China’s new sweeping counter-espionage law puts foreign businesses on edge

By Simone McCarthy and Nectar Gan, CNN

China has broadened the scope of its already sweeping counter-espionage law in a move that analysts warn could create further legal risks or uncertainty for foreign companies, journalists and academics.

The changes expand the definition of espionage from covering state secrets and intelligence to any “documents, data, materials or items related to national security and interests,” without specifying specific parameters for how these terms are defined.

Cyber attacks targeting China’s key information infrastructure in connection with spy agencies are also categorized as espionage under the new version of the law, which goes into effect on July 1.

The amendment, approved by China’s top legislative body Wednesday, comes amid an increasing emphasis on national security under Chinese leader Xi Jinping, the country’s most assertive leader in a generation.

Xi has overseen a raft of new measures to crack down on perceived threats within and outside China and sought to control the flow of information outside the country during his 10 years in power.

The original version of the law, passed in 2014, was already “very ambiguous and very powerful,” said Yasuhiro Matsuda, an international relations professor at the University of Tokyo. “But China thinks it’s not enough,” he said.

The broadened counter-espionage law comes just months after China lifted its pandemic-era border restrictions following three years of self-imposed Covid isolation — measures which had kept most foreign businesspeople and researchers away.

“China is opening up, and that makes it much more vulnerable” in the eyes of Chinese leaders, Matsuda said.

The revision is likely to heighten concerns of foreign individuals, such as academic researchers or journalists, and businesses about visiting or operating in China.

The new language in the amendment suggests “any organization and anyone can be suspect … and anything can be counted as a threat to national security” in the arbitrary application of the law, Matsuda said. “This will definitely cause a chilling effect,” he said.

Heightened risks

The lack of clarity around what kind of documents, data or materials could be considered relevant to national security will pose major legal risks to academics and businesses trying to gain a better understanding of China.

According to analysts, topics such as the origin of Covid, China’s real pandemic death toll, and authentic data on the Chinese economy could all fall within the crosshairs of the law.

“Before (some activities) used to be normal engagement, but now they could be espionage,” said Alfred Wu, an associate professor in Lee Kuan Yew School of Public Policy at National University of Singapore.

“Something like a local government budget you could broadly define as relating to national security, or even food security,” he said. “Researchers definitely need to be careful.”

China says its laws related to national security and espionage are meant to safeguard the country.

Concerns about application of the law have been compounded by a series of arrests of foreign nationals on espionage charges in recent years.

Foreign governments have described the cases as being politically motivated and accused Beijing of violating due process, such as denying access to counsel and holding close-door trials.

In one high-profile example, two Canadians — former diplomat Michael Kovrig and businessman Michael Spavor — were detained by China for nearly three years.

Their arrest on espionage charges in late 2018 came shortly after Canada arrested Chinese businesswoman and Huawei executive Meng Wanzhou on a US warrant related to the company’s business dealings in Iran.

Beijing repeatedly denied that their cases were a political retaliation, but the two men were released on the same day Meng was allowed by Canada to return to China.

Businesses on edge

In recent weeks, Japan has called for the release of one of its nationals employed by Astellas Pharma, who was detained in China last month on espionage charges.

At least 17 Japanese nationals have been detained in China on suspicion of spying and other activities since 2015, according to Japanese state broadcaster NHK.

These circumstances have already had an impact on personnel traveling to China from Japan, according to Kawashima Shin, a professor of international relations at the University of Tokyo.

“It is so difficult — so many Japanese scholars have already decided not to go China,” said Kawashima.

Japanese companies also note the definition of espionage under the law is “vague,” so they also “hesitate to send businesspeople” to China, he said. “It’s a big problem.”

One issue is that in past detentions details of the court cases have not been open, so it becomes difficult for companies or individuals to make risk assessments and judge at what point an activity may be crossing a legal line, Kawashima said.

“Even with this amendment we still don’t understand what kind of document constitutes a national security issue,” he added. “China can decide case by case.”

Western businesses are also on edge.

Last month, Chinese authorities closed the Beijing office of Mintz Group, an American corporate due diligence firm, and detained five local staff. And on Thursday, US consultancy Bain & Company said Chinese police have questioned staff at its Shanghai office.

Chinese authorities did not offer details about both cases, including the reason for the crackdown, but analysts say the move is likely to further spook foreign businesses operating in China.

“The Chinese government has continuously said it welcomes foreign investment. However, a flurry of recent actions taken against US enterprises in China has sent the opposite message,” said Michael Hart, President of AmCham China.

“Our business community is spooked, and our members are asking, ‘Who’s next?.’ Irrespective of the government’s intention, that’s the message being received.”

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CNN’s Michelle Toh contributed reporting.