The laws that began to be in effect on July 1 do not necessarily make the business environment riskier for foreign companies in China, according to Jeremy Daum, a senior fellow at Yale Law School's Paul Tsai China Center.Nonetheless, Michael House, partner at Perkins Coie, highlighted that the overall climate could cause a regulator or some official of the Chinese government to act in an opaque manner, consequently increasing the risk for the U.S. companies.
Foreign businesses in China are said by analysts to have more influence from geopolitics than from new Chinese laws. The priority of the nation to preserve its security has grown, and two new laws that involve state secrets and foreign relations went into effect on July 1. This was further compounded by the raids of three international consulting firms without adequate explanation. While on a strictly legal level the new laws do not increase the risk factor for foreign businesses, the political and international pressures may lead some to rethink the cost-benefit analysis of doing business in China.
U.S.-China relations have experienced a significant decline in recent years in comparison to the period of increased interaction.High-level talks have been tentatively resumed with Secretary of State Antony Blinken's Beijing excursion, among others.Michael House, partner at Perkins Coie with offices in Beijing and D.C., commented on the situation: “The current atmosphere lends itself to more occasions when a regulator or Chinese political figure may take an opaque action. This brings about a danger for U.S. business, and when there is no chance for the governments to talk about or understand the motivation for such action, U.S. companies can be adversely affected.”When it comes to certain realms such as advanced technology and its military applications, the U.S. and China are of particular worry; other areas carry less risk.
The new Espionage Law broadens the scope of what is defined as "acts of espionage" to include "attempting to associate with an espionage organization" as well as illicitly obtaining data associated with national security, as revealed in an English-language version posted on China Law Translate, a website created by Daum. Furthermore, the law calls for government agencies at all levels in China to educate and regulate relevant safety measures, as stated in the aforementioned translation. The text of the Foreign Relations Law provided by China Law Translate also stipulates that foreign entities in China must not pose any threats to China's national security, damage the public interest, or disrupt public order.
The implementation of the laws is uncertain. From March to May, reports of Chinese probes into foreign firms made headlines; Chinese authorities reportedly raided the office of a U.S. corporate due diligence firm in Beijing, visited a U.S. consultancy's office in Shanghai and investigated an international consulting firm. It's unknown how broad the investigations were, or what sparked them in spite of a general connection to national security. Since then, there have been no other stories of visits to major foreign firms by Chinese authorities - yet the lack of clarity persists as a worry for businesses.
Michael Hart, president of the American Chamber of Commerce in China, indicated he had mentioned the corporate raids in his discussions with Chinese officials. "We usually hear that as long as the firms are not engaging in anything illegal they have nothing to worry about," Hart said. "However, it's unclear to us what actions these businesses undertook that were deemed unlawful. We are still requesting more transparency." Blinken and U.S. Treasury Secretary Janet Yellen met with US corporations in China on their trips this year. Furthermore, a House panel discussed matters relating to business in China in April when they engaged in a meeting with executives from prominent tech and media businesses located in California.
In recent years, the U.S. and Chinese governments have been citing national security more and more in implementing new restrictions for businesses. Jens Eskelund, president of the EU Chamber of Commerce in China, noted at a June briefing that this issue has become especially pertinent, with food and energy production being at the heart of it. "It's difficult to discern the exact boundaries between what falls under this security purview and what is regulated by other means," he said. Alex Liang, partner at Anjie & Broad in Beijing, believes these jurisdictional differences can be attributed to the disparities between the two countries' approaches to national security. "The U.S. tends to have a more global perspective on matters, whereas China usually takes a more defensive stance within its own borders," Liang commented. He also highlighted the contrast in their focus, with the U.S. mainly concerned with its allies providing technology to its rivals, and China zeroing in on information leaking out of the country.
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Law and the court system have divergent positions in the US and China. Beijing has made attempts to develop its legal framework recently, although the country is managed by a single political party. Perkins Coie's House noted that, as the US courts are capable of regulating what enforcement entities of the government are doing, a Chinese organisation can file a legal claim related to national security-driven actions, something which foreign companies usually struggle to do in China. He suggested that foreign businesses in China may benefit from engaging in discussions with local administrators, in order to further understand what the company is doing and how it is contributing to the economy. On Wednesday, China's Ministry of Commerce met with foreign pharmaceutical firms and declared that it would host recurrent gatherings with foreign businesses to facilitate their operations.
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