A coalition of some of the world's biggest business groups have called on China to revise a new cyber security law and insurance regulations, warning they represent a protectionist threat to growth that would further isolate China from the global digital economy.
The move comes amid growing concerns in Washington and other western capitals about both China-backed cyber attacks on foreign businesses and what they see as the increasing barriers being erected by Beijing to one of the world's largest digital markets.
It marks the biggest intervention with the Chinese leadership by international business since 2010, when concerns were focused on China’s control of the market for “rare earths” crucial to the production of mobile phone and other products.
The intervention by the top business groups from the US, Japan and Europe, and more than 40 others, came in the form of a letter sent this week to Li Keqiang, China’s premier. Alongside the US Chamber of Commerce, BusinessEurope and Japan's Keidanren, the letter was signed by industry groups representing the financial services, technology and manufacturing industries and business lobbies in countries such as Australia, Mexico and Switzerland.
Their concerns focus on provisions that would force foreign companies to store data in China, assist law enforcement investigations and subject information technology products to security reviews. “[These provisions] have no additional security benefits but would impede economic growth and create barriers to entry for both foreign and Chinese companies,” the associations wrote.
The letter reflects growing frustration among foreign companies at what they see as an increasingly hostile environment towards them in China. Since 2013, foreign chambers of commerce have complained of a deteriorating operating climate in China for their member companies. They point to a series of anti-monopoly investigations that have targeted multinationals, and persistent market entry barriers. They also say that a series of bold market reforms outlined by the ruling Chinese Communist party in 2013 have not materialised.
That has fed rising trade tensions and led to questions about Chinese investment in countries including the US and UK. Britain’s new government has launched a review of Chinese investment in a proposed nuclear power plant, while Australia on Thursday blocked a group of Chinese companies from buying up part of its power grid for national security reasons.
The controversial draft cyber security law and insurance sector purchasing requirements, drawn up by the China Insurance Regulatory Commission, come less than a year after foreign business groups and governments lobbied against similar provisions in an Anti-Terrorism Law and draft rules governing banks’ IT purchases.
The bank regulations were postponed last year while the Anti-Terrorism Law was passed by China’s legislature in December. The law requires IT providers to assist authorities in antiterrorism investigations but stopped short of forcing them to provide encryption keys and other “backdoors” into their systems.
“We thought we had put those issues to bed but they have resurfaced in the insurance sector,” said one person involved in drafting the letter. “They are basically the same thing that we saw in the banking sector.”
Jared Ragland, senior Asia policy director for The Software Alliance, one of the signatories of the new letter, said China was not alone in erecting trade barriers in the name of cyber security or privacy laws. But he said “China is fairly unique in creating its own internal [digital] ecosystem" and Chinese officials have in the past made clear their desire to reduce their reliance on foreign technology as a strategic imperative.
China’s foreign ministry did not respond to a request for comment on Thursday. Beijing has previously said the antiterrorism and cyber security laws — as well as the banking and insurance industry regulations — were not aimed at foreign companies.
The banking sector purchasing requirements also worried Chinese financial institutions, which could have been forced to buy substandard products from domestic suppliers.
According to the letter sent to Mr Li, the new insurance sector purchasing requirements “may constitute technical barriers to trade as defined by the World Trade Organisation”.
The US and EU are both engaged in discussions over bilateral investment treaties with China aimed at loosening market access restrictions that have not been modified since Beijing joined the WTO in 2001. Beijing, meanwhile, has complained about Washington and Brussels’ reluctance to recognise China as a market economy, which would make it harder to prosecute Chinese companies for alleged dumping.
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