China's promise to increase its openness to the world contrasts sharply with the tightening of its domestic laws. On February 27, the Standing Committee of the National People's Congress of China passed a revised "Law on the Protection of State Secrets," expanding supervision to include "work secrets." This move, effective from May 1, 2024, extends control over confidential personnel even after they leave their posts, intensifying the chilling effect on China's rule of law. For foreign businesses in China, these changes pose significant operational challenges.
The revision reflects China's response to new challenges, including changes in science and technology. It grants state administrative departments and the Central Military Commission the power to determine the scope of state secrets and military confidentiality, respectively. Notably, individuals leaving their posts must adhere to strict employment and travel regulations during and after the "declassification period." Violations can lead to disciplinary measures by their units and agencies.
The law's supplementary provisions allow agencies and units to protect "matters that are not state secrets but will cause certain adverse effects if leaked." This vague language raises concerns about potential overreach and its impact on business operations.
The revised law expands China's regulatory framework, already marked by last year's strict information security law and revised counterintelligence law. These changes reflect China's increasing focus on national security threats.
Foreign businesses have already felt the impact of these laws. Last year, Chinese authorities raided several consulting firms, leading to concerns among the foreign business community. An executive from a Japanese pharmaceutical company has been detained on espionage charges since March last year.
Preventive Measures:
Legal Compliance: Foreign businesses should ensure strict compliance with China's confidentiality laws and regulations. This may require conducting regular audits, implementing robust data protection measures, and providing comprehensive training to employees.
Risk Assessment: Businesses should conduct thorough risk assessments before entering into agreements or engaging in activities in China. This can help identify potential legal and regulatory risks and develop strategies to mitigate them.
Engagement with Legal Experts: Seeking advice from legal experts with expertise in Chinese law can help businesses navigate the complex legal environment and ensure compliance with relevant regulations.
Transparency and Due Diligence: Maintaining transparency in business operations and conducting due diligence on partners and suppliers can help mitigate risks associated with secrecy laws and regulations.
Monitoring and Adaptation: Given the evolving nature of China's legal and regulatory landscape, businesses should continuously monitor changes and adapt their strategies accordingly to ensure compliance and minimize risks.
As businesses navigate these changes, it's crucial to stay informed, seek expert guidance, and adapt their strategies to ensure compliance and mitigate risks in the evolving landscape of doing business in China. For risk consulting, please contact us at Artisan Business Group.