China's new Anti-Espionage Law: How does it affect expats and foreign businesses?

Expat news
  • Great Hall of the People. Beijing, China
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Published on 2023-07-18 at 10:00 by Natallia Slimani
A new law was enacted in China on July 1, 2023. It broadens the scope of what is considered espionage and grants the Chinese government increased authority to address perceived threats to national security. Here's what it means for expats. 

What is China's new Anti-Espionage Law about?

According to the translation offered by China Law Translate, the newly enacted Espionage Law broadens the scope of what constitutes "acts of espionage." Now, acts of espionage also include "seeking to align with an espionage organization" and “attempting to unlawfully acquire data associated with national security.”

The new law also urges all levels of the Chinese government to educate and oversee security measures related to this issue. The same translation highlights that foreign organizations operating in China are prohibited from jeopardizing China's national security, impeding the public interest, or undermining societal order.

What's more, the new law specifies that espionage may encompass any data or materials that are in any way related to "national security and interests." There are quite a few ways in which this provision can be understood. But in short, it seems to grant the Chinese government the authority (and pretext) to access the private information of both individuals and organizations. 

Is the new Anti-Espionage Law a concern for expats?

The main issue with the new law is ambiguity. As it expands the meaning of what espionage entails, it makes it rather difficult for foreign companies to ensure that their practices don't cause suspicion. Especially following a number of major raids on foreign firms by the Chinese government this year, including a raid on the Beijing office of Mintz Group, a U.S. corporate due diligence firm. 

Some experts say that the new rules could potentially affect regular business activities. For example:

  • Companies that do business with the U.S. government might be considered involved in espionage. 
  • Market research and business intelligence could be seen as spying if they involve sensitive information related to national security. 
  • Companies that hire people with knowledge of national security or important technologies might face investigation and punishment.
  •  Foreign companies collaborating with Chinese firms on technology could break the law if said technology is in any way related to national security.
  •  If companies in China use data centers or cloud services, they might be investigated if the data is connected to national security.

With that said, not everyone shares this sentiment of concern. Chinese authorities emphasize that China is not the only country by far with national security protection laws in place. According to officials, the new law simply aims to provide clear guidelines on activities that have always been incompatible with the Party's principles. In fact, Wang Wentao, China's Minister of Commerce, has reassured corporations that the law will not undermine the stability of their products.

What expats are saying about this law

While the official opinions on the new espionage laws in China may differ, in the expat community, there seems to be an overall consensus that it is indeed worrisome. Some have taken to social media to express their frustration, with one expat going as far as to say that “foreign company owners can now be taken to prison under fabricated violations”.

Some have accepted the law as it is and already considered its immediate implications. A small export business owner in Shenzhen, China, said: “To be honest, I feel like commenting on the new law may be breaking the law. If I talk about China's national security to foreign media as a business owner in China, I feel like I am putting myself into a vulnerable position”.

For some, China's new legislation became the last straw to a series of events that have already made running a business in China exceptionally complicated. 

Jeff used to own a small English training center in Guangzhou. Following the crackdown on for-profit tutoring of English announced at the end of July 2022, he had to close his training center and shift to importing textbooks and training materials. However, the new legislation has made him doubt if he would want to commit to a new venture. “The problem with this and many other new rules in China is that there is no clarity or consistency. You don't know what's allowed and what it isn't, and here, this can get you in a lot of trouble.”

What this law means for foreign investors in China 

The main problem with China's new law is that a lot of activities can now fall into the espionage category. Certain information that was previously viewed as ordinary economic or production data is now potentially seen as a matter of national security. 

The U.S. National Counterintelligence and Security Center further highlighted the ambiguous nature of the law, indicating that even journalists and academics may face uncertainties in their routine activities due to its implications.

Key areas where the revised law poses significant challenges for business are industries involved in the collection and sharing of data related to high-tech industries that intersect with national security, competitiveness, or potential human rights implications. 

The new legislation also seems to target consultant and due diligence companies. These types of companies investigate and analyze local businesses for investment opportunities assessing their value, risks, and potential for success.

These firms are essential to most potential foreign investors in China as navigating the local business environment independently is exceptionally challenging. But, with the type of activities due diligence companies conduct (looking into the legalities of business practices of Chinese companies, verifying labor law adherence, etc.), they can easily be subject to scrutiny under the new espionage law. 

Navigating these areas will become particularly tricky for foreign investors. They may find it more challenging to rely on business intelligence firms to assist them in guaranteeing the absence of forced labor within their supply chains or preventing the transfer of their high-tech products to military end-users.

In summary

The dynamics of conducting business in China have undergone a transformation with the introduction of what some media have referred to as the "Legal Great Wall." Although the immediate enforcement of this new law by China may not be apparent, the legal amendments lay the groundwork for future investigations and enforcement actions against foreign companies.

As the competitive landscape, potential threats, and legal frameworks continue to evolve, businesses may need to reevaluate the risks involved in operating in China.