The top United States diplomat to China has asked Beijing to clarify the newly-amended Counterespionage Law, which he says could make illegal some ordinary duties of American business people, academics and journalists in the country.
The standing committee of the National People’s Congress (NPC) on April 26 passed an amendment to strengthen China’s anti-spy law. The amended law will take effect on July 1.
The definition of offenders will be expanded from people who “join or accept tasks from” an espionage organization to those who “take refuge in” it. The coverage will also be widened from “state secrets and intelligence” to “other documents, data, materials and items related to national security and interests.”
“This is a law that could potentially make illegal in China the kind of mundane activities that businesses would have to do,” US Ambassador to China Nicholas Burns said Tuesday during a webinar organized by The Stimson Center, a Washington-based think tank. “We need to know more about it so we are asking questions here in Beijing.”
Burns said American firms have to do due diligence before they can agree to major investment deals, while they also need to have full access to economic data to make projections.
“The law could possibly imperil academic research. Professors and journalists could get caught up on this. But what we know so far is not positive,” he said.
In March, five Chinese staff of the Mintz Group, a US due diligence firm, were arrested in Beijing.
Bain & Company, a Boston-based management consulting company, said last week that Chinese police had questioned its staff in Shanghai and seized some computers and smartphones during an operation three weeks ago.
“We are very concerned about this. We have made our concerns known,” Burns said. “We think American businesses here ought to be free of intimidation from the government. And the rule of law should prevail.” Businesses should not be targeted simply on account of “political differences and competitive differences in the US-China relationship.”
He said the US hopes that American business people, journalists and academics can feel safe when doing their duties in China.
“Companies of all countries are welcome to have economic and trade cooperation in China,” Mao Ning, a spokesperson of the Chinese foreign ministry, had said last Friday. “We are committed to fostering a market-oriented, law-based and world-class business environment. China is a law-based country. All companies in China must operate in accordance with the law.”
Mao said then that she could not comment on the Bain case due to a lack of information.
Investors feel unwelcome
The Wall Street Journal reported on Sunday that the Chinese authorities have in recent months restricted or outright cut off overseas access to various databases involving corporate-registration information, patents, procurement documents, academic journals and official statistical yearbooks.
The US Chamber of Commerce said in a statement on April 28 that the amendment of China’s anti-spy law is “a matter of serious concern for the investor community and likely is as well for their local business partners in China.”
It said foreign investment will not feel welcomed in an environment where risk cannot be properly assessed and legal uncertainties are on the rise.
“We are closely monitoring the heightened official scrutiny of US professional services and due diligence firms in China,” it said. “The services these firms provide are fundamental to establishing investor confidence in any market, including China.”
Global investors pulled a net US$3.17 billion from Chinese stocks through Hong Kong’s Stock Connect during the five trading days last week, the Wall Street Journal reported on April 28, citing an analysis from Exante Data.
China eyes new money
After the then-US House speaker, Nancy Pelosi, defied Beijing’s warning and visited Taiwan last August, the Chinese government cut off all communication channels with the US for several months. The two sides resumed dialogues over Taiwan, Ukraine, climate change and trade matters after US President Joe Biden and Chinese President Xi Jinping met in Bali last November.
However, US-China tensions increased again after a Chinese “spy balloon” appeared in North American airspace in late January. Beijing was also disappointed by falling orders and slowing investments from the West.
In the first quarter, China’s exports to the European Union fell 7.1% year-on-year while exports to the US dropped 17%, according to the dollar-denominated figures released by the General Administration of Customs on April 13. The decline was largely offset by the increase in exports to ASEAN countries, Africa and Russia.
If denominated in US dollars, the year-on-year growth of China’s foreign direct investment (FDI) was only 0.5% in the first quarter, significantly down from 32% in the same period of last year.
The Politburo of the Chinese Communist Party’s Central Committee said China will put attracting foreign investment in a higher priority in order to boost economic growth and domestic demands.
“At present, our country’s economy continues to improve but the endogenous driving force is still not strong enough while domestic demand remains insufficient,” the politburo said in a statement after a meeting chaired by General Secretary Xi Jinping this past Friday. “China’s economic transformation and upgrading is facing new obstacles while the promotion of high-quality development still needs to overcome many difficulties and challenges.”
“Attracting foreign investment should be placed in a more important position, and foreign trade and investment should be stabilized,” it said. “It is necessary to help qualified free trade pilot zones and ports meet the requirements of international high-standard economic and trade rules so that they can carry out reform and opening up.”
The Shanghai government said it will optimize its financial services and encourage foreign investors’s participation in China’s financial markets, which will support the fundraising activities of Chinese technology, trade and shipping firms.
Media reports said last month that Biden will soon sign an executive order that will restrict US companies and private equity and venture capital funds from investing in China’s microchips, artificial intelligence, quantum computing, biotechnology and clean energy projects and firms.
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Follow Jeff Pao on Twitter at @jeffpao3