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CHINA DRAFT COUNTERTERROR LAW STRIKES FEAR IN FOREIGN TECH FIRMS

China is weighing a far-reaching counterterrorism law that would require technology firms to hand over encryption keys and install security "backdoors". A parliamentary body read a second draft of the country's first anti-terrorism law and is expected to adopt the legislation by the end of 2015.

The initial draft, published by the National People's Congress late last year, requires companies to also keep servers and user data within China, supply law enforcement authorities with communications records and censor terrorism-related internet content. Its scope reaches far beyond a recently adopted set of financial industry regulations that pushed Chinese banks to purchase from domestic technology vendors.

The implications for Silicon Valley companies, ranging from Microsoft to Apple Inc., have set the stage for yet another confrontation over cybersecurity and technology policy, a major irritant in U.S.-China relations. The Obama administration has conveyed its concerns about the anti-terrorism draft law to China; although the counterterrorism provisions would apply to both domestic and foreign technologies, officials in Washington and Western business lobbies argue the law, combined with the new banking rules and a slew of anti-trust investigations, amount to unfair regulatory pressure targeting foreign companies.

Beijing has argued the need to quickly ratchet up its cybersecurity measures and in December 2014, China's banking regulator adopted new rules that outlined security criteria that tech products in 68 categories must meet in order to be considered "secure and controllable" for use in the financial sector. To attain the designation, source code powering operating systems, database software and middleware must be registered with the government if they are not domestically developed.

James Zimmerman, Chairman of the American Chamber of Commerce in China, said the latest rules, if implemented, would likely limit opportunities for U.S. companies, but could also backfire on China.

The National People's Congress did not respond immediately to a request for comment and Apple and Google declined to comment on the proposed law, while Microsoft was not immediately available for comment. China is drafting the anti-terrorism law at a time when Chinese leaders say the country faces a serious threat from religious extremists and separatists: hundreds of people have been killed over the past two years in the far western region of Xinjiang in unrest the government has blamed on Islamists who want to establish a separate state called East Turkestan.

The gLawcal Team

LIBEAC project

(Source: Reuters)