On Wednesday, 26 April 2023, China approved updated anti-spying laws that greatly increases the scope of what is viewed as spying. According to the official Xinhua News Agency, the revisions were passed by the Standing Committee of the National People's Congress and will take effect on 1 July 2023.
China to implement new anti-spying laws that will now include purchasing or illegally providing "documents, data, materials, or items related to national security," as well as cyberattacks against state bodies or critical infrastructure. It also allows state security forces to forcibly search the belongings and electronic devices of individuals suspected of involvement in espionage, and bans Chinese citizens who may endanger national security from leaving the country, or foreign nationals from entering.
The draft text states that Chinese citizens must report any acts of espionage to authorities, and transportation and telecommunications companies are required to provide technical support for anti-spying efforts. However, the law does not provide a clear definition of what constitutes China's national security or interests, leaving foreign individuals and businesses in China at risk of arbitrary application of the law. Japanese Foreign Minister Yoshimasa Hayashi has called for the speedy release of those detained on spying charges since the law was enacted in 2014.
The Chinese state recently conducted a raid on the Chinese offices of U.S. corporate due diligence firm, the Mintz Group and detained five staff members.
In similar actions, a Japanese national from pharma company Astellas Pharma Inc.[Astellas Pharma revenue for the twelve months ending December 31, 2022 was $8.763B] was detained under current anti-spying regulations.
Restricted access to due diligence information
The new Chinese regulations will likely involve restricting access to due diligence information sources. The regulations are set to limit the ability of foreign companies to access certain types of Chinese data, such as financial information, for the purpose of conducting due diligence.
A draft of the proposed regulations can be found on the website of the Chinese Ministry of Commerce. The essential aspects of the new regulations that foreign companies need to be aware of include the following:
1. Foreign companies must obtain permission from the Chinese government before accessing certain types of Chinese data.
2. Foreign companies must provide detailed information about the purpose of the due diligence and the data that will be accessed.
3. Foreign companies must agree to certain restrictions on the use of the data, including not sharing it with third parties.
4. Foreign companies must agree to certain security measures to protect the data.
5. Foreign companies must agree to certain penalties for non-compliance with the regulations.
Understand your exposure
If you are doing business and based in China as a foreign business, you must urgently assess your current sources of information, the providers of such information and ensure you take appropriate steps to mitigate any new risks identified from the soon-to-be-implemented regulations.