September 21, 2023


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China’s Courts, Cyberspying, Firm Raids, and My Congressional Testimony Relating to the Similar

7 min read

Earlier this month I testified earlier than the U.S. Congress’s U.S.-China Financial and Safety Assessment Fee relating to Rule by Legislation in China. Go here in case you want to see my testimony and/or the complete day of testimony given by varied much more knowledgeable China regulation professors.

That is the third time I’ve testified earlier than a Congressional commision relating to China, and the second time I’ve carried out so stay. I point out the “stay” half as a result of I discover strolling the halls of the Dirksen Senate Workplace Constructing and seeing the workplaces of United States Senators to be an incredible and humbling expertise. I analogize it to how I felt the primary time I attended a Main League Baseball recreation — coincidentally additionally in Washington DC. I used to be about seven years outdated and I bear in mind strolling up the steps and out via a gap to have a look at the sphere. I can nonetheless image the enormous area with the gorgeous and completely manicured grass as if it had been yesterday. I used to be in awe. Complete awe.

Having the chance to assist the U.S. authorities — by a miniscule quantity — creates that very same sense of awe for me. To cite Winston Churchill: “Democracy is the worst type of Authorities apart from all these different types which have been tried now and again.”

Anyway, the beneath is the written testimony I supplied to the Fee earlier than I testified stay:

My identify is Dan Harris. I’m a world lawyer who has for the final 20 years been serving to American and European corporations navigate China’s authorized panorama. I point out this as a result of a lot of what I’m going to let you know in the present day relies on what I’ve seen whereas representing corporations that do enterprise in or with China.

I’ll largely be speaking about how the Chinese language Communist Occasion makes use of legal guidelines and laws to maximise its energy and management to the detriment of American corporations. It is a tactic often called lawfare.

I’ve seen firsthand how China employs lawfare to hurt American companies, and I’ve additionally seen how China’s lawfare in opposition to American corporations elevated when Xi Jinping turned the CCP’s highest rating officer in 2013, and once more when he turned “president for all times” earlier this 12 months. The worldwide humiliation China suffered from the spy balloon incident, coupled with our authorities’s efforts to disclaim China entry to modern chip expertise, make me assured that China’s lawfare in opposition to American corporations will proceed to extend.

QUESTION ONE. How is the CCP’s political affect more and more shaping authorized rulings in home Chinese language courts? What’s the expertise of U.S. companies in Chinese language courts on points which might be influenced by nationalism or Occasion aims? How have these circumstances modified beneath Xi Jinping?

 My purchasers usually ask me concerning the equity of China’s courts and my reply has at all times been the identical. If you’re suing a Chinese language firm for breaching a contract to make rubber duckies, you seemingly will get a good trial. If you’re suing a Chinese language firm for stealing cutting-edge semiconductor mental property, good luck.

Many China attorneys name this the 90-10 rule. Ninety p.c of the time the Chinese language courts rule pretty as a result of that permits China’s economic system to perform and that finally advantages the CCP. But when a case is crucial to CCP energy and management, equity will get tossed out the window. That ten p.c is lawfare.

Xi Jinping usually makes clear that China’s nationwide safety pursuits are broader and extra essential than they as soon as had been, and that China’s financial and funding pursuits at the moment are narrower and fewer essential. Studying the writing on the wall – writing that has largely been propagated by state-owned media retailers – the Chinese language courts have acted accordingly. Which means the variety of circumstances Chinese language judges see as implicating China’s nationwide safety pursuits have elevated. And this has been to the detriment of international corporations.

Talk about the design and implementation of China’s cybersecurity regulation. What prompted its introduction and what sectors is it geared in direction of? Is it equally enforced for home and international companies? How is it shaping the industrial habits of international companies working in China or doing enterprise with Chinese language corporations?

 Underneath China’s cybersecurity regulation, the CCP has authorized entry to any knowledge saved in China. This regulation  additionally offers authorized entry to knowledge held by any firm or particular person in China, wherever that knowledge could also be saved. This has basically at all times been true, however with every iteration within the regulation, entry has turn into extra specific. China has enacted these legal guidelines and laws so the CCP can monitor just about every thing in China.

The CCP solely hardly ever makes use of its energy to mandate {that a} international firm flip over its knowledge, however it’s because it already has prepared entry to all knowledge in China. The CCP controls China’s web, communication methods, and server farms. The CCP has pushed almost every thing — from utility payments to each day communication — into WeChat so it could actually monitor what everybody does in China. It has carried out a lot the identical factor with firm knowledge.

What authorized recourse do multinationals have after they really feel that their proprietary expertise or cybersecurity has been compromised? Talk about the expertise of companies in search of to guard delicate applied sciences in Chinese language courts, with a give attention to companies creating expertise helpful to the CCP.

 Multinationals generally file IP theft circumstances in Chinese language courts. If that lawsuit entails rubber ducky expertise, they’ll prevail. But when their case entails cutting-edge semiconductor expertise, they hardly ever can prevail. The extra cutting-edge and essential the expertise, the much less seemingly the multinational will prevail in an IP case in a Chinese language court docket.

Multinationals usually can sue a Chinese language firm outdoors of China. But when a multinational secures a judgment or award outdoors China and that judgment or award must be enforced in China – which is usually the case — that enforcement will happen solely whether it is within the CCP’s curiosity.

What are different main legal guidelines, such because the anti-monopoly regulation, or enforcement patterns, comparable to China’s tendency towards regulatory crackdowns, that China makes use of to tilt the enjoying area in favor of its personal companies or advance coverage objectives? How do these legal guidelines and their implementation affect U.S. pursuits, and what can the USA do to mitigate or stop this affect? 

 China’s new counter-espionage regulation expands the definition of espionage to incorporate any “gadgets associated to nationwide pursuits,” with none parameters for what constitutes nationwide pursuits. This vagueness within the regulation is meant to permit the CCP to arrest anybody at any time.

The CCP will use this regulation in opposition to foreigners and Chinese language residents which might be seen as too near foreigners. It will make it tough and costly for international corporations to rent and retain workers in China. In flip, this may scale back international firm competitiveness in China.

China excludes international corporations from many industries. Whereas we debate banning TikTok, all main U.S. social media platforms are basically banned from working in China.

If the CCP or the Chinese language individuals are indignant with a specific nation, you’ll be able to count on the CCP to crack down on corporations from that nation. The CCP doesn’t randomly select the businesses on which it cracks down. It chooses corporations primarily based on the message its crackdown will ship. The latest raids in opposition to The Mintz Group and Bain & Firm had been to ship the message that the CCP controls details about China and it’ll punish those that search to disclose data the CCP doesn’t need revealed.

The Fee is remitted to make coverage suggestions to Congress primarily based on its hearings and different analysis. What are your suggestions for Congressional motion associated to the subject of your testimony?    

 The CCP will harass and discriminate in opposition to American corporations till there are not any extra American corporations in China.

One of the best ways for the U.S. authorities to cut back CCP strong-arming in opposition to U.S. corporations is to assist these corporations depart China. The U.S. authorities ought to present loans and grants to American corporations that transfer their operations or manufacturing from China to the U.S. or to an allied nation. Australia and Japan have carried out this, and we must always too—perhaps considerably alongside the traces of what we’re doing with the semiconductor business. The U.S. authorities also needs to enact laws that encourages imports from nations that share our values and we ought to be doing extra to cease American funding of Chinese language corporations that function in opposition to our safety pursuits.

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