Evolving trade war challenges: new Encryption Law and the related supply chain and data security considerations

April 2020

One important aspect of the “technology decoupling” between US and China is in the area of cyber and information security, where China is overhauling its legal regime that governs encryption used in China to protect network and data confidentiality.

As China enacted the Encryption Law of the People’s Republic of China (“Encryption Law”) in October 2019, multinational corporations (“MNCs”) became concerned with the prospect of this new law compromising their data security in China. The implications of this new law also go beyond data security and could substantially impact the supply chains of MNCs in China involving controlled encryption items.

While this new legal regime will not be fully established until the State Council and the Statement Encryption Management Bureau (“SEMB”) roll out all the implementation regulations, we highlight below some key issues that MNCs should take into account when evaluating their data and network security strategies in China, as well as the impacts of the new regime on the viability of the current supply chain structures.