China's top legislative body adopted a new National Security
Law on 1 July 2015. Under this law, foreign investments will be
subject to a national security review. No guidance has been given
so far on how the review will be implemented and what the practical
impact of the new law will be. There is a risk that the law or any
implementing regulations will restrict access to activities deemed
sensitive by the Chinese government. This could have a significant
impact on foreign businesses dealing with or operating in
In addition, the government published a draft law on cyber
security on 6 July 2015. Once adopted, this will be the first
Chinese law focusing exclusively on cyber security. The draft
indicates that the Chinese government is preparing to tighten its
grip on domestic networks and data security.
We recommend closely keeping track of further developments, as
both laws could significantly impact foreign businesses in
The National Security Law (NSL) is one of three pieces of
legislation adopted or announced during recent months in relation
to China's national security agenda. It is expected that two
more national security laws, relating to foreign non-governmental
organisations and counterterrorism, will be issued in the near
The NSL effectively grants the Chinese National Security
Commission, led by Chinese president Xi Jinping, oversight of
China's national security across various domains covering
politics, military, economy, religion, cyberspace and even
ideology. The law defines security as the state in which "a
country's government, sovereignty, unification, territorial
integrity, well-being of its people, sustainable development of its
economy and society, and other major interests are relatively safe
and not subject to internal and external threats".
The concept of national security reviews may not be new to the
foreign business community, but the NSL potentially covers a very
broad range of business activities and investments which may be
subject to additional scrutiny by the Chinese government. The NSL
provides a legal basis for the existing national security review
mechanism to be implemented beyond the area of mergers and
acquisitions. In addition, the reach of the NSL is extended to
various types of activities, such as the acquisition of properties
and financial transactions. Any kind of foreign investment might
therefore trigger a national security review and face transactional
uncertainties. Furthermore, the NSL does not provide legal remedies
for foreign companies to which a national security review
As implementing regulations have not yet been issued, the
practical implications of the NSL are not yet clear. It is also
unclear which governmental bodies will perform the national
security reviews. The NSL attributes this task to national
governments, provinces, autonomous regions and municipal bodies,
but it as yet unknown which of these bodies will have the formal
authority to perform the national security review process.
Given the potentially significant practical implications of the
NSL, we recommend closely following all developments in relation
the NSL and specifically monitoring the adoption of any
In addition to the NSL, a draft Cyber Security law (CSL) was
published on 6 July 2015. This draft legislation sets forth a
framework for China's cyber security regime and includes broad
regulatory scope on cyber security, including specific provisions
on network products, network operations security, data security and
network information security. The CSL provides, in relevant part,
that operators of "key information infrastructure" must
store citizens' personal data and other key data within the
territory of China. Given the broad definition in the draft CSL of
"key information", cross-border transfers between Chinese
subsidiaries and overseas parent or affiliated operations –
which for instance includes the sharing of customer data –
could potentially be restricted by this local storage requirement
or be subject to a security assessment and approval by the Chinese
The Chinese government seems determined to tighten its control
over China's networks in order to increase national security.
The draft CSL aims to accomplish this goal by strict regulation of
network operation and network information security. Once adopted,
the CSL will almost certainly have a significant influence on all
business sectors in China. We recommend closely monitoring the
developments in relation to the CSL.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The NPP states that India is located on a strategically important location and is well connected to several international trade and commerce routes.
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