China has passed revisions to an already strict state secrets law, expanding the scope of what kind of information would be considered a national security risk in the world’s second-largest economy.
The changes increase the risks for foreign businesses operating in the country. Over the past year, China has targeted business advisers and executives in espionage cases as part of a push to limit the spread of information sought by investors and foreign companies.
Amendments to the State Secrets Law, which were passed by China’s top legislature on Tuesday and took effect in May, include a new legal concept called “labor secrets.” It is defined as information that is not an official state secret but “would cause certain adverse effects if leaked,” according to the text of the law.
“The law is vague and the definition of state secret so broad that it could include anything the party-state decides it should,” said Diana Choileva, chief economist at Enodo Economics, a London-based research firm that focuses on China. “It will also further complicate the lives of foreign companies and their employees based in China.”
Ms Choyleva said many companies would be caught in a state of “paralysis” while they wait to see how China implements the new provisions of the law.
It is the latest example of the country’s heightened state security vigilance under the leadership of Xi Jinping. In recent years, China has gradually strengthened its national security and data-sharing laws, while warning of the dangers of espionage under the guise of business.
But China’s tightening national security laws have unsettled many foreign businesses and investors. Many of the changes apply vague and expansive criteria for what would constitute a national security risk, increasing the potential for arbitrary application of the rules.
The crackdown has added to the challenges of investing in China at a time when foreign direct investment in the country has fallen to three-decade lows, as companies are increasingly reluctant to put up with the trade-offs of operating in China for an economy that does not is now growing by leaps and bounds.
Jens Eskelund, president of the European Union Chamber of Commerce in China, noted that the changes to the state secrets law came a week after the country’s cabinet, the State Council, said one of its priorities for the year was attracting more foreigners investment from strengthening investor confidence.
“The range of issues considered ‘sensitive’ appears to be constantly expanding, making it more difficult for companies to access information necessary to make investment decisions related to their operations in China,” it said in a written statement.
The State Secrets Law was first passed in 1988 and then amended in 2010 when China imposed stricter requirements on internet and telecommunications companies to cooperate with police, state security officials and prosecutors in investigating leaks of state secrets.
China’s ruling Communist Party decided the law needed to be updated because of advances in science and technology that created “new problems and challenges” in maintaining confidentiality, an official with the National Administration for the Protection of State Secrets said.
China also revised its counter-espionage law last year to broaden the definition of what could be construed as espionage. It stipulated that the sharing of “documents, data, materials and objects” could be considered espionage if the information had an “impact on national security and interests”.
The series of legal changes coincides with greater scrutiny of businesses across the economy. Chinese financial executives are being targeted in sweeping anti-corruption campaigns. Government authorities last year targeted consulting and advisory firms with foreign ties through a series of raids, seizures and arrests as part of enforcement of counter-espionage laws.
In addition, Beijing has arrested foreign officials and charged them with espionage, while widely using its power to prevent others from leaving the country. In January, China’s foreign ministry said a British adviser who disappeared from public view in 2018 was sentenced to five years in prison in 2022 for “purchasing and illegally providing information about an organization or individual outside China.”
China has sought to educate its citizens about the national security risks inherent in the economy through a series of cartoons by China’s Ministry of State Security. The web series is based on real espionage investigations, the ministry said.
In the latest installment released this week, a special investigator from the agency goes undercover to infiltrate a consulting firm in China and obtain evidence that the firm was illegally communicating with experts in sensitive industries. The investigator is after a “big fish”, a foreign spy named “Jason”, who is part of the company owner’s network of associates. In the final scene, the researcher finds a list of experts in the company’s document room, but is discovered by a colleague.
The comic does not identify the company as foreign or domestic. Last year, Chinese authorities raided the offices of consulting firm Capvision Partners, which offered a matchmaking service to connect clients seeking information with a list of “experts” in various industries.
