Tightening Espionage Laws with Loose Interpretations: Doing Business in China Has Just Got a Lot More Interesting

On July 1, 2023, while most folks in North America were gearing up for a long weekend of barbecues and fireworks to commemorate Canada Day (July 1st) and Independence Day (July 4th), the People’s Republic of China (PRC) passed new espionage-related legislation.

The new laws have a level of ambiguity that is giving many foreign-based companies and intelligence agencies pause. The new laws focus on “any documents, materials, or items” related to national security and interests. However, the definitions of what the PRC defines as “national security” and “interests” are not provided. Additionally, the definitions of espionage and espionage activities have been tightened to define them as:

1. Espionage – Joining espionage organizations and their agents. Collaborating with spy organizations and their agents.
2. Espionage Activities – Conducting cyber-attacks against state entities, confidential-related units, or crucial information infrastructure.

These new laws cast doubt on whether regular business, academic, or research practices could now be considered acts of espionage by the PRC if the material is in any way related to what the PRC views as national security or state secrets. Without a clear definition of either of these terms in the legislation, it leaves the detention, arrest, trial, and imprisonment (or worse) of individuals suspected of being involved in these activities open to interpretation by the Chinese Government.

In addition to the legislative changes, the Ministry of State Security has now been given the authority to inspect electronic devices, question individuals, and enter business facilities in relation to suspicions surrounding espoinage. Given that China is the second-largest world economy, this means that companies from around the world are now or could be vulnerable to misinterpretation of what constitutes “any document, material, or item relating to (PRC) national security and interests.” This means that any company that also does business with any other foreign government outside of China may also be suspected of being involved in espionage and treated accordingly.

Why are these laws coming into effect now:

COVID:
Over the last three years, China has been dealing with the pandemic, and business has been affected by the lack of travel by foreign businesspeople to China. Now that China is attempting to “reopen for business,” the opportunity for the PRC to start implementing the laws surrounding their perception of national security and national security interests is paramount.

Regime Change:
Over the last fifteen years, the PRC has increased their awareness and concern over any outbound data flows that could jeopardize their national security risks. Since 2012, when Xi Jinping was elected to power, one of his main efforts has been to emphasize the importance of national security and the need to provide leadership over the CCP and China.
These two issues have combined to result in the new legislative changes.

China’s Argument:

In the view of the PRC, they have the right to safeguard against espionage by tightening legislation related to national security issues. China has shown a willingness to arrest and detain foreign nationals in relation to espionage charges, which are typically conducted in closed-door trials without the accused having access to counsel. This was the case with two Canadian nationals, Michael Kovrig and Michael Spavor when they were arrested and detained until the time a Chinese national and Huawei chief financial officer Meng Wanzhou was released from custody and returned to China.

In June 2023, a Japanese national working for a pharmaceutical company was also detained on charges of espionage.

Who may be affected:

The change in the espionage laws in China will likely have far-reaching effects within the business, academic, and research communities. Any collaboration between companies or within companies with foreign links on any aspect of technology could be interpreted as having access to and possibly using or removing material or data of national security interest to the PRC.
Chinese nationals working for foreign companies could be compelled to help with suspected leaks of what the PRC sees as state secrets or national security information. This could include anything from economic data to demographic information relating to internet use and infrastructure. Academics researching the COVID outbreak, food shortages, or energy consumption may now be suspected of conducting espionage in China.

What can be done:

At this point, the die is cast. However, foreign businesses working in China and Chinese nationals working for foreign companies will need to be extremely cautious going forward. Academics with an interest in China may need to limit the scope of their research or consider whether their research will delve into areas that may be construed as national security by the PRC. Intelligence Services and Agencies will need to consider how foreign businesspeople will be perceived through the lens of the Ministry of State Security and the Chinese Government.
Travelling with any information, written, digital or other in relation to business, academia or research either going into China or coming from China would have to be assessed for risk and avoided if possible.
Some companies and governments may decide that the risks outweigh the gains in relation to doing business with China as their nationals could be detained, arrested, and tried in closed-door trials to face lifetime imprisonment or even execution for their perceived role in espionage due to an ambiguous interpretation of a vague law that was passed on July 1st, 2023.