China, Anti-Spy Law, and Uncertainty for Investors

A new anti-espionage law passed by the Chinese government may impede foreign investment in the country. The law was approved in April and went into effect in July.

This is an extensive and restrictive update to Beijing’s anti-espionage law that prohibits the transmission of any information related to national security and expands the definition of espionage.

The law is in line with the “stricter” policy that was introduced during the Xi Jinping years and under which all documents, data, materials, and items concerning security and national interests are effectively treated as state secrets. Without defining exactly what “national security” constitutes, the law allows authorities to gain access to data, electronic equipment, and information about personal property.

Along with a series of increasingly restrictive laws passed by Beijing over the years on what a foreigner is allowed to do in China, this is making it increasingly difficult to choose to invest in the Dragon economy. This also complements the global trend of trying to minimally delocalize trade by shrinking supply chains. Added to this is the fact that diplomatic relations between China and the West are becoming increasingly problematic. Therefore, the climate that is being created can impede investment due to increasing uncertainty.

In essence, China has a constant need to attract foreign capital and know-how in order to achieve the desired technological independence from the West. On the other hand, however, it passes the law – vague and thus hardly definable for those who invest – that expands government control, increasing uncertainty for those who do or want to do business in Beijing.