China: Update On China's Cybersecurity Law

The PRC Cyber Security Law (the CSL) was enacted in November 2016 and came into force on 1 June 2017.  The new law introduced a raft of measures designed to protect the state and individuals from cyber-attacks and data theft.   These measures include placing obligations on Critical Information Infrastructure Operators (CIIs)1 , Network Operators and providers of network products and services to take active steps to protect computer networks from cyber-attacks and protect personal information and important data from being stolen and/or used for unauthorized purposes.  

Two key features of the CSL are:

  1. the "data localization" requirement, which requires CIIs to store within the territory of China any personal information collected in China; and
  2. the obligation on providers of network products and services to obtain security clearances for the sale of those products and services.

At the time the CSL was published, many commentators noted that the provisions of the Law were very broadly drafted and it was unclear whether and to what extent they would apply to businesses operating in China. 

In an effort to address those concerns the Cyberspace Administration of China has published two new sets of regulations – the "Administrative Measures on the Security Assessment of the Overseas Transfer of Personal Information and Important Data" and the " Measures of Security Review of Network Products and Services" - which set out specific aspects of the CSL in more detail.  We discuss these new regulations below.

Administrative Measures on the Security Assessment of the Overseas Transfer of Personal Information and Important Data

On 11 April 2017, the Cyberspace Administration of China published the consultation paper of its proposed Measures on the Security Assessment of the Overseas Transfer of Personal Information and Important Data (the Overseas Transfer Measures).

As the title of the Overseas Transfer Measures implies, it provides further clarification of the nature and extent of the data localization requirement in the CSL.

Despite at the consultation stage, certain features of the Overseas Transfer Measures are noteworthy:

  1. the data localization requirement is extended to cover both CIIs and Network Operators (under the CSL itself, only CIIs are subject to the data localization requirement);
  2. CIIs and Network Operators can transfer data out of China provided that there is a legitimate business need and a security assessment is undertaken prior to the transfer;
  3. There are two types of security assessment – self-assessments and assessments carried out by the competent authority;
  4. A Network Operator must undertake a self-assessment before transferring data out of the jurisdiction to determine:
    1. That the outbound transfer is necessary;
    2. the quantity, scope, type and sensitivity of the personal information to be transferred;
    3. the security measures and capabilities of the recipient of the personal information and the cybersecurity environment of the nation where the recipient is resident;
    4. the risk of leakage, damage or abuse of the data once it has been transferred;
    5. possible risks to national security, the public interest and the individual's rights.
  5. A security assessment from a government authority must be obtained where:
    1. The outbound transfer involves the personal information of over 500,000 individuals;
    2. The data size is over 1000GB;
    3. The transfer involves data in relation to nuclear facilities, chemistry and biology, national defence and the military, population health, megaprojects, the marine environment or sensitive geographic information;
    4. The transfer involves data relating to information about the cybersecurity of key information infrastructure such as system vulnerabilities and security protection; 
    5. The outbound transfer of personal information and critical data is conducted by an operator of key infrastructure;
    6. The outbound data transfer may affect national security or the public interest.
  6. When transferring personal information, CIIs and Network Operators are obliged to:
    1. Explain the purpose, scope and content of the information;
    2. Identify the recipient of the information and their physical location;
    3. obtain the consent of the person to whom the personal information relates to.

While the relaxation of the data localization requirement introduced by the Overseas Transfer Measures will no doubt be welcomed, the obligation to carry out a detailed self-assessment or seek an assessment from a government authority will almost certainly increase compliance costs for CIIs and Network Operators.

The Measures of Security Review of Network Products and Services

On 2 May 2017, the Cyberspace Administration of China published the final version of the Measures for the Security Review of Network Products and Services (the "Security Measures") which subsequently came into force on 1 June 2017. 

The Security Measures apply to those businesses that fall into the category of "providers of network products and services" as defined in the CSL.

Pursuant to the Security Measures, critical network products and services used in network and information systems relating to national security must undergo a security review. Any network product or service purchased by operators of key information infrastructure will also be subject to a security review, if such product or service might affect national security.

The key test of the review is twofold: security and controllability.  Specifically, the authorities will look at the following issues:-

  1. Security risks arising from the products and services themselves, and risks that products and services may be illegally controlled, interfered with or interrupted;
  2. Security risks arising in the supply chain throughout the manufacturing, testing, delivery and technical support of products and critical components;
  3. Risks that product or service suppliers illegally collect, store, process or use the user-related information while providing products or services;
  4. Risks that product or service suppliers draw on the reliance on such products or services by users to undermine cybersecurity and the interests of users; and
  5. Other risks that may jeopardize national security.

The Security Measures apply broadly to:

  1. Key sectors such as finance, telecommunications, energy, and transport.  For these sectors, the wording of the Security Measures suggests that a cybersecurity review will be mandatory for all pre-existing network products or services; and
  2. Public services and e-government, etc.  For these services, a security review must be undertaken if there are potential national-security implications.

Commentary

The CSL is now law and imposes a wide and far reaching enforcement regime for the protection of computer networks, personal information and important data.

While the Overseas Transfer Measures and Security Measures add some much needed "flesh to the bones" of the CSL, it is fair to say there is still a significant amount of uncertainty as to how these laws will impact businesses operating in China.  As noted above, the provisions of the CSL are broadly worded and the same is true of both the Overseas Transfer Measures and Security Measures.  This in turn creates uncertainty as to what business may need to do to comply with the law.

At the very least, those businesses falling within the category of CIIs or Network Operators will need to ensure that they have comprehensive cyber-security policies in place which are actively monitored and enforced so as to protect networks from cyber-attacks and personal information and important data from theft and/or misuse.  In cases where personal information collected in China needs to be transferred out of the jurisdiction, changes to standard form contracts, online order or booking forms and consent forms may need to be made so as to comply with the requirements of the Overseas Transfer Measures. 

For providers of network products and services, an exhaustive review of products and services may need to be undertaken to determine whether any of those products or services will require a security clearance from the relevant authorities under the Security Measures before they can be sold to the public.

While it may be tempting for CIIs and Network Operators to rely on existing data protection policies, these may not be enough to comply with the CSL.  We are already seeing clients being subject to inspections by the authorities as to the adequacy of their data protection policies and robustness of their computer systems.  Businesses operating in China who may fall into the category of CIIs or Network Operators would therefore be well advised to seek advice on whether they are in compliance with the law.

Annotations:

1  Article 31 of the CSL identifies "Critical Information Infrastructure" as public communication and information services, power, traffic, water, finance, public service, electronic governance and other critical information infrastructure which, if destroyed, lost function or sustained data leakage, might seriously endanger national security, national welfare and the people's livelihood, or the public interest.

2  Under Article 76 of the CSL, "Networks" refers to systems comprised of computers or other information terminals and related equipment that follow certain rules and procedures for information gathering, storage, transmission, exchange and processing and "Network Operators" refers to network owners, managers and network service providers.

3  Under Article 76 of the CSL, "Personal Information" refers to all kinds of information, recorded electronically or through other means, that taken alone or together with other information, is sufficient to identify a natural person's identity, including, but not limited to, natural persons' full names, birth dates, identification numbers, personal biometric information, addresses, telephone numbers etc.

The links to the full China newsletter (June 2017 edition) and other articles in this newsletter can be found below:

Update On China's Cybersecurity Law

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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