China has recently put forward a whole new group of laws affecting US and other foreign corporations and individuals, including a national security law (just passed on July 1) and a cybersecurity law (still in drafting). The two pieces of legislation must be viewed against the background of other recent jingoistic draft laws and proposals: an anti-terrorism law, restrictions on foreign equipment in the banking sector, a purge of foreign firms from government procurement lists, and limitations on the activities of foreign NGOs.
The sweeping national security law, though vague in detail, includes within its scope virtually all aspects of Chinese politics, economics, law, and society. It also is not limited to China’s geographic boundaries, exerting authority far into the seas, outer space, and of great importance, into cyberspace. A core component of the law aims to render computer network and information systems “secure and controllable.”
Spokesmen for foreign firms have correctly charged that the new law represents “national security overreach.” The head of Europe’s Chinese Chamber of Commerce notes, “The language on economic security is so hazy and so vague, it could apply to a pig farm, it could apply to a car components manufacturer, it could apply to anything.” Typical of Beijing’s comprehensive legislation, the law consists of sharp exhortations but little actual detail, leaving implementation of its vast security reach to later rules by individual agencies, under the guidance of the new National Security Commission (which itself reports directly to President Xi Jinping).
It is time for the US government to step up and counter such threats to foreign competitors with more than the weasel words that flow from current negotiations, such as the annual US-China Economic and Security Dialogue. The recently concluded US-China S&ED produced 127 conclusions, including such weighty topics as joint customs training, industrial boiler efficiency, and clean cook stoves.
There is an excellent opportunity to dig into the challenges presented by China’s new protectionism — the upcoming September state visit to the United States by President Xi Jinping. As preparations proceed, the White House should insist that there must be quite specific clarification of the investment implications of the national security law for US corporations. While both sides would be reluctant to venture into cyberespionage issues (No, the Chinese did not cross any red lines if they were behind the recent hacking into US personnel records: as former CIA and NSA Director Michael Hayden admitted, US spies would happily have done the same), the Obama administration should make it clear that the US would retaliate economically if Beijing uses the new national security law as a pretext to exclude or limit competition in China from US and other foreign firms. This includes demands that these firms build cyber “backdoors” or hand over internet source codes to Chinese government officials.
As my AEI colleague, Derek Scissors has shown, the huge US market and the desperate desire of the Chinese government to foster foreign investment by domestic Chinese firms presents an important point of leverage for the United States. With their own stock market tanking and with little good prospects for internal investment, Beijing is pushing hard for its most competitive companies to go abroad — since 2005 the combined global investment and construction is $1.1 trillion and could reach $3 trillion by 2025. Since 2013, the US has been the leading recipient of Chinese investment funds, with a total of $90 billion since 2005.
Make no mistake, the US economy reaps great benefits from inward foreign investment, including that from China. And while strict sectoral reciprocity generally does not constitute good policy, the potential across-the-board threats from recent and planned Chinese policies necessitate a commensurate response. Quietly, this fact should be conveyed to Mr. Xi Jinping, along with the ceremonial courtesies that will be accorded him during his visit.
