Dec. 2014 to Feb. 2015 China Bulletin

Compliance May be Difficult for Foreign Companies

The National People’s Congress is considering a draft Anti-Terrorism Law that could, if enacted, have a substantial impact on sales and operations of foreign technology companies in China. The law would require all companies to keep servers and user data in China. Foreign technology providers would be required to provide Chinese government authorities with encryption keys for secure devices and equip their devices with ”back-doors” to enable Chinese authorities to access data on the them. All companies would be required to keep records of communications, remove content related to terrorism, and provide related records to the authorities.

Concern about terrorism in today’s world is of course not unique to China, and some provisions in the proposed law have already been implemented through existing regulations in China without substantially interfering with business and other legitimate activities. However, the scope of this draft law and the loss of privacy it seems to entail are worrying.

As currently proposed, the law defines terrorism as ”any speech or activity that, by means of violence, sabotage or threat, generates social panic, undermines public security, and menaces government organs and international organizations“ (an earlier version included “thought” as well as “speech”.) Private VPNs, which have been under attack in recent years, would no longer be secure nor could the confidentiality of financial transaction information be assured.

Some commentators see the draft law as part of a broad plan to exclude foreign competitors from China. However, if enacted as currently drafted, the greater danger may be that its vagueness and breadth increasingly separate China technologically from the rest of the world, harkening back to the era of isolation before China’s opening in the early 1980s, albeit with China now a major market and world power.

Questions? Please contact Allan Marson at china.desk@ishimarulaw.com or +1 408-738-0592 #719 for a complimentary consultation.