Client Briefing: Key Takeaways of the Amended Counter-Espionage Law

The amended Counter-Espionage Law of the People's Republic of China (the “Counter-Espionage Law”, or the “New Law”) will come into effect on July 1, 2023. Compared with the 2014 version, the following amendments are noteworthy:

I. Expanding the Application Scope of the Counter-Espionage Law

1. The New Law expands the definition of espionage activities. (1) Apart from joining a spy organization or taking an assignment from a spy organization or its agent, the New Law categorizes “seeking refuge with a spy organization or its agent” as espionage activity. (2) All documents, data, materials, and items related to national security and interests are under the same protection as state secrets and intelligence following the revisions. Stealing, spying on, purchasing, and illegally providing the foregoing documents, data, materials, or items, as well as coercing state functionaries to defect, are all acts of espionage according to the New Law. (3) The New Law also expands the definition of espionage to include cyber-attacks, intrusions, interference, control, and destruction against state organs, confidential-related units, or critical information infrastructures.

2. The New Law shall apply to the activity of spying on a third-party country by a spy organization and its agents, either within the territory of the People's Republic of China, or by taking advantage of the nationals, organizations, or other conditions of the People's Republic of China, if such an activity is considered harmful to the national security of the People's Republic of China.

II. Strengthening the Support of Counter-Espionage Work

1. The New Law provides system support for counter-espionage work. It stipulates that, “The State shall establish a counter-espionage coordination mechanism to coordinate major matters, and to study and resolve major issues in the anti-espionage work.” The State shall also establish and implement a “regime for the management of key counter-espionage security precaution entities", requiring the key counter-espionage security precaution entities to establish and implement a counter-espionage security precaution work mechanism.

2. The New Law requires all nationals and organizations to provide support and assistance in counter-espionage work.

III. Increasing the Powers of and Guarantee for the National Security Authority

1. The New Law provides that, to construct, rebuild, or expand a project within the security control areas around key state organs, military defense units and other key confidential-related units and key military installations, the national security authority is authorized to grant permissions for construction projects involving national security matters. The security control areas shall be delineated and adjusted from time to time by the national security authority in consultation with the relevant authorities.

2. The New Law refines the investigation and handling powers of the national security authority in counter-espionage work. For example, the national security authority may check the belongings of a person who is unidentified and on suspicion of espionage. Upon the approval of the person-in-charge of the national security authority at or above the level of a city divided into districts, the national security authority may gain access to relevant documents, data, materials, and items, and may also ask for information regarding the property of the person on suspicion of espionage. The national security authority may summon or compulsorily summon the relevant person following legal procedures and may ban border crossings. If the national security authority finds that network information or cyberattacks involve an espionage risk and the situation is urgent, and it will cause serious harm to national security if measures are not taken immediately, the state security authority shall order the relevant units to repair loopholes, stop relevant transmission, suspend relevant services, and notify the relevant departments.

3. The New Law (1) expands the applicability of administrative penalties, (2) adds a new provision to impose fines for minor espionage violations, (3) adds new types of administrative penalties, including regulatory talks, public criticism, and the temporary seizure or revocation of licenses; and (4) clarifies the legal liabilities for assisting others in conducting espionage activities.

Our Observations

Clients are advised to implement appropriate security precaution mechanisms to guide the behavior of employees, conduct proper due diligence on relevant business partners and counterparties, and pay close attention to the confidentiality and decryption of sensitive materials, data, and information, to mitigate relevant risks.