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China: Anti-espionage law heightens risks for foreign firms

William Yang in Taipei
May 5, 2023

The revised anti-espionage law increases security risks for foreign individuals and businesses operating in China, say experts, especially amid growing geopolitical and trade frictions between Beijing and the West.

A Chinese national flag flutters near the surveillance cameras mounted on a lamp post in Tiananmen Square in Beijing
The US Chamber of Commerce in Beijing is concerned about the law's impact on 'investor confidence'Image: Andy Wong/AP Photo/picture alliance

China's rubber-stamp parliament last week passed changes to the country's anti-espionage law, in a move that many say could create legal risks for foreign firms and individuals operating in the country.  

The legislation bans the transfer of any information that's deemed related to national security. It, however, does not define what falls under China's national security or interests.

The revised law, which will come into effect in July, expands the definition of espionage, by including cyber attacks against state organs or critical information infrastructure, state news agency Xinhua reported.

It allows authorities to gain access to data, electronic equipment, information on personal property and also to ban border crossings while carrying out an anti-espionage investigation.

Cyberattacks are also classed as acts of espionage.

This is the first major update to the nation's Counter-Espionage Law since it was introduced in 2014.

Risks for firms and individuals

Teng Biao, a legal scholar, said the amendments reflect Beijing's deep fear of foreigners instigating a "color revolution," or a popular, pro-democracy uprising, in China.

He noted that the law, in practice, would lead to a further clampdown on dissidents, activists and civil society groups.

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The law also increases security risks for foreign individuals and businesses operating in China, especially amid growing geopolitical and trade frictions between Beijing and the West. 

In recent years, China has detained dozens of Chinese and foreign nationals on suspicion of espionage, such as an executive at Japanese drugmaker Astellas Pharma who was detained in Beijing last month.

Critics and foreign governments have described the cases as being politically motivated.

Espionage cases are usually tried in secret due to their links to national security.

"Foreign scholars like myself will now avoid going to China if we can, because things like comments on social media could all be viewed as evidence of committing espionage in the eyes of the Chinese government," said Tomoko Ako, a China expert at the University of Tokyo.

Crack down on foreign firms

Western businesses also find themselves in the crosshairs.

Chinese authorities last month shut down the Beijing office of the Mintz Group, a US corporate due diligence company, and detained five local staff.

Last week, US consulting firm Bain & Company said Chinese police questioned staff at their office in Shanghai.

It was not clear what prompted the authorities to crack down on these firms. But many foreign officials and firms see these moves as a warning.

The US Chamber of Commerce in Beijing expressed concern about the law's impact on firms that "are fundamental to establishing investor confidence."

US Ambassador to China Nicholas Burns on Tuesday expressed his concerns over the revised law in China, saying it could potentially make routine business tasks like due diligence illegal.

"We hope that we can have an environment here where the American businesspeople and journalists and academics can feel safe, that if they're operating here in China, they can do the jobs that they came here to do, and that they're not subjected to this kind of intimidation," he said during an event organized by the Stimson Center, a think tank based in Washington, D.C.

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The problem of arbitrary exit bans

The law's revision also comes at a time when the Chinese government is trying to attract more foreign investment into the country, as Western multinationals look to diversify their supply chains and increasingly shift investment plans to Southeast Asia, India and other economies.

Dexter Roberts, a senior fellow at the Atlantic Council's Indo-Pacific Security Initiative, said Beijing's recent actions might send the opposite message.

"Foreign companies might no longer want to invest in certain Chinese companies as they can't figure out what businesses they are doing and how real they are," he said.

Foreign business groups have also warned that the new law may increase the risk of people being given arbitrary exit bans.

A study published last year cited by Safeguard Defenders found that 128 foreigners — including 29 Americans and 44 Canadians — were slapped with exit bans between 1995 and 2019.

And in its latest report, Safeguard Defenders, a Madrid-based rights group, said that "China has expanded the legal landscape for exit bans and increasingly used them, sometimes outside legal justification."

While stressing that a lack of official data made specific figures hard to come by, the report estimated that "tens of thousands of Chinese nationals were under exit bans at any one time."

Roberts said the long-term effect of the law would be very bad for commercial exchanges.

"Fewer and fewer foreign executives want to be based in China, especially if their businesses could be potentially sensitive," he said.

Edited by: Srinivas Mazumdaru