China: China's New Cybersecurity Law Effective As Of 1 June 2017

On 1 June 2017, China's cybersecurity law will come into effect. As the first Chinese law focusing exclusively on cybersecurity, the law will introduce unprecedented regulation on data protection and data security practices. This includes mandatory domestic storage of data (data localisation), restrictions on cross-border data transmissions, and data security assessments that may lead to the sharing of confidential information with the Chinese authorities.

On 11 April 2017, a set of draft measures and guidelines were released, providing further insight into the practical implementation of the cybersecurity law. However, the draft measures also reveal the ongoing ambiguity of the law and possible implications. This includes unclear definitions that can be interpreted broadly, and, under the draft measures, the scope of some of the law's most far-reaching obligations appears to be much more expansive than under previous drafts of the law. Although a complete interpretation of its specific provisions remains difficult, the law could have major implications for almost all companies operating in China.

Based on the scope of the legislation, we have several recommendations, including: assessing whether your business is impacted by this new legislation; reviewing your technology and data arrangements; and considering how to comply with these new and untested requirements. We stress that this legislation could also affect companies located outside of China when data belonging or relating to those companies is in the possession of customers or suppliers with a presence in China.

Introduction

On 1 June 2017, China's cybersecurity law will come into effect. As discussed in the September 2015, August 2016 and December 2016 editions of In context, the new law introduces a framework for China's cybersecurity regime. The law can be seen against the background of the Chinese government's recent tightening of control over matters relevant to national security. Although its exact scope and implications are still relatively unclear, it is now evident that the law will impose obligations with regard to local storage of data in China (data localisation), restrictions on cross-border data transmission, and security assessments that will be conducted by companies themselves or by Chinese authorities. In addition, the law requires companies to implement compliance and governance policies relating to data protection and cybersecurity.

On 11 April 2017, the Cybersecurity Administration of China released a set of draft measures and guidelines (Security Assessment Measures regarding the Export of Personal Information and Important Data) which provide insight into the practical implementation of the cybersecurity law. The draft offers some guidance on several aspects of the law, but also creates more uncertainty, as it broadens the scope of specific requirements. As such, it remains uncertain how some of the more ambiguous obligations and definitions in the law will be interpreted in the future. In any case, the draft measures show that the immediate future of Chinese cybersecurity regulation for companies operating in China remains vague.

Scope: network operators and critical information infrastructure operators

The cybersecurity law imposes its most significant obligations on two categories of entities: "network operators" and operators of "critical information infrastructure." Although many had hoped that the draft measures would further clarify the definitions of these entities, this has not been the case. Although further elaboration of these definitions is expected at a later stage, some clarity has been provided, as outlined below.

Under the cybersecurity law, "network operators" are defined as "network owners, administrators or service providers". This definition leaves much room for interpretation and potentially covers any entity that uses the internet or other networks in its operations. This means that almost all companies currently operating in China would fall under its scope. Consequently, any company with a presence in China should assume that they will be subject to the corresponding obligations. These include:

  • formulating internal security management systems and operating rules
  • appointing designated officers responsible for network security
  • adopting technological measures to prevent and mitigate computer viruses and network attacks and intrusions
  • monitoring network operations and incidents and storing these records for a period of six months
  • adopting measures relating to data classification, back-ups and encryption.

As for operators of "critical information infrastructures", the definition seems narrower than "network operator". The cybersecurity law states that the exact definition of "critical information infrastructures" has yet to be formulated by the State Council, but specifies several industries covered under the definition, such as "public communication and information services, power, transportation, water, finance and public services". In addition, any information infrastructure which, "if destroyed, loses function or leaks data, might seriously endanger national security, national welfare and the people's livelihood, or the public interest", also falls within the scope of the definition. As for the requirements for operators of "critical information infrastructures," as a start, they have to comply with the obligations of "network operators" as outlined above. In addition, more rigorous requirements apply, such as obligations to:

  • set up specialised security management departments and conduct security background checks on responsible officers in critical positions
  • periodically conduct network security education, technical training and skills evaluations for employees
  • carry out disaster recovery backups of important systems and databases
  • formulate emergency response plans for network security incidents, and periodically organise drills
  • be subject to state security assessments by governmental authorities when purchasing products "impacting national security"
  • annually engage a third party to conduct a security and risk assessment and to submit the results to the authorities
  • provide network security information to authorities and "research institutions".

Data localisation

One of the most significant requirements under the cybersecurity law is the domestic storage of data (data localisation) within the People's Republic of China, which for this purpose is likely intended to exclude Hong Kong, Taiwan and Macau. Under the initial drafts of the cybersecurity law, and as previously reported by In context, the data localisation requirement was limited to operators of "critical information infrastructure" only. However, the draft measures now seem to indicate that the requirement has been extended to all "network operators." The scope of the data localisation requirement thus appears to be much wider than previously indicated and, as a result, compliance with the data localisation requirement may be imposed on virtually every company operating in China. This change might be an indicator that data localisation is now to be viewed as a more general, leading principle under the cybersecurity law and an additional important tool for the restriction of cross-border data transmission (see also next paragraph).

Regulated transmission of data and mandatory security assessments

Equally important as the data localisation requirement are the regulations imposed on cross-border transmissions of data. Under the cybersecurity law and the recent draft measures, such transmission is subject to specific self-assessment regulation and, in specific cases, a security assessment by the authorities.

The cybersecurity law distinguishes "personal information" and "important data." Under both the cybersecurity law and the draft measures, "personal information" is defined, briefly, as information that, alone or jointly with other information, can be used to identify a natural person, including a natural person's name, date of birth, identification number, personal biometric data, address and phone number. The definition of "personal information" is particularly relevant because under the draft measures, if "personal information" is to be transferred outside of China, "network operators" must notify the data subject of the purpose, scope, content, recipients and destination of the transfer and obtain consent from the personal data subject. If consent has not been obtained, personal information cannot be transmitted outside China's borders.

A definition for "important data" is not included in the cybersecurity law itself, but the draft measures define it as "data closely related to national security, economic development and public interests" and further refer to national standards and guidelines.

According to the draft measures, if "network operators" need to export any data (either "personal information" or "important data") to a place outside of China for business reasons, a security assessment must be conducted. In principle, this security assessment should be conducted by "network operators" themselves; a self-assessment. This self-assessment must consider, among other factors:

  • the necessity of the data transfer
  • the amount, scope, type, sensitivity and, if applicable, consent in relation to the data
  • security protection measures and capability level of the receiving party, and the cybersecurity environment of the destination country or region
  • the possibility of the data being disclosed, damaged, tampered with, or abused after the cross-border transfer
  • risks for national security, public interest and individual legitimate interests
  • other important aspects.

In addition to the self-assessment, under specific circumstances the cross-border transfer of data has to be submitted to and assessed by the competent government authority.  This government assessment considers similar factors to those listed above. A government assessment is needed if the cross-border data transfer fulfils specific additional criteria, such as:

  • personal information involving over 500,000 individuals
  • data size exceeding 1,000 GB
  • data concerning nuclear facilities, biochemistry, national defence and military, demographics and health, large-scale project activities, marine environment or sensitive geographic information
  • cybersecurity information about system vulnerabilities and security protection of "critical information infrastructures"
  • any data exported by an operator of "critical information infrastructures"
  • other circumstances that could potentially affect national security and public interest that the authorities deem should be assessed.

Finally, the draft measures provide that certain information is not allowed to leave China under any circumstances, making this data absolutely domestic. This prohibition regards:

  • personal information for which no consent has been given or which may be contrary to the interests of the relevant individual
  • data which, if transferred out of China, could impact national politics, the economy, science and technology, or national defence
  • data which specific government authorities have deemed cannot leave China.

Reception from international business community in China

The publication of the draft measures, and particularly the broadened scope of some of its most significant requirements, have caused the international business community in China to repeat and renew its concern about the cybersecurity law. Criticism focuses on the lack of clarity over important terms, procedures and criteria, especially with regard to data localisation and the procedural aspects of the security assessments. With the cybersecurity legislation itself already in place, any expansion of scope through implementing rules, such as these draft measures, could bring about significant uncertainties. These uncertainties might lead to compliance risks, increase difficulties for supervision and administration, and restrict the flourishing ICT market, particularly for multinational companies with global operations but also for Chinese companies expanding abroad.

Critics further argue that compared to the EU, where EU-approved standard contractual clauses suffice for export to a country or region not providing the adequate level of data protection, the assessment mechanism proposed under the draft measures is cumbersome. Such strict requirements may jeopardise business operations. More details are needed to clarify the ambiguities both in the law and in the draft measures, with regard to: key terms (such as "network operators", "critical information infrastructures" and "important data"); the responsibilities of the relevant industry departments and regulatory authorities; the relationship between self-assessments and security assessments conducted by the authorities; potential penalties for non-compliance; the possibility of appeal against unfavourable rulings; and any retroactive implementation of the legislation.

Recommendations

As the cybersecurity law will enter into force at the beginning of June 2017, we recommend that businesses operating in China assess if and how they might be impacted by this legislation, and if any additional preparatory or mitigating measures are necessary.

As a starting point, businesses should evaluate how they could fall within the scope of the new legislation. As previously noted, definitions under the cybersecurity law are not clear and remain in flux; however, if anything, the draft measures indicate that definitions should be interpreted broadly. We believe it is prudent to assume that any company that owns or operates computer systems, data networks or websites in China falls within the scope of "network operator." We note that the potential scope of the legislation is not limited to businesses themselves, but could also extend to their customers and suppliers located in China. In that respect, companies located outside of China could also be affected when data belonging or relating to them is in possession of business partners with a China presence.

In general, we recommend that companies review and update their internal compliance policies and instruct their designated compliance and data protection departments to closely monitor the ongoing development of data and cybersecurity legislation in China. In any case, policies regarding data storage, privacy obligations and the provision of information to the authorities should be revised (or formulated, as the case may be) and implemented. As the cybersecurity law could require companies to share information with Chinese government authorities, a close inspection of potentially sensitive and confidential information located in (and potentially transferred out of) China is paramount. Companies may want to consider exporting such sensitive and confidential information outside of China before the new legislation enters into force on 1 June 2017.

More technically, we recommend that companies examine their potential exposure under the cybersecurity law. This involves closely examining the ways in which data collected and generated in China is stored and transferred outside of China through data mapping and a review of data allocation and hosting services. It is possible that, to comply with the new measures, important changes will need to be made to companies' internal IT infrastructure. Although its full implications remain to be seen, the cybersecurity law might ultimately require companies to segregate their IT infrastructure to facilitate a separate China system. This could prove difficult if servers, databases and other IT systems are currently centrally hosted or otherwise shared on a global level.

Finally, it is vital that, going forward, companies closely monitor how the law will be enforced after it takes effect on 1 June 2017. Naturally, we will also follow all relevant developments and provide updates as soon as they are available.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions