This memorandum presents an introduction to China’s new state secrets law and other related laws with respect to trade secrets and bribery. This new law is significant, as it impacts the day-to-day operations of all foreign companies operating in China. As a result:  

  • A foreign company may be unaware that it is handling, transmitting, or in possession of information that may be deemed a state secret. Such information could appear innocuous to an uninitiated foreign company, since it could include information that is crucial to the foreign company’s day-to-day operations, and even information that may seem mundane and/or “industry standard”;  
  • A foreign company must take precautions to identify information that may be considered sensitive under this new law and institute internal compliance procedures to ensure that it will not be subject to potentially severe administrative and criminal liability, which may include imprisonment of its officers and directors.  

This memorandum includes a summary of events in the highly publicized Rio Tinto case, and the subsequent overhaul of the existing state secrets law, and highlights related laws and issues regarding trade secrets and bribery. Foreign companies must review and update their internal compliance procedures especially when dealing with state-owned enterprises to prevent criminal and administrative liability. This is especially true now that the trade secrets of state-owned enterprises may be classified as state secrets.


The Law on Guarding State Secrets3 (“Revised State Secrets Law”), effective 1 October 2010, is largely a byproduct of the arrest, detention and sentencing of certain employees of the British- Australian mining conglomerate Rio Tinto Group (“Rio Tinto”) by a Chinese court in 2010 (the “Rio Tinto Case”), and the ensuing international public scrutiny and outcry. Key background information regarding the Rio Tinto Case is as follows.  

On 29 March 2010, a Shanghai court found four (4) Rio Tinto employees guilty of accepting bribes and stealing trade secrets. The court ruled that Rio Tinto’s general manager of China sales, an Australian national, would be subject to a ten (10) year prison sentence, and his three (3) Chinesenational colleagues subject to sentences ranging from seven (7) to fourteen (14) years.

The court alleged that these Rio Tinto employees took bribes from private (non-China state-owned) Chinese steelmakers in exchange for supplying them with iron ore at better prices than those offered by state-owned steel mills. The court also held that these employees illegally obtained confidential information from executives of a major Chinese steelmaker4 which they then passed on to Rio Tinto.  

The employees were initially arrested on charges of espionage and stealing state secrets. It is of note that these charges arose during sensitive negotiations between Rio Tinto and the Chinese government in connection with the prices of iron ore. Some have speculated that these arrests were an act of reprisal for Rio Tinto’s rejection of an investment of US $19.5 billion by one of China’s largest state-owned mining companies just one month prior to the court’s judgment in the Rio Tinto Case.

The Rio Tinto Case highlights the extremely delicate issues that foreign companies must face when operating in China. This is particularly relevant for foreign companies that may work or compete with state-owned enterprises (each, an “SOE”), or whose work may involve key industries in China.


Revised State Secrets Law

The Revised State Secrets Law was promulgated just one month following the judgment in the Rio Tinto Case. The timing of the Revised State Secrets Law is significant because it is widely believed that the Chinese government would have been unable to charge the three (3) Rio Tinto employees under the then existing state secrets legal regime.5 The Revised State Secrets Law attempts to clarify the definition of state secrets and introduces new provisions requiring internet service providers to cooperate with authorities in any investigations relating to the dissemination and potential leakage of state secrets.

Broader Scope of Application

China’s previous state secrets laws defined state secrets as matters relating to “national security and interests as determined under statutory procedures and to which access is vested in a limited scope of persons during a given period of time.”6 However, according to the Revised State Secrets Law, state secrets are “matters which, if divulged, would harm national security and interests in the areas of politics, economics, national defense, and diplomacy.”7 What constitutes “harm” remains vague and undefined, and the types of information that may qualify as a state secret under the new definition remain unclear.


When examining the Rio Tinto Case facts and applying the Revised State Secrets Law, confidential information detailing China’s position in connection with its iron ore price negotiations and the production plans of key Chinese steelmakers, if divulged, would qualify as harming China’s economic interests. Iron ore is one of China’s key resource components because it is needed for sustained economic development, and the disclosure of such confidential information would result in an inferior negotiating position for Chinese steelmakers and may lead to higher iron ore prices.

Given the broad definition and categories of state secrets under the Revised State Secrets Law, many commentators contend that Chinese regulators have too much discretion in classifying information as state secrets. This increases the need for foreign companies to exercise caution when in possession (whether intentional or unintentional) of information that could be construed as a state secret, especially if the information is even tangentially related to the Chinese government or to an SOE.


The State Administration for the Protection of State Secrets (the “SAPSS”) is generally responsible for determining the scope and categories of state secrets. The SAPSS has wide reaching powers to protect national interests since it determines what information is deemed a state secret and whether a party has breached the relevant law and regulations. Violation of China’s state secrets law may result in criminal or administrative liability.8  

Since the SAPSS is the initial authority in determining whether information may constitute a state secret, it should be consulted by a foreign company prior to handling potentially sensitive information. Regular dialogue with the SAPSS, or at the very least, consultation with the SAPSS before potentially sensitive information is handled should form part of every foreign company’s internal compliance procedures.  


Trade Secrets

The Criminal Law of the Peoples Republic of China9 and the Anti-Unfair Competition Law of the People’s Republic of China10 (the “AUCL”) define trade secrets or commercial secrets as "technical information and operational information that are unknown to the public, bring economic benefits to their rightful owner, are functional, and are kept as secrets by their rightful owner”. Trade secrets have the following characteristics:

  1. the information must be unknown to the public, meaning that it cannot be obtained through public channels or from public sources;  
  2. the information may bring economic benefits, which usually refers to technical and/or operational information, including designs, processes, formulas, manufacturing methods, management know-how, customer data, marketing strategies and information regarding bidding; and
  3. certain measures were taken to keep such information confidential, including entering into a confidentiality agreement, establishing a confidentiality code, or otherwise specifying confidentiality obligations.  

New SOE Trade Secrets Law

In an effort to further strengthen trade secret protections for specified SOEs administered by the central government, the State-Owned Assets Supervision and Administration Commission promulgated a set of SOE Trade Secrets Implementation Measures (the “TSIM”)11 on 25 March 2010.

The TSIM regulates a broad range of trade secrets, including: (i) operational information such as strategic plans, business plans, business models, financial information, investment or financing decisions, customer data, tenders, or bidding information; and (ii) technological information, such as designs, programs, formulas, manufacturing methods, and know-how.

Furthermore, the TSIM stipulates that the trade secrets of SOEs may become state secrets.  

SOE Trade Secrets May Become State Secrets

The risks and liabilities for foreign companies operating in China are exacerbated where the information in question relates to an SOE. In China, SOEs are state administrative entities and have the authority to classify information in their possession as state secrets. A broad range of commercial information originating from or concerning SOEs may be subject to the Revised State Secrets Law’s definition of state secrets, including information a foreign company may obtain or access by means of an arms length commercial transaction with an SOE. This is particularly true when dealing with an SOE that operates in a government regulated industry, such as energy, resources, information technology, telecommunications, and banking.  


Foreign companies, particularly those that deal with SOEs, can unwittingly find themselves in violation of the Revised State Secrets Law and the TSIM. Therefore, initial business contact with SOEs should include discussions on these issues, and such discussions should form an integral part of a foreign company’s internal compliance procedures. A request should be made to the SOE during the earliest stages of a business transaction for assistance in complying with the state secrets law. This may include:

  1. requesting the SOE to liaise with SAPSS to obtain the relevant written approvals and/or exceptions; and  
  2. entering into agreements with the SOE restricting that SOE’s authority to classify information as a state secret12.  


Both the AUCL and the Criminal Law of People’s Republic of China (“Criminal Law”) are important components of China’s anti-bribery framework. Bribery remains an important issue for foreign companies operating in China and, as highlighted in the Rio Tinto Case, is often related to the possession of highly sensitive information which can be classified as state secrets. State and trade secrets are commonly disseminated and obtained through bribery. Moreover, those who commit bribery are often subject to very serious administrative or criminal liabilities, such as the employees in the Rio Tinto Case.

Commercial Bribery

Commercial bribery is defined by the AUCL as “the use of property or other means by a business operator to bribe the other transaction party in order to secure the sale or purchase of goods”13. “Property” can be money or in-kind benefits such as the purchase of goods, payments for fictitious promotional expenses, marketing expenses, sponsorship fees, expenses for scientific research, service fees, consulting fees or commissions, gift cards, or the reimbursement of various expenses.  

Commercial bribery can be distinguished from legitimate gift-giving. Reference is made in the AUCL to several factors when examining whether a gift constitutes a bribe, including: (i) the reason for the gift; (ii) the value of the gift; (iii) the cause, timing, and method of the gift; and (iv) whether the receiver has taken advantage of his/her position to benefit the gift-giving party.

There is an exception to the “commercial bribery” provisions with respect to transparent and documented discounts, rebates, and commissions. These payments are distinguishable from “commercial bribery” by the fact that they are documented in the financial books of the relevant party. By contrast, “commercial bribery” payments are characterized by their non-transparent nature. Offering or accepting such non-transparent payments is considered bribery.

Criminal Bribery

An individual or a company may commit criminal bribery by giving money or property for the purpose of obtaining “illegitimate benefits”. According to the Criminal Law, where an individual or company gives an Official (“Official”) of a government agency, department, or SOE money or property for “illegitimate benefits” and the Official accepts the gift, both the individual and/or the company and the Official will be in violation of the Criminal Law and will be subject to certain criminal liabilities.14 One point of concern is that “illegitimate benefits” is not defined which provides the prosecuting authorities with broad discretion to classify acts as bribery.

The Criminal Law stipulates various types of criminal liability for the individuals and/or companies engaged in bribery and the Officials accepting bribes. Those individuals engaging in bribery and in violation of Criminal Law may be subject to a maximum penalty of life imprisonment. Where a company is in violation of the Criminal Law, the company will be subject to a fine, and the responsible personnel may be subject to a maximum of ten (10) years in prison. However, the Officials accepting bribes may be subject to the death penalty. In some extreme cases, those in violation received the death penalty.

Bribery and State Secrets

It is worth noting that, although commercial bribery is subject to the AUCL and criminal bribery is subject to the Criminal Law, both the AUCL and the Criminal Law do not expressly distinguish commercial from criminal bribery. Given this, the government authorities usually accorded broad discretion to classify bribery as commercial bribery or criminal bribery. However, where a bribe involves certain Officials, the Chinese government tends to classify such a bribe as criminal bribery.  

Many foreign companies operating in China have already implemented strict internal controls and procedures to comply with bribery laws. Nonetheless, the sweeping nature of the Revised State Secrets Law may require that such controls and procedures be modified. By promulgating the Revised State Secrets Law, the Chinese government is officially stating that bribery is no longer just a commercial issue, but can also be a matter of national security. This implies tougher penalties for violators and also the need for foreign companies to be even more circumspect with their own internal compliance procedures.


Foreign companies operating in China cannot afford to take China’s new state secrets regime lightly. The new laws are broad and could easily lead to situations where the foreign company, in the course of engaging in ordinary commercial transactions, unwittingly finds itself in violation of possessing, handling, or transferring state secrets. Foreign companies must take precautions in order to identify information that may be considered sensitive and institute internal compliance procedures to ensure that they will not be subject to the severe criminal and administrative liabilities that would result from a violation of China’s state secrets laws.