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China State Secrets

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China Economic Review just published an article by CLB co-blogger, Steve Dickinson, entitled, Chinese Walls.

Steve starts out by discussing the inherent tension between China’s desire to manage “economic information” while at the same time wanting to move to becoming a “modern market economy.” China has responded to this tension by overhauling its state secrecy system:

In recent months the State Council has promulgated an amended State Secrets Law and the state assets regulator has put forward new rules regarding commercial secrets held by state-owned enterprises (SOEs).

The idea is to limit the scope and amount of information classified as secret and improve the systems for preventing disclosure of classified information.

China’s new approach to state secrecy focuses on the following three themes:

Restricting the scope and quantity of state secrets. Only information classified in advance as secret by an authorized government agency qualifies as a state secret. And, under the Secrets Law, the number of agencies able to make classification decisions is strictly limited. The old system where virtually any government agency or SOE was authorized to arbitrarily designate information as a state secret has been eliminated.

Both Chinese and foreign observers have criticized the PRC state secrets system because of the overly broad definition of what can be classified as a state secret. This criticism reflects a misunderstanding of how the law works. It is true that the definition is broad, but information is only a state secret once classified as such by a relevant government authority. Thus, while the potential scope of secrets is vast, the actual quantity is limited by the requirements of the classification procedure.

Clearly distinguishing between state and commercial secrets.
SOEs are owned and supervised by the government, which begs the question: Do SOE secrets automatically count as state secrets? If so, then an SOE could reasonably be classified as a government agency and not as a private commercial enterprise. This is contrary to the country’s economic development policy and would cause enormous difficulties for SOEs in their international business dealings.

In order to prevent any confusion, on this issue the regulations provide clearly that SOE secrets are neither private commercial secrets nor state secrets. The companies themselves do not have the power to classify any information as a state secret. This clear separation between normal commercial secrets and state secrets is consistent with international law on the separation between SOEs and government agencies.

Protecting state secrets from disclosure in the digital world is the critical issue.
The State Council estimates that in the past decade, over 70% of disclosure of state secrets has occurred electronically. Much of this disclosure was inadvertent, resulting from failure to adopt normal computer and telecommunications security measures.

The Secrets Law addresses this issue in two ways. First, it imposes an obligation on all agencies and persons with access to state secrets to follow data protection best practices such as use of secure networks. Second, it requires all telecom operators in China to cooperate with the relevant government agencies in monitoring the unauthorized disclosure of state secrets.

Steve then goes on to discuss how many foreign observers have wrongly concluded that telecom operators are now being asked to act as censors regarding state secrets. No operator has the power to define a state secret – this can only be done by the relevant government authority. The only requirement imposed by the new law is that they must cooperate with the government if a disclosure of state secrets has occurred.

Telecom operators have no right to question the government’s classification of something as a state secret so this “may be an issue for foreign investors in Chinese telecom operations, since they may not agree that certain information should be ruled secret.”

4 responses to “China State Secrets”

  1. The state secret issue is not just a business one.
    It is used to block legitimate information on everything from prisons to religion and pollution.
    Those punished over “state secrets” include
    * Huang Qi — tried to help Sichuan earthquake victims
    * Bao Tong — former official who calls for democratic reform
    * Shi Tao — the guy famously handed over by Yahoo after he told a Western website of a government document to block Tiananmen Square commemorations
    It’s pretty well documented that the “state secret” law is used as a part of the government’s larger (and very large, I may add) program of censorship. Many times, it has nothing to do with business at all.
    China is struggling with how to handle economic information — but this is part of a bigger issue of how it handles information period, in an increasingly digital and globalized world.

  2. I hope you do a follow-up post on how we as businesspeople can help prevent our companies from getting into trouble with the authorities over state secrets.

  3. Its not so much the definitions of SS but the interpretations as laws are implemented and (special) interests are protected.
    I genuinely believe that China’s leaders and laws have noble intentions – just like every country there are difficult decisions to be taken !
    Safeguarding the national interest is a basic requirement in every country – or else there is no country to protect!
    However on an interpretation level there is still much corruption of the original intent; witness the local officials goons who harassed the poor farmer who recently met Wen Jioabao .

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