Mintz and Bain to help with that work.

US counterintelligence concluded that the new law was aimed at giving China greater leeway in laying claim to data controlled by US firms.

The US National Counterintelligence and Security Center (NCSC) said the law, which came into effect on Saturday, gives Beijing “expanded legal grounds for accessing and controlling data held by US firms in China”…

Under the revised law, “relying on espionage organisations and their agents” as well as the unauthorised obtaining of “documents, data, materials, and items related to national security and interests” can constitute a spying offence…

The changes “have raised legitimate concerns about conducting certain routine business activities, which now risk being considered espionage”, Craig Allen, president of the US-China Business Council, wrote in a recent blog.

It seemed strange that all of this was happening even as China was trying to portray itself as open for business after the long pandemic lockdown. But what’s not in doubt is that this new law was aimed at western companies. State media even referred to the new law as a “key step to enrich the legal toolbox against Western hegemony.”

And that brings us to this week when China has expanded a state secrets law in similar ways, i.e. the changes also seem designed to be a threat to foreign companies. Contrary to what China says about being open for business, the revised law seems like a warning: Enter at your own risk.

The amendments to the state secrets law, which were passed by China’s top legislative body on Tuesday and go into effect in May, include a new legal concept called “work secrets.” It is defined as information that is not an official state secret, but “will cause certain adverse effects if leaked,” according to the law’s text.

“The law is vague and the definition of state secret so broad that it could include anything that the party-state decides it should,” said Diana Choyleva, chief economist at Enodo Economics, a London-based research firm focused on China. “It will also further complicate life for foreign firms and their employees based in China.”…

Jens Eskelund, the president of the European Union Chamber of Commerce in China, noted that the changes to the state secrets law came a week after the country’s cabinet, the State Council, said that one of the year’s priorities was to attract more foreign investment by shoring up investor confidence.

“The scope of issues deemed ‘sensitive’ seems to be constantly expanding, which makes it more difficult for companies to access information necessary for making investment decisions related to their China operations,” he said in a written statement.

Foreign investment in China has already dropped to record lows. These new changes to the law are going to make it much less likely foreign investment will bounce back. Companies thinking of doing business in China now have to think carefully about whether normal business operations, like checking out Chinese competitors, could land them in prison.