Latest Chinese laws on espionage and foreign relations took effect on July 1.
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BEIJING — For foreign businesses in China, geopolitics hold more sway than latest Chinese laws, based on analysts.
National security is a growing priority for the country. Two latest laws, one on espionage and the opposite on foreign relations, took effect July 1. They contain catch-all phrases resembling “state secrets” which are open to interpretation by local and central authorities.
Adding to the concerns of those considering doing business in China is news earlier this 12 months of three raids on international consulting firms with little public explanation.
In strictly legal terms, nonetheless, the legislative changes themselves don’t increase the chance for foreign businesses in China, said Jeremy Daum, senior fellow at Yale Law School’s Paul Tsai China Center.
Quite, he said, “the present diplomacy climate and competing political pressures could also be making some businesses re-evaluate their cost-benefit evaluation in accepting the risks of doing business in China.”
U.S.-China relations have deteriorated over the past several years, after many years of increased engagement.
High-level dialogue beyond the presidential level has only resumed partially this 12 months with U.S. Secretary of State Antony Blinken’s visit to Beijing, amongst others.
“The present environment lends itself to more occasions where a regulator or someone in the federal government in China may decide to take motion that’s non-transparent. That creates a risk for U.S. business,” said Michael House, partner at Perkins Coie and based out of offices in Beijing and Washington, D.C.
“And when there is no such thing as a real opportunity for the 2 governments to speak concerning the reason for that motion or at the federal government level attempt to get some higher read on what’s motivated those sorts of actions, that becomes then detrimental for U.S. business when that type of opportunity doesn’t exist,” House said.
In the case of industries, he identified, advanced technology and its links to the military are a priority to the U.S. and China, while other sectors bear less risk.
The brand new laws
The brand new Espionage Law expands the “acts of espionage” definition to incorporate “looking for to align with an espionage organization” and attempts to illegally obtain data related to national security, based on an English-language translation on China Law Translate, a web site Daum founded.
The law also calls on “all levels” of presidency in China to teach and manage related security precautions, based on the interpretation.
The web site’s translation of the Foreign Relations Law notes that foreign organizations in China “must not endanger China’s national security, harm the societal public interest, or undermine societal public order.”
Corporate disconnect
The Chinese approach [to national security] is more defensive and domestic while the U.S. understandings are very global.
Alex Liang
Anjie & Broad, partner
Michael Hart, president of the American Chamber of Commerce in China, said he’s brought up the company raids in his meetings with Chinese officials.
“That is certainly one of the disconnects where we often hear, is so long as you are not doing anything illegal you’ve gotten nothing to fret about,” Hart said. “However it’s unclear to us what these firms did that was considered illegal. We proceed to call for more transparency.”
Blinken and U.S. Treasury Secretary Janet Yellen have each met with U.S. businesses in China during their visits this 12 months.
Firms also face increased scrutiny on the U.S. side. A House committee delegation discussed China business of their meeting with executives of high-profile U.S. tech and media firms in California in April.
National security
The term national security has been increasingly cited by the U.S. and Chinese government in latest restrictions for businesses over the previous couple of years.
For businesses in China, the most important concern is that every thing from food to energy is given a security angle, Jens Eskelund, president of the EU Chamber of Commerce in China, said at a briefing in mid-June.
“That I feel creates uncertainty about what are the precise borders between what falls under a security purview and something we will operate as normal businesses.”
Cultural and language differences also play a task.
“The Chinese approach [to national security] is more defensive and domestic while the U.S. understandings are very global,” said Alex Liang, partner at Anjie & Broad in Beijing.
“For instance, China generally focuses on whether sensitive information is leaked across the border, while U.S. normally focuses whether its allies provide technology to its rivalries and certain goal nations,” he said.
The role of law and the court system even have fundamentally different statuses within the U.S. and China. Beijing has been trying to accumulate its legal system in recent times, but the federal government is ruled by one party.
Perkins Coie’s House identified that because the U.S. courts are in a position to rein in what the enforcement a part of the federal government is doing, a Chinese company could make a legal dispute about national security-driven actions — something difficult for a foreign company to do in China.
He said foreign businesses in China could also consider having more dialogue with their local regulators, so that they have a greater understanding of what an organization is doing and the way it’s contributing to the economy.
China’s Ministry of Commerce on Wednesday met with foreign pharmaceutical firms, and said it might hold regular roundtables with foreign businesses to support their operations.
