SASAC Issues New Commercial Secrets Regulations

October 29, 2010

In March and April 2010, the Chinese government issued two key pieces of legislation on protection of secrets. On March 25, 2010, the State-Owned Assets Supervision and Administration Commission (SASAC) approved the Interim Provisions on the Protection of Commercial Secrets of Central Enterprises (Provisions), concerning protection of commercial secrets (also known as "business secrets" or "trade secrets") by central-level state-owned enterprises (zhongyang qiye). The Provisions came into effect on April 26. Three days later, on April 29, the National People's Congress Standing Committee passed the amended Law on the Protection of State Secrets (Amendments), which maintains the vague and broad definition of state secrets written in the law prior to the amendment. The Amendments came into effect in October. The issuance of the Provisions and Amendments drew particular attention of observers, occurring as it did against the backdrop of the arrest and conviction, and later sentencing, of four employees of Anglo-Australian company, Rio Tinto. The four employees were arrested in July 2009 for violating state secrets laws, though the charges subsequently were lowered to infringing commercial secrets and bribery.

On April 26, 2010, the State-Owned Assets Supervision and Administration Commission (SASAC, a commission under the State Council, which holds, supervises, and manages state-owned assets, including central-level state-owned enterprises) published the Interim Provisions on the Protection of Commercial Secrets of Central Enterprises (Provisions). The provisions came into effect on the date of publication. Though the Provisions apply only to central-level state-owned enterprises (SOEs), according to a May 5 post on the China Law Blog, "It would also come as no surprise if provincial-level authorities would take SASAC's lead and issue regulations aimed at provincial-level SOEs in the near future."

Scope of the Commercial Secrets Provisions

Article 2 of the Provisions defines commercial secrets as "business or technical information, which is unknown to the public, can bring about economic benefits to a central-level enterprise, is of practical use, and in respect of which the central-level enterprise has adopted measures to maintain confidentiality." This definition closely resembles that stated in Article 219 of the Criminal Law and Article 10 of the 1993 Anti-Unfair Competition Law (AUCL), both of which define commercial secrets as "technological or business information, which is unknown to the public, can bring about economic benefits to a holder, is of practical use, and for which the holder has adopted measures to maintain their confidentiality." Article 10 of the Provisions further elaborates on the scope of commercial secrets, providing that they may encompass "business information including strategic planning, management methods, business model, restructuring and listing, mergers and reorganizations, property trades, financial information, investment and finance, product procurement strategy, resources reserves, customer information, bidding information, etc.; and technical information including designs, procedures, product formulae, production processes, production methods, technical know-how, etc." A People's Daily article of April 27, 2010, comments that, "The regulation clearly requires central SOEs should expand the scope of protected business secrets."

The Rio Tinto and Xue Feng Cases

The Provisions are dated March 25, four days before the sentencing in the controversial Rio Tinto case. (See March 30 Wall Street Journal article, "Rio Tinto China Employees Get Prison Terms.") The Rio Tinto case, and the state secrets case of Xue Feng, a naturalized American citizen who allegedly helped the American company he worked for purchase commercial information on oil wells in China, highlight the risks for employees of foreign companies operating in China, especially in politically sensitive areas (including primary industries such as steel or oil), and the interrelationships among commercial crimes, state secrets, and the interests of government departments and state-owned enterprises. The Rio Tinto employees were originally arrested on suspicion of stealing state secrets, but the charges were later changed to infringing commercial secrets and bribery, and they were indicted, tried, and convicted of those charges. (For more information on these cases, see CECC analyses on Rio Tinto and Xue Feng.)

Commercial Secrets or State Secrets?

The Rio Tinto and Xue Feng cases underscore the lack of clarity in China as to the distinction between commercial secrets and state secrets. The blurring of the line between the two is especially problematic when dealing with SOEs. Article 11 of the Provisions provides for changing a central-level SOE's commercial secret to a state secret when "there is an adjustment to the scope of state secrets." Such a change can have significant ramifications. Penalties for commercial secrets violations are not as severe as those applicable to state secrets violations. Offenders found guilty of infringing commercial secrets and causing "especially grave consequences" can be sentenced to three to seven years imprisonment and fined under Article 219 of the Criminal Law for illegally obtaining, disclosing, or using commercial secrets, or violating contracts and agreements with the holder of commercial secrets. Article 25 of the AUCL provides for those who commit minor offenses to be ordered to stop the illegal conduct and be fined up to RMB 200,000 as an administrative punishment. However, persons found guilty of stealing, obtaining by spying, buying, or supplying state secrets can be sentenced to five years to life imprisonment and deprived of political rights under Article 111 of the Criminal Law.

For more information on state secrets, and the amendment to the Law on the Protection of State Secrets, see CECC analysis titled National People's Congress Standing Committee Issues Revised State Secrets Law.