NATIONAL SECURITY LAW PASSED
Mar. to Jun. 2015 China Bulletin

The Standing Committee of the National People’s Congress has just adopted the National Security Law, which was introduced in draft form in December, 2014.  It is part of a group of laws on terrorism, cybersecurity and non-governmental organizations that have been criticized by foreign governments, businesses, journalist groups (including groups in Hong Kong and Taiwan) and others as vague and problematic, reaching every area of life, including not only politics and the military, but also the economy, technology and the environment.  However, the actual effect of these laws is not likely to become clear until they are implemented.

As an example of a concern for high-tech businesses, the law aims to make all key network infrastructure and information systems “secure and controllable”, terms used in the guidelines for information in the banking industry, which were recently suspended.  Foreign businesses feared the guidelines would exclude banks from purchasing any hardware or software for the banking industry made outside of China, and require them to compromise their technology by disclosing their source code.  There is concern that this new law could be used to exclude foreign products and investment in a broad range of industries for reasons only tenuously connected to national security, potentially reversing several decades of China’s opening to international markets in those industries.

It is too soon to know how this law and other draft laws now being considered will affect foreign investment in China.  The real impact will be determined by subsequent detailed regulations and how the law is implemented in practice.

Comments by Party, State Council and National People’s Congress members clearly indicate that many in China feel the country’s security is threatened, and of course there are real security threats currently faced in every country.  If this law and related legislation are used to address those threats in a reasonable way, then cross-border business can continue to grow, enhancing mutual understanding and prosperity for all.  Perhaps the greatest risk for everyone is that this legislation could be used to turn China into a “garrison state”, (a term used by Jerome Cohen in the Wall Street Journal, July 1, 2015) increasing isolated from international commerce and intercourse.

If you have questions or would like assistance complying with new regulations in China, please contact Allan Marson at china.desk@ishimarulaw.com or +1 408-738-0592 #719 for a complimentary consultation with a member of our team.