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July 6, 2023
Notes from the Pentagon

Counterintelligence agency warns on Chinese spy law

By Bill Gertz
A new Chinese counterespionage law poses risks to Americans and U.S. companies doing business in China, according to a security alert from a U.S. counterintelligence agency.

The new law, which took effect July 1, has the “potential to create legal risks or uncertainty for foreign companies, journalists, academics, and researchers,” according to a notice from the National Counterintelligence and Security Center, or NCSC, a counterspy element under Director of National Intelligence Avril Haines.

The new law makes documents, data and other materials considered relevant to national security subject to seizure or inspection, the warning notice said.

The law expands the definition of espionage from covering state secrets and intelligence activities to include any documents, data, materials or items viewed by Chinese authorities as linked to unspecified “national security” concerns.

The June 30 DNI notice said the Chinese legal restrictions are part of a series of new regulations since 2015 related to national security, cybersecurity and data privacy, covering both domestic and foreign companies, including American firms operating in China.

“Beijing views inadequate government control of information within China and its outbound flow as a national security risk,” the NCSC notice said. “These laws provide the [Chinese] government with expanded legal grounds for accessing and controlling data held by U.S. firms in China.”

In addition, American and other foreign companies and citizens now face penalties for traditional business activities that Beijing could regard as acts of espionage, or actions Chinese regulators believe assist in the implementation of foreign sanctions against China.

The laws can also be used to compel Chinese nationals employed by U.S. firms to assist the government’s intelligence collection and operations.

The new law states that “counterespionage efforts are to uphold the centralized and unified leadership of the [Chinese Communist] Party center, adhere to the holistic view of national security, persist in combining public and secret efforts, combining specialized work and mass line work, persisting in active defense, punishment in accordance with law, and addressing both symptoms and root causes, to build a people’s line of defense for national security.”

The law also calls on all Chinese citizens to report suspected intelligence activities to the government, with penalties for those that fail to do so. Foreign nationals can now be questioned by counterintelligence officials, and their electronic devices seized and facilities and documents inspected.

Under the law, foreign nationals can also be prevention from leaving the country during counterespionage investigations. Postal service and couriers and internet service providers must assist counterspy investigations, the law says. Counterspies are also given free access to public transportation and can enter residences during security inquiries.

Technical counterintelligence measures also will be increased, and counterspy forces bolstered.

“Political, theoretical, and operational training for state security organ staff shall be conducted in a planned manner,” the law states.

China‘s government, through spokesmen and propaganda outlets, often accuses the CIA of spying in China and of working to foment a revolution against the ruling Chinese Communist Party. But the CIA lost most of its agents in China after the Ministry of State Security began targeting the agent networks in 2010, according to intelligence sources.

The counterespionage law is just one of a number of legal measures imposed by Chinese authorities, the NCSC said. A 2021 cybersecurity measure requires U.S. companies in China to report vulnerabilities in their systems or software.

This measure could allow Chinese authorities to “exploit system flaws before cyber vulnerabilities are publicly known,” the notice said.

A law on personal information protection, also from 2021, gives Chinese authorities the ability to gather personal data on employees of U.S. companies in China.

An anti-sanctions regulation may “compel U.S. companies to heed [Chinese] regulations rather than U.S requirements, or face legal consequences,” the notice said.

A 2021 data security law increases Chinese government access to U.S. companies’ data within China and expands Chinese control on the outbound flow of data.

In recent months, China began cracking down on American and other foreign companies.

Earlier this year, authorities questioned staff members of the U.S. consulting firm Bain & Co. and raided the Beijing office of the New York-based due diligence firm Mintz Group. Five Chinese employees of Mintz were arrested for what the Beijing government said were suspected illegal business operations.

Taiwan’s government recently announced that its citizens have been arbitrarily detained under the new counterespionage law, and that Taipei would respond to such “hostile acts.”

Jan Jyh-horng, a spokesman for Taiwan’s Mainland Affairs Council, said “many cases” involved Taiwanese nationals being questioned and detained without cause by Chinese authorities, including lawmakers and academics.

State Department updates travel warning for China
In a related development, the State Department recently updated its travel warning to Americans going to China over concerns about arbitrary detentions, exit bans and enforcement of local laws.

“The People’s Republic of China (PRC) government arbitrarily enforces local laws, including issuing exit bans on U.S. citizens and citizens of other countries, without fair and transparent process under the law,” the notice said.

The key risk is wrongful detention by Chinese authorities.

“U.S. citizens traveling or residing in the PRC may be detained without access to U.S. consular services or information about their alleged crime,” the warning said. “U.S. citizens in the PRC may be subjected to interrogations and detention without fair and transparent treatment under the law.”

The warning covers business people, former government officials, academics, relatives of Chinese nationals and journalists.

People from all those groups have been interrogated or detained by Chinese officials for alleged violations of national security laws.

Chinese exit bans are also being used to compel cooperation with security inquiries, or to coerce relatives and children of Chinese under investigation to force cooperation.

The travel warning also urged Americans in China or traveling to the country not to use drugs.

“A positive drug test, even if the drug was legal elsewhere, can lead to immediate detention, fines, deportation, and/or a ban from re-entering the PRC,” the warning said, adding that travelers can be compelled to provide blood, urine, or hair samples.

The warning also urges Americans to avoid taking part in demonstrations in China.

China hits back in chip wars
China‘s government announced this week it is imposing restrictions on the export of gallium and germanium, two rare-earth minerals key to manufacturing advanced semiconductors. The restrictions were an apparent retaliation for moves by the United States, Japan and the Netherlands to curb exports of advanced semiconductor equipment to China.

Gallium and germanium are listed by the U.S. government among minerals deemed “critical to the U.S. economy and national security.”

Chinese Foreign Ministry spokeswoman Mao Ning said this week that China hopes to keep global industrial and supply chains secure and stable, telling reporters the new controls were imposed in accordance with Chinese law and do not target any specific country.

The Chinese Communist Party-affiliated outlet Global Times, however, says the mineral restrictions show that “China will not be passively squeezed out of the global semiconductor supply chain.”

Following the Chinese announcement on Monday, the Biden administration is reportedly planning to restrict Chinese companies’ access to U.S. cloud computing services, The Wall Street Journal reported Wednesday.

The report, quoting people familiar with the planned restrictions, said cloud service providers such as Amazon and Microsoft will first have to obtain U.S. government permission before providing cloud computing services that use advanced artificial intelligence chips to Chinese customers.

The restrictions on cloud services are aimed at preventing Chinese artificial-intelligence companies from circumventing export controls through cloud computing resources abroad.

Advanced cloud services allow companies to utilize super-computing capabilities without having to buy advanced equipment and microchips. The new restrictions will be part of a larger package of economic sanctions and restrictions designed to limit China‘s ability to use U.S. technology to bolster its military.

The tit-for-tat supply chain battle comes as Treasury Secretary Janet Yellen is set to visit China this week for talks the administration hopes will boost cooperation and cool rising U.S.-China tensions. The secretary’s talks are expected to include discussion of macroeconomics, climate change and debt in the developing world.

  • Contact Bill Gertz on Twitter via @BillGertz.

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