(Reuters) – China has put a hold on a draft counter-terrorism law that would require technology firms to hand over sensitive information to government officials, a senior U.S. official said in a good sign for Western businesses who saw the rule as a major impediment to working in the world’s second largest economy.
President Barack Obama said in an interview with Reuters on March 2 that he had raised concerns about the law directly with Chinese President Xi Jinping.
“They have decided to suspend the third reading of that particular law, which has sort of put that on hiatus for the moment,” White House Cybersecurity Coordinator Michael Daniel said on Thursday, according to a webcast of a discussion at the Information Technology and Innovation Foundation.
“We did see that as something that was bad not just for U.S. business but for the globaleconomy as a whole, and it was something we felt was very important to communicate very clearly to them,” Daniel said.
It was not clear whether the bill would proceed or not.
The law would require technology firms to hand over encryption keys, the passcodes that help protect data, and install security “backdoors” in their systems to give Chinese authorities surveillance access.
“It’s a disaster for anyone doing business in China,” one industry source had said, before Daniel’s comments. “You are no longer allowed a VPN that’s secure, you are no longer able to transmit financials securely, or to have any corporate secrets. By law, nothing is secure.”
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.
Last month, a parliamentary body read a second draft of the law, which would go beyond a set of financial industry regulations pushing Chinese banks to purchase from domestic technology vendors.
The rules would affect major U.S. companies, including Microsoft Corp and Apple Inc. Industry insiders had said the proposed counter-terrorism law was a disaster for any company doing business in China.
Although it would apply to both domestic and foreign companies, officials in Washington and Western business lobbies complained that the combination of that law, the banking rules and anti-trust investigations amounted to unfair regulatory pressure targeting foreign companies.
The tensions come at a sensitive time because in early 2015 the United States and China are due to exchange offers detailing which industries would remain off-limits under a Bilateral Investment Treaty.
“We therefore expect to receive the proposal relatively soon, although China has not yet specified a date,” a spokeswoman for the U.S. Trade Representative said.
China issued draft rules in November easing some restrictions on foreign investment but still bars foreigners from 36 sectors.