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China passed revisions to an already stringent state secrets law, broadening the scope of the type of information that would be considered a national security risk in the world’s second-largest economy.
The changes elevate the risks for foreign businesses operating in the country. Over the last year, China has targeted consultants and business executives in espionage cases as part of a push to limit the spread of information sought by investors and foreign companies.
The amendments to the state secrets law, which were passed by China’s top legislative body on Tuesday and go into effect in May, include a new legal concept called “work secrets.” It is defined as information that is not an official state secret, but “will cause certain adverse effects if leaked,” according to the law’s text.
“The law is vague and the definition of state secret so broad that it could include anything that the party-state decides it should,” said Diana Choyleva, chief economist at Enodo Economics, a London-based research firm focused on China. “It will also further complicate life for foreign firms and their employees based in China.”
Ms. Choyleva said many companies will be trapped in a state of “paralysis” while they wait to see how China applies the new provisions in the law.
It is the latest example of the country’s heightened vigilance of state security under the leadership of Xi Jinping. Over the last few years, China has progressively fortified its national security and data sharing laws, while warning about the risks of spying under the cloak of business.
But the strengthening of China’s national security laws has rattled many foreign businesses and investors. Many of the changes exercise an unclear and expansive criteria of what would constitute a national security risk, raising the possibility that the rules could be applied arbitrarily.
The crackdown has amplified the challenges of investing in China at a time when foreign direct investment in the country has fallen to its lowest levels in three decades, as companies are increasingly unwilling to endure the trade-offs of operating in China for an economy no longer growing by leaps and bounds.
Jens Eskelund, the president of the European Union Chamber of Commerce in China, noted that the changes to the state secrets law came a week after the country’s cabinet, the State Council, said that one of the year’s priorities was to attract more foreign investment by shoring up investor confidence.
“The scope of issues deemed ‘sensitive’ seems to be constantly expanding, which makes it more difficult for companies to access information necessary for making investment decisions related to their China operations,” he said in a written statement.
The state secrets law was first passed in 1988 and then amended in 2010 when China imposed tougher requirements on internet and telecommunications companies to cooperate with the police, state security officials and prosecutors in investigating leaks of state secrets.
China’s ruling Communist Party determined the law needed updating because of advances in science and technology that created “new problems and challenges” in maintaining confidentiality, an official at the National Administration of State Secrets Protection told state media.
China also revised its counterespionage law last year to expand the definition of what could be construed as spying. It stipulated that sharing “documents, data, materials and objects” could be considered spying if the information had “a bearing on national security and interests.”
The series of legal changes coincides with greater scrutiny on business across the economy. Chinese executives in the finance sector are being targeted as part of sweeping anti-corruption campaigns. Government authorities targeted consulting and advisory firms with foreign ties last year through a series of raids, detainments and arrests as part of the enforcement of counterespionage laws.
In addition, Beijing has detained foreign executives and accused them of spying, while broadly using its authority to prevent others from leaving the country. In January, China’s foreign ministry said a British consultant who vanished from public view in 2018 was sentenced to five years in prison in 2022 for “buying and unlawfully supplying intelligence for an organization or individual outside China.”
China has sought to educate its citizens about the national security risks present in the economy through a series of comics from China’s Ministry of State Security. The online series is based on actual espionage investigations, the ministry has said.
In the latest installment released this week, a special investigator from the agency goes undercover to infiltrate a consulting firm in China and procure evidence that this company was illegally contacting experts in sensitive industries. The investigator is chasing a “big fish,” a foreign spy named “Jason,” who is part of the company owner’s network of associates. In the final scene, the investigator finds a list of experts in the company’s document room, but he is discovered by a colleague.
The comic does not identify the company as foreign or domestic. Last year, Chinese authorities raided the offices of consulting firm Capvision Partners, which offered a matchmaking service to connect clients seeking information with a roster of “experts” across various industries.
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