Yes, there are risks in China - get used to it
July 29, 2009 | BY
clpstaff &clp articles &The arrest of Rio Tinto's Stern Hu shows that when a non-Chinese national employed by a foreign company is detained in China, it makes headlines. But the PRC's criminal penalties for trade secret offences are nothing new
A strong title perhaps, but appropriate in light of recent circumstances. It's an undeniable fact that when a non-Chinese national employed by a foreign company is detained in China, it makes headlines. After Stern Hu of Rio Tinto was first held, newspapers became full of Reminders For Foreign Businesses, Warnings For Investors, and Stark Lessons About China's Legal System.
But mainland China's criminal penalties for trade secret offences are no secret, and are nothing new. To quote one contributor to CLP, writing in 2006: “Since 1997, the PRC Criminal Code has provided criminal sanctions for any serious trade secret offence that causes 'material losses' to the owner of the trade secret.”
This is as clear as PRC law gets: damage a company by stealing its trade secrets and face a criminal record and up to seven years in jail. The law applies to both Chinese and foreign enterprises or individuals. Businesses must also be very careful with data which may be regarded as a state secret. As an example, citing an anonymous official the Beijing Times published (accurate) details of official second quarter GDP data hours before the National Bureau of Statistics convened its official press conference. There will be an investigation.
(It's not only Chinese law that contains such penalties; a US law introduced in 1996 was used for the first time this month in the conviction of a Boeing engineer for economic espionage.)
Other administrative, civil and competition laws contain their own, additional provisions. Perhaps one day these will be drawn together into a general and independent trade secret law. But until this happens, investors must comply with the existing framework.
Rather than debating whether the arrests in the Rio Tinto case were “correct” or whether there were any ulterior motives involved, what foreign investors should be thinking about now is how to stay on the right side of the, admittedly rather faint, line drawn between trade or state secrets and commercial data.
As Harris & Moure lawyer Steve Dickinson pointed out recently in a post on the China Law Blog: “Foreign companies are not permitted to do independent market analysis in China, and private Chinese companies are also strongly discouraged from providing such information.” Predictably, this posting provoked many strong comments.
What it boils down to is that companies must act as they would in foreign investment activities elsewhere: get good, reliable legal advice; carry out thorough due diligence; weigh up the potential risks; and if in doubt, get out.
What do you think? Please feel free to share your thoughts, opinions and questions - simply click on the Add Comment button above, or email me directly at [email protected]
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