The National Security Law (“Security Law”) was issued by China’s National People’s Congress Standing Committee on July 1, 2015 and came into effect on the same day. It sets out President Xi’s new national security vision for China. The Security Law is the end product of a series of legislative efforts on national security and is referenced by draft versions of the Counter-terrorism Law, the Foreign Non-governmental Organization Administration Law, the Cyber-security Law, as well as the Counter-espionage Law which was passed on November 1, 2014. The Security Law is a wide-sweeping reform of China’s national security laws and represents an expansion in scope covering more aspects of national and cyber-security than ever before.

Introduction

The Security Law contains 84 provisions covering a wide range of issues from politics, military, economics, natural resources, religion, food security, cyber-security, space exploration, etc. It outlines the obligations and rights of government organs, commercial and social entities as well as individuals in respect of national security matters. It also introduces a series of major measures that the State will take, including risk prevention, assessment and precaution, national security review and supervision, risk control, etc.

n the area of cyber-security and national security review, the Security Law highlights how pervasive state intervention will likely to be. It provides that:

  1. The state should develop its ability to protect against cyber and information security risks, and ensure that core cyber information technology, information system and data in important infrastructure are secured and controllable.
  2. The state should actively develop independent and controllable technologies in important sectors and key infrastructure. The state should also strengthen the use of intellectual property rights to protect domestic infrastructure and technology.
  3. The state should set up a national security review and supervision system. The national security review should include foreign investment, key technologies, internet and information technology products and services, and other important activities that are likely to impact the national security of China.

Potential Impact on Multinational Companies (“MNCs”)

Challenges for technology companies: According to the Security Law, the state will prioritize the development of domestic “secured” and “controllable” technologies. This language may pose a concern to MNCs with foreignsourced technologies who compete with domestic counterparts who may not have as many regulatory challenges and/or may be perceived as more “secure” or “controllable.” Although no specific rules have been implemented, MNCs in China could also face additional restrictions when their customers in China seek to purchase foreign-sourced technology products and services.

Challenges in the mergers and acquisitions context: Although a “national security review” is stipulated in the PRC Anti-Monopoly Law and several other administrative regulations, the Security Law does not set out further guidelines as to the scope and procedures for such a review. It is likely that the government may issue future guidelines for carrying out the national security review, especially in the mergers and acquisitions context, in light of the broader security concerns raised in the Security Law.

Due to its recent enactment, the actual impact of the Security Law is still unknown at this stage.