2 May 2023

China’s Updated Espionage Legislation: A Massive Risk to Western Companies

Elisabeth Braw

Today, April 26, China’s National People’s Congress approved amendments to the country’s espionage law—amendments that dramatically expand the definition of espionage. The amended legislation covers not just state secrets but all documents concerning national security—and it doesn’t define what constitutes national security. That, in combination with China’s willingness to weaponize globalization, makes it extremely dangerous for Western businesses to remain in China.

“Chinese lawmakers passed a wide-ranging update to Beijing’s anti-espionage legislation on Wednesday, banning the transfer of any information related to national security and interests and broadening the definition of spying,” Reuters reported on 26 April. The decision came as no surprise, since the rubber-stamp legislature reliably approves all government plans, but especially for the many foreigners working in China the law is shattering all the same. That’s because under the updated legislation, “documents, data, materials, and items related to national security and interests” are treated in the same way as state secrets, China News Service reports. Security authorities, meanwhile, will be given the right to inspect the baggage and electronic devices of people suspected of espionage. The law also obliges Chinese citizens and organizations to report suspected espionage, while logistics and telecommunications companies will need to “provide technical support to fight espionage” and “media organizations will have to educate the public on the issue,” Nikkei reports.

The implications for businesses are both clear and painful. Anyone seen by the Chinese authorities as having mishandled materials related to “national security and interests” can be accused of espionage and held on these grounds. What makes the legislation even more menacing is the fact that “national security and interests” isn’t specified. A law that treats as espionage any sharing of materials that the authorities can decide relate to “national security and interests” is an unmistakable warning that virtually anyone can be arrested on espionage charges.

The people most at risk include Western expats in China, whom the increasing confrontation between China and the West has already put in a perilous position. In December 2018, Chinese authorities reacted to Canada’s arrest of Huawei CFO Meng Wanzhou on a US arrest warrant relating to sanctions violations by seizing two Canadians on espionage charges. The authorities didn’t present any evidence against think tanker Michael Kovrig and businessman Michael Spavor—but held them until Canada released Meng. That was under the old legislation. With the amended law’s extraordinarily expansive reach, expats will become even easier targets in China’s confrontation with other countries. Indeed, the law’s requirement for Chinese companies and citizens to report suspected espionage incentivizes individuals and companies to rat on colleagues, if only because they don’t want to be accused of failing to report espionage.

The law will make Western companies even more wary of doing business in China—and over the past few months, they’ve already become extremely wary. In the 2023 Political Risk Survey produced by Oxford Analytica for the global insurance broker WTW, China claims the spot as the world’s second-riskiest country (measured in politically linked losses) after Russia. That marks a massive departure from recent years, which have seen countries like Iran, Venezuela, Angola and Libya top the ranking. Companies all the way up to behemoths like Apple and Samsung have already declared they’re moving parts of their manufacturing or supply chains from China to less risky countries like Vietnam or even back home, so-called friendshoring.

The question is whether companies’ departure plans will be swift enough. The new espionage legislation portends an extremely perilous existence for Western companies in the country, an existence where any staff member risks arrest at any time. “Foreigners will surely be detained again,” Ichiro Korogi, a professor and modern-China expert at Japan’s Kanda University of International Studies, told Nikkei. “The only thing businesses can do is tell employees to avoid bringing computers and smartphones with them whenever possible, and to avoid even small talk on Chinese politics.”

Businesses thought they could float above geopolitics. China’s new legislation is emphatically extinguishing any remaining hopes to that effect.

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