US warns new Chinese counterespionage law puts companies at risk

© Reuters. FILE PHOTO: U.S. and Chinese flags are seen in this illustration taken, January 30, 2023. REUTERS/Dado Ruvic/Illustration/File Photo

By Michael Martina

WASHINGTON (Reuters) -The U.S. on Friday warned about a new Chinese counterespionage law, saying American and other foreign companies in the country could face penalties from Chinese authorities for regular business activities.

Chinese lawmakers this year passed a wide-ranging update to Beijing's anti-espionage legislation that goes into effect on July 1, banning the transfer of any information related to national security and broadening the definition of spying.

China this year has also cracked down on U.S. consultancy and due diligence firms, a move business lobbies have said unnerved foreign investors in the world's second-largest economy.

The U.S. National Counterintelligence and Security Center (NCSC) said in a bulletin that China viewed outbound flow of data as a national security risk, and that the new and existing laws could compel companies' locally employed Chinese nationals to assist in Chinese intelligence efforts.

"These laws provide the PRC (People's Republic of China) government with expanded legal grounds for accessing and controlling data held by U.S. firms in China," the NCSC said.

"U.S. companies and individuals in China could also face penalties for traditional business activities that Beijing deems acts of espionage or for actions that Beijing believes assist foreign sanctions against China," it said.

It said the ambiguities of the law meant that "any documents, data, materials or items" could be deemed relevant to Chinese national security, also putting journalists, academics and researchers at risk.

China's embassy in Washington said Beijing had a right to safeguard national security through domestic legislation.

"China will continue to promote high-level opening-up and provide a more law-based and international business environment for companies from all countries, including the United States," embassy spokesman Liu Pengyu said.

Chinese leader Xi Jinping has emphasized national security since taking office in 2012. Suspicion in China of the U.S. and its allies has grown as the U.S.-China rivalry has intensified, yet Beijing has insisted it is opening up to overseas investment.

U.S. officials have told Reuters that since the enactment of the Chinese law in April they have received a flood of questions from businesses and other groups about the risks of traveling to China.

The U.S. State Department also updated its travel advisory for China on Friday, upgrading the "risk of wrongful detentions" among its warnings for Americans to reconsider travel to the country.

U.S. Ambassador to China Nicholas Burns has said Beijing's targeting of U.S. firms was politically motivated and that Washington would push back.