China Uses Loophole for Protectionism in New National Security Law

July 1, 2015 Updated: July 2, 2015

Under the veil of national security, the Chinese legislature passed a broad law on Wednesday which experts say is designed to undermine foreign companies while propping up Chinese businesses.

“The claim by the central government that this law is necessary to ensure IT security in China is simply false,” says a statement from The Information Technology and Innovation Foundation, a non-partisan think tank.

“Rather, China adopted this provision in order to use a loophole in World Trade Organization rules allowing protectionist policies if they are stated to be for national security purposes,” it states.

The new national security law is one of three pieces of legislation the Chinese Communist Party is implementing to give it more control over the public and foreign businesses. It was passed by its standing committee of the National People’s Congress.

The new law makes “all key network infrastructure and information systems ‘secure and controllable,'” according to Reuters. Other parts of the law cover politics, culture, military, space, technology, the environment, and the Chinese economy.

It overlaps with a pending “counterterrorism law” that will require foreign technology firms to give Chinese authorities their source codes and encryption keys, and grant Chinese authorities the ability to monitor users.

“The adoption by the Chinese legislature of a new national security law is just one more step in the now almost ten-year-old effort by the Chinese central government to drive ‘indigenous innovation’ by a host of unfair and mercantilist policies,” The Information Technology and Innovation Foundation says in its statement.

The new policies, including parts that require “secure and controllable technology,” it states, “are part of a strategic effort to reduce the market share of foreign IT companies in China in order to build up the capacities of Chinese-owned IT companies.”

The end-goal of the policies, it states, “is for Chinese companies to ultimately supplant foreign technology companies both in China and in markets around the world.”

It states, “the tactics involve massive government subsidies, theft of foreign know-how, forced technology transfer in exchange for market access—and now these new provisions allowing the Chinese government to keep out foreign technology.”

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