Hidden dangers of China’s Cybersecurity Law

Donald Trump is a 250-character man, obsessed with social media site Twitter. Xi Jinping is a thousand-Chinese character sort of guy, rolling out speeches and edicts to the Communist Party faithful.

Both realize they are entering the home stretch when it comes to the ‘trade talks’ marathon, which is expected to rumble on in Washington later today.

“We will probably know over the next four weeks. It may take two weeks after that,” the United States President told a media briefing following a meeting with Xi’s economic confidant, Vice-Premier Liu He.

“It’s looking very good,” he added.

President Xi was slightly more circumspect in a letter to Trump, the official Chinese news agency Xinhua revealed. It read:

“Over the past month, the economic and trade teams of both nations have engaged in different kinds of intensive consultations and made new concrete progress on the text of the trade deal.

“I hope the economic and trade teams of both nations can wrap up negotiations on the text as early as possible based on the principle of mutual respect and mutual benefit. Under the current situation, the healthy and stable development of China-US relations is related to the interests of both Chinese and American people. For that, strategic leadership is needed.”

Major progress has been made in key areas such as intellectual property rights and the theft by stealth of US technology by Chinese companies.

Beijing has also promised to open up a raft of sectors to foreign companies and speed up its reform timetable.

Business Model

Yet, significantly, there was no mention of the business model favoring state-owned companies, particularly in the high-tech sector.

It will be interesting to see if that key sticking point is covered in the proposed final trade accord.

But, perhaps, the biggest conundrum will be how Washington will enforce a potential deal. The White House has made it clear it will not relax all the tariffs on Chinese imports worth US$250 billion.

The plan is to do that in stages.

Moreover, other issues remain such as the controversial Cybersecurity Law, which has teeth the size of a Tyrannosaurus.

Overseas companies from tech firms to banks will have to keep their network data in the world’s second-largest economy if they want to do business there.

This involves sourcing servers, routers, equipment and products from Chinese suppliers.

“Significantly, the businesses affected by the Cybersecurity Law are not limited to those in the information technology (IT) industry. The Law has wide influence over all enterprises that employ networks or information systems in their operations,” Leo Zhao, a senior counsel, and Lulu Xia, a business consultant, with Grapevine Asia, a boutique consultancy specializing in risk management, wrote in a commentary for China Briefing.

“According to related articles of the Law, enterprises may roughly be categorized into ‘network operators’ and ‘Critical Information Infrastructure (CII) Operators’ based on the enterprises’ types and their business scopes,” they added.

Liu, it is understood, has shown signs he is prepared to discuss US concerns about the legislation with US Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer.

But it is unclear how far Xi’s government will go and, again, how any agreement will be enforced.

Trade war

Even if a deal is hammered out, the dynamics between the two countries have changed dramatically following a trade war which has dragged on for more than 10 months.

Turning the clock back will prove nearly impossible.

Again, the areas of a future dispute will involve technology, according to Wang Tao, the head of Asia economics and chief China economist at UBS Investment Bank.

She wrote on the Chinese media site Caixin:

“We do not see US-China trade relations returning to pre-trade war conditions. Most of all, the US will likely further restrict Chinese investment in the US, China’s access to technology and high-tech products in the coming years.

“We [also] think it is highly unlikely [China will] give up its ambition to move up the value chain and acquire advanced technology. While China may deepen reforms of state-owned enterprises, these reforms are likely to be designed to make SOEs more efficient and stronger, not to privatize or dismantle them.”

If that happens, words of comfort could quickly turn into a war of words … in 250 characters and a series of long speeches in Mandarin.