Chinese walls

Secrecy has proved a useful tool for the Chinese government in managing economic information, but it increasingly creates conflict. While secrecy in theory increases government control at a time when China confronts domestic and international challenges to its security, excessive secrecy is incompatible with the requirements of a modern market economy.

In an attempt to respond to this conflict, the state secrecy system has been overhauled. In recent months the State Council has promulgated an amended State Secrets Law and the state assets regulator has put forward new rules regarding commercial secrets held by state-owned enterprises (SOEs).

The idea is to limit the scope and amount of information classified as secret and improve the systems for preventing disclosure of classified information.

New direction

The new approach focuses on three themes:

Restricting the scope and quantity of state secrets. Only information classified in advance as secret by an authorized government agency qualifies as a state secret. And, under the Secrets Law, the number of agencies able to make classification decisions is strictly limited. The old system where virtually any government agency or SOE was authorized to arbitrarily designate information as a state secret has been eliminated.

Both Chinese and foreign observers have criticized the PRC state secrets system because of the overly broad definition of what can be classified as a state secret. This criticism reflects a misunderstanding of how the law works. It is true that the definition is broad, but information is only a state secret once classified as such by a relevant government authority. Thus, while the potential scope of secrets is vast, the actual quantity is limited by the requirements of the classification procedure.

Clearly distinguishing between state and commercial secrets. SOEs are owned and supervised by the government, which begs the question: Do SOE secrets automatically count as state secrets? If so, then an SOE could reasonably be classified as a government agency and not as a private commercial enterprise. This is contrary to the country’s economic development policy and would cause enormous difficulties for SOEs in their international business dealings.

In order to prevent any confusion, on this issue the regulations provide clearly that SOE secrets are neither private commercial secrets nor state secrets. The companies themselves do not have the power to classify any information as a state secret. This clear separation between normal commercial secrets and state secrets is consistent with international law on the separation between SOEs and government agencies.

Protecting state secrets from disclosure in the digital world is the critical issue. The State Council estimates that in the past decade, over 70% of disclosure of state secrets has occurred electronically. Much of this disclosure was inadvertent, resulting from failure to adopt normal computer and telecommunications security measures.

The Secrets Law addresses this issue in two ways. First, it imposes an obligation on all agencies and persons with access to state secrets to follow data protection best practices such as use of secure networks. Second, it requires all telecom operators in China to cooperate with the relevant government agencies in monitoring the unauthorized disclosure of state secrets.

Misinterpreted

The second provision has been misinterpreted by many foreign observers. Telecom operators are not being asked to act as censors regarding state secrets. No operator has the power to define a state secret – this can only be done by the relevant government authority. The matter is entirely outside the scope of duties of the telecom operator.

The only requirement imposed by the new law is the normal rule that if information that has been classified as a state secret is disclosed, telecom operators must cooperate with the government in terminating the disclosure and preventing further dissemination of the secret information. Of course, the telecom operator has no right to disagree with the government classification.

This may be an issue for foreign investors in Chinese telecom operations, since they may not agree that certain information should be ruled secret. But compliance with Chinese law on this issue is the price of doing business in China.