In 2010, two foreign nationals of Chinese origin were sentenced to lengthy prison terms for disclosing state secrets to their employers, prompting concern that some political and economic data used by foreign companies in China for planning and operation purposes could fall within the scope of state secrets. Because of the substantial exposure flowing from a violation, there was hope that the Law on Protect of State Secrets of October, 2010, would clearly define the scope of state secrets.
Although providing substantial detail, the definitions in that statute were broad and somewhat vaguely worded, providing that term “state secrets” includes information whose disclosure could harm China “in the areas of politics, the economy, national defense, and foreign affairs”. Article 9 further listed seven circumstances invovling state secrets, including classified matters relating to 1) key policy decisions on state affairs; 2) national defense construction and armed force activities; 3) diplomatic and foreign affair activities and the state’s international obligation of secrecy; 4) national economic and social development; 5) science and technology; 6) activities of maintaining national security and investigating criminal offences; and 7) other classified matters as determined by the relevant government organ, and also including a political party’s classified matters falling under any of such seven circumstances.
In May, the Legislative Affairs Office of the State Council issued a draft of the Implementing Regulations for the Law on Protection of State Secrets. Article 9 of these Regulations provides further guidance on the scope of “state secrets”. It states that the term refers to nine listed circumstances, including those that “affect national and ethnic unity or social stability,” “weaken China’s economic, scientific, or technological strength,” or “jeopardize the security of China’s significant projects or targets.”
This wording still leaves the scope of “state secrets” open to interpretation, but further details should be forthcoming. Article 11 of the Law requires central government agencies, under the direction of the National Administration for the Protection of State Secrets, to issue more detailed definitions. Article 10 of the Regulations provide guidance on how to define the scope of state secrets, including identifying names, categories and periods of protection for such secrets.
The draft Regulations do helpfully require state secret information to be marked or announced as such. The also set out conditions and procedures for disclosing certain state secrets to foreign entities or individuals. However, they also provide that accounting, legal, banking and other professional personnel handling state secrets must generally be Chinese citizens within the territory of China and must meet certain confidentiality requirements.
The requirement to mark state secrets should help companies and individuals in China limit their exposure under for violations because, if challenged, they can raise the defense that the relevant information was not marked as secret. On the other hand, advisors, consultants and state-owned enterprises in China with access to commercially-useful confidential information may be less inclined to share it with foreign players without confirming in advance that whether it is a state secret in order to avoid exposure for not marking it properly. It is not clear whether an advance government vetting system will be available.
Other articles of the Interpretation affirm the validity of non-compete provisions, but prohibit a court from enforcing such provision if the employer has not agreed to provide post-termination compensation to the employee. If there is no such agreement but the employee nevertheless fulfills the non-compete provision, he/she can demand compensation at the rate of his/her average monthly salary over the past 12 months. If the employer fails to pay compensation for more than 30 days, the court will not support a claim to enforce a non-compete provision. Further, the employer to terminate the non-compete provision following a 60-day notice if the information protected by the non-compete provision becomes public.