China Cyber Security Law Prompts Fears of Chilling Effect on Foreign Tech

Doing business as a technology company in China is going to get a whole lot more difficult starting Thursday.

That’s when a sweeping new cyber security law takes effect, saddling firms that handle Chinese data with a host of intrusive regulations that experts say will make multinational companies more vulnerable to theft of their intellectual property, and increase the complexity and costs of doing business.

Among the more onerous provisions of the Cyber Security Law (CSL), companies designated as “critical infrastructure” are forbidden from exporting data collected inside China.

The definition of critical infrastructure companies was drawn so broadly as to include any company that – if breached – could “harm people’s livelihoods.”

One example included a fast-food restaurant that accesses the personal payment information of a large number of Chinese citizens.

“The law is both extremely vague and exceptionally wide in scope, potentially putting companies at risk of regulatory enforcement that is not related to cyber security,” Carly Ramsey, associate director at the risk-management consultancy, Control Risks, told the Financial Times.

Parts of the country’s first national digital security regulatory regime – like mandating development of data privacy rules – are being welcomed by some observers as long overdue.

But other components are fueling fears about their intrusiveness.

One provision of the rule requires that critical infrastructure designees, and any services they engage, must undergo “national security reviews” during which state regulators can ask to see source code or other proprietary information.  

“The CSL gives broad authority to the Cyberspace Administration of China, China’s powerful cyberspace watchdog, and other industry regulators to conduct these reviews,” Forbes.com said in a separate article penned by Ramsey and Ben Wootliff, also of Control Risks.

Companies seeking to export data of more than 500,000 Chinese individuals must also undergo a national security review to ensure their systems are “secure and controllable.”

In addition to making it more difficult to move Chinese data out of the country for storage in cloud data centers around the world, the new rules could limit the ability of organizations to include data from China for worldwide analysis.

“Regulators will likely focus on whether companies have any data that could contradict official numbers, such as industry or population health statistics,” the Forbes piece said.

Experts recommend that any company whose business relies on managing Chinese data assess the specific impact to their firms and respond accordingly.

And responsible businesses should anticipate that the law could be applied in ways that have nothing to do with cyber security.

“Companies should also be aware that the CSL potentially provides the government with the legal ability to obtain intellectual property and a view into an organization’s cyber gaps and vulnerabilities,” Ramsey and Wootliff explained. “The operational costs and risks of localizing data to China are likely to be significant for most (multinational corporations), particularly the loss of the ability to conduct global big data analytics if the China data has to be housed separately.”

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