8 Ways China’s New Cybersecurity Law Is Bad News For Businesses

Over the last several years China has made it difficult for foreign companies, specifically tech giants like Google, Microsoft, Facebook, and Twitter, to enter its market. However, as reported in Bloomberg Technology, China has “green-lit a sweeping and controversial law that may grant Beijing unprecedented access to foreign companies’ technology and hamstring their operations in the world’s second-largest economy.”

The Cyber Security Law, which was passed by China’s top legislature, “The Standing Committee of the National People’s Congress,” will take effect on June 1, 2017. While leaders in China have stated that this was an “objective need” of China as a major internet power, it’s sparked several concerns among foreign businesses and rights groups on how China will now dictate how companies can operate in their country.

1. Impacts the bottom line.

Under the new cybersecurity law, businesses will become highly scrutinized. For instance, as Jonathan Vanian points out in Fortune since outside tech companies are permitted to hold Chinese data outside of the country, they most “aid the Chinese government when it conducts criminal investigations or issues that officials believe could compromise national security. These companies will also have to allow for annual audits to determine if there are potential security concerns for the Chinese government.”

“As for hardware manufacturers, it should come as no surprise that the proposed law calls for network equipment — like switches and routers — to be approved by the Chinese government before being sold domestically,” Vanian continues.

“China has made public its concerns that the United State’s National Security Agency was installing so-called backdoors within Cisco’s hardware for the purpose of spying, and as a result, the country has made it much more difficult for foreign hardware companies to do business inside China.”

The result? Cisco, as well as companies like Hewlett-Packard, “have seen their sales in China suffer as the country scrutinizes imported hardware.”

2. Businesses are spending millions to comply.

To prevent being from scrutinized, companies have been spending millions of dollars in China to build relationships with China in order to improve sales. Cisco will invest “$10 billion in the country to rebuild relationships and perhaps manufacture more gear inside the country,” Bloomberg Technology mentioned in June 2015 — and really, that money may not even help them attain their goals. Cisco also said (and signed-up to do it) they’d help 100 colleges in China with advanced training. Did anyone count how many students would attend the classes in each of these 100 colleges?

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