Companies’ ‘fears are real’ with Chinese cyber law, says US official

China will block foreign tech firms from investing in China if it implements proposed cybersecurity regulations, U.S. Commerce Secretary Penny Pritzker said Tuesday.

Pritzker made her remarks in China as part of a trade delegation, Reuters reported.

“I have heard from numerous American CEOs that they are either avoiding the Chinese market or planning to reduce their exposure here,” Pritzker said. “They fear that the rules favor indigenous companies or that their intellectual property is at risk, or they worry that regulations will change unfairly.”

{mosads}The looming guidelines would require companies operating within China to use Beijing-approved encryption and submit any source code for government inspection. It’s a subset of a broader counterterrorism law meant to thwart cyberattacks.

U.S., European and Japanese trade groups have repeatedly appealed to Chinese officials, arguing the law discriminates against them. They also worry complying with the rules would give the Chinese government easy access to their customers’ data.

“These fears are real, and as a result it’s a lose-lose situation,” Pritzker said.

Mixed messages from both U.S. and Chinese officials have only confused the situation further. On several occasions, Washington delegates indicated China was taking a step back on the rules, only to have Beijing insist days later it was still moving forward.

During meetings Monday with Chinese officials, Pritzker discussed the upcoming mandate.

“All agree we must address our cyber security challenges without creating barriers to trade and investment, and that China will never become a strong innovation economy without an intellectual property protection regime that is enforced broadly and consistently,” she said.

China committed to continuing the dialogue on the rules, Pritzker said. But it made no concessions on the law itself or its timeline.

It’s expected the new guidelines would go into effect sometime this year. Chinese banks have already started submitted plans for compliance.

Chinese Foreign Ministry spokesman Hong Lei said on Tuesday the government was “amending and perfecting” the cybersecurity rules.

“Many other countries have also established relevant laws and regulations,” he added. “We hope the relevant sides can understand and respect China’s actions.”

Pritzker acknowledged the difficulties of balancing national security with commercial interests.

“We have to recognize that all countries have to protect their cybersecurity, and so the issue is complicated and nuanced and requires a thoughtful approach,” she said, The Wall Street Journal reported.