China’s Cybersecurity Reviews Eye 'Supply Chain Security' in 'Critical' Industries [Translation]

Twelve Chinese government agencies today published an important set of rules that lay out a system of reviews for security and supply chain reliability that any products and services used by so-called “critical information infrastructure” (CII) operators will need to pass. The full text is translated below.

The “Cybersecurity Review Measures,” are to go into effect June 1, exactly three years after China’s Cybersecurity Law took effect. At that time, a wide range of the law’s details awaited elucidation through implementing regulations such as these, and the “national security review” called for in Article 35 has long operated based on interim rules. These long-awaited Measures lay out the procedures, priorities, and timelines for cybersecurity reviews required when CII operators purchase network products and services.

Still, much uncertainty remains—especially when it comes to definitions.

• Critical information infrastructure: In the Cyberspace Administration of China (CAC)’s question-and-answer session on the new Measures (also translated below), the question of which entities count as CII operators is answered with an apparently non-public document, the “Notice Concerning Critical Information Infrastructure Security Protection Work-Related Issues” (《关于关键信息基础设施安全保护工作有关事项的通知》). The CAC representative gives several examples, purportedly from the non-public notice: “sectors and areas including telecommunications, radio and television, energy, finance, road and water transport, railroads, civil aviation, post, water management, emergency management, hygiene and healthcare, social security, national defense science, technology and industry, etc.” Industry groups and government officials have had years of conversations about the reach of these and other rules related to CII, and the scope appears broad.
• Network products and services: The new Measures do give examples of the kinds of “network products and services” that will be subject to review: “core network equipment, high-performance computers and servers, large-capacity storage devices, large-scale databases and application software, cybersecurity equipment, cloud computing services,” and others affecting CII security (Article 20). As is often the case, the definition is left open to others judged relevant by authorities.

These new rules, and how the newly established Cybersecurity Review Office under CAC undertakes its duties, will have far-reaching effects on IT service and hardware markets. For both foreign and domestic companies, the ability to compete in an array of important industries designated as CII, as well as requirements or standards for various cybersecurity features, hang in the balance.

The Era of Supply Chain Security

The stakes are especially high for foreign companies, as this final version largely follows a 2019 draft in outlining concerns and procedures that may favor domestic suppliers. The 2019 draft, which DigiChina translated and analyzed at the time, was notable for its focus on risks related to supply chain cutoffs and for a direct reference to potential entanglement of suppliers with foreign governments.

The 2020 version drops the specific reference to foreign governments, but it appears to substantively incorporate those concerns in language around supply chain security. While the 2019 version emphasized the longstanding concept of “secure and controllable” (安全可控)—a longstanding concept in Chinese cybersecurity thinking directly tied to concerns about foreign control or espionage—the 2020 version replaces that phrase in Article 1 with “supply chain security.”

As we wrote last year, however, a focus on the supply chain also incorporates concerns about foreign interference. The final Article 9.3 flags two risk factors relevant to foreign suppliers:

• First, it identifies risks to “the security, openness, transparency, and diversity of sources of products and services,” capturing longstanding concerns under the “secure and controllable” rubric about whether foreign-sourced products might give others leverage in China’s networks. (This of course parallels the U.S. and other governments’ scrutiny of risks that Chinese companies, such as Huawei, could pose if their products were installed in key applications.)
• Second, it flags “the risk of supply disruptions due to political, diplomatic, and trade factors.” At a time when the U.S. government has used a variety of tools to restrict or threaten supply of key components to Chinese companies, this concern would call into question any products or services reliant on supply chains subject to U.S. jurisdiction.

The Measures do not specify how these factors will be weighed, however, leaving the Chinese government latitude to tighten market access using this “black box” review process, or to open markets, as fits policy goals or the political winds. The degree to which standards produced by the Cybersecurity Review Office are made public and followed will help determine how transparent the process eventually becomes.

Like last year’s draft, however, the final version includes several elements that may reflect an attempt to address the concerns of companies that will be subject to the review. Language on reviewers’ responsibility to protect commercial secrets encountered during the review has been broadened, and the CAC Q&A session specifically dismissed intellectual property concerns.

Ultimately, the latitude retained in the bureaucracy in determining what counts as CII, what counts as a reviewable “network product or service,” and what amounts to an unacceptable risk to national security remains great. Those procuring or selling high-tech products and services, however, at least finally know the procedure for getting a verdict—even if it remains unclear how the final decision will be reached.

TRANSLATION

[Chinese-language original]

Published April 27, 2020

The Cyberspace Administration of China, the National Development and Reform Commission, the Ministry of Industry and Information Technology, the Ministry of Public Security, the Ministry of State Security, the Ministry of Finance, the Ministry of Commerce, the People’s Bank of China, the State Administration for Market Regulation, the National Radio and Television Administration, the National Administration of State Secrets Protection, and the State Encryption Management Bureau jointly formulated the Cybersecurity Review Measures, and they are hereby published.

Zhuang Rongwen, Director of the Cyberspace Administration of China

He Lifeng, Director of the National Development and Reform Commission

Miao Wei, Minister of Industry and Information Technology

Zhao Kefu, Minister of Public Security

Chen Wenqing, Minister of State Security

Liu Kun, Minister of Finance

Zhong Shan, Minister of Commerce

Yi Gang, President of the Bank of China

Xiao Yaqing, Director of the State Administration for Market Regulation

Nie Chenxi, Director of the National Radio and Television Administration

Tian Jing, Director of the National Administration of State Secrets Protection

Li Zhaozong, Director of the State Encryption Management Bureau

April 13, 2020

Cybersecurity Review Measures

Article 1: In order to ensure critical information infrastructure (CII) supply chain security and defend national security, in accordance with the National Security Law of the People’s Republic of China and Cybersecurity Law of the People’s Republic of China, these measures are formulated.

Article 2: Critical information infrastructure operators (hereinafter referred to as operators) procuring network products and services that influence or may influence national security should conduct a cybersecurity review according to these measures.

Article 3: Cybersecurity reviews persist in the integration of preventing cybersecurity risks and the application of advanced technology; the integration of a fair and transparent process and the protection of intellectual property rights; the integration of prior review and ongoing supervision; and the integration of enterprise commitment and social supervision; and they conduct reviews on aspects such as the security of products and services and the national security risks they could bring about.

Article 4: Under the leadership of the Central Commission for Cybersecurity and Informatization, the Cyberspace Administration of China, with the National Development and Reform Commission of the People’s Republic of China, the Ministry of Industry and Informatization of the People’s Republic of China, the Ministry of Public Security of the People’s Republic of China, the Ministry of State Security of the People’s Republic of China, the Ministry of Finance of the People’s Republic of China, the Ministry of Commerce of the People’s Republic of China, the People’s Bank of China, the State Administration for Market Regulation, the National Radio and Television Administration, the National Administration of State Secrets Protection, and the State Encryption Management Bureau, establishes the cybersecurity review work mechanism.

The Cybersecurity Review Office resides in the Cyberspace Administration of China with the responsibility of formulating cybersecurity review systems and standards and organizing cybersecurity reviews.

Article 5: Operators that purchase network products and services shall anticipate the potential national security risk of products and services after they enter operation. If they influence or could influence national security, a cybersecurity review shall be reported to the Cybersecurity Review Office.

CII protection work departments may formulate guidelines [for anticipating risk] in their industry or sector.

Article 6: Regarding purchasing activities that are to undergo cybersecurity review, operators should require product and service providers to cooperate with the cybersecurity review through procurement documents or agreements, etc., including a commitment not to exploit the supply of products and services as a convenient way to illegally gain access to user data, illegally control and operate user equipment, or break off product supply or necessary technical support without reasonable grounds.

Article 7: Operators submitting to a cybersecurity review should submit the following materials:

1. A written declaration;
2. An analytic report on the influence or possible influence on national security;
3. A procurement document, agreement, contract to be signed, etc.;
4. Other materials required for cybersecurity review work.

Article 8: The Cybersecurity Review Office shall determine whether a review is needed and provide written notice to the operator within 10 working days of receiving the review declaration materials.

Article 9: The cybersecurity review process focuses on assessing the potential national security risks brought about by procurement of network products and services, mainly considering the following factors:

1. The risk that the use of products and services could bring about the illegal control of, interference with, or destruction of CII, as well as the theft, leak, or damage of important data;
2. The harm to CII business continuity of product and service supply disruptions;
3. The security, openness, transparency, and diversity of sources of products and services; the reliability of supply channels, as well as the risk of supply disruptions due to political, diplomatic, and trade factors;
4. Product and service providers’ compliance with Chinese national laws, regulations, and department rules;
5. Other factors that could harm CII security and national security.

Article 10: If the Cybersecurity Review Office deems it necessary to launch a cybersecurity review, it shall complete a preliminary review within 30 working days of receiving written notice from the operator, including forming suggested review conclusions and transmitting them to the cybersecurity review work mechanism member units and relevant CII protection work departments for opinions. In cases involving complex situations, the review may be extended an additional 15 working days.

Article 11: The cybersecurity review working mechanism member units and relevant CII protection work departments should respond with their opinions in writing within 15 days of receiving the suggested review conclusion.

If the member units of the cybersecurity review mechanism and relevant CII protection work departments are in agreement, the Cybersecurity Review Office will formally notify the operator of the review conclusion in writing. If the opinions are inconsistent, the special review procedures shall be followed and the operator shall be notified.

Article 12: In accordance with the special review procedures, the Cybersecurity Review Office, after listening to the opinions of relevant departments and units, conducting an in-depth analysis and evaluation, once again forming a review conclusion and recommendation, soliciting the opinions of the cybersecurity review mechanism member units and relevant CII protection work departments, and reporting to the Central Commission for Cybersecurity and Informatization for approval according to procedure, shall form the conclusion of the review and notify the operator in writing.

Article 13: The special review procedure should generally be completed within 45 working days; if the situation is complicated, it can be extended appropriately.

Article 14: If the Cybersecurity Review Office requests the provision of supplementary materials, operators and product and service providers shall cooperate. The time for submitting supplementary materials is not included in the review time.

Article 15: Network products and services that the cybersecurity review work mechanism member units believe affect or could affect national security shall, after being submitted to the Central Commission for Cybersecurity and Informatization for approval, be reviewed by the Cybersecurity Review Office in accordance with the provisions of these Measures.

Article 16: Relevant institutions and personnel involved in cybersecurity review shall strictly protect enterprises’ business secrets and intellectual property rights, and shall undertake confidentiality obligations for the unpublished materials submitted by operators and product and service providers, and other unpublished information learned during review work; without the consent of the information provider, it may not be disclosed to unrelated parties or used for purposes other than review.

Article 17: If an operator or a provider of network products and services believes that the review personnel are unfair and impartial, or that they fail to undertake the obligation of confidentiality of information learned during the review, they may report to the Cybersecurity Review Office or relevant department.

Article 18: Operators shall urge product and service providers to fulfill the commitments made in the cybersecurity review.

The Cybersecurity Review Office strengthens pre-event, in-progress, and post-event supervision by accepting reports and other forms.

Article 19: Operators who violate the provisions of these Measures shall be dealt with in accordance with the provisions of Article 65 of the “Cybersecurity Law of the People's Republic of China.”

Article 20: In these Measures, “critical information infrastructure operators” refers to operators designated by CII protection work departments.

The “network products and services” mentioned in these Measures primarily refer to core network equipment, high-performance computers and servers, large-capacity storage devices, large-scale databases and application software, cybersecurity equipment, cloud computing services, and other important network products and services that have important influence on the security of CII.

Article 21: Where information related to state secrets is involved, the relevant national secrecy protection provisions apply.

Article 22: These Measures take effect on June 1, 2020, and the “Network Product and Service Security Review Measures (Trial)” will be abolished at the same time.

Editor’s Note: Chinese regulatory releases are often accompanied by a transcript of questions and answers between unidentified journalists and an unidentified responsible official. DigiChina has translated the Q&A in full below.

[Chinese-language original]

Answering Journalist Questions on the Cybersecurity Review Measures

April 27, 2020

Recently, 12 departments including the CAC and the NDRC have jointly promulgated the "Cybersecurity Review Measures" (hereinafter referred to as the "Measures"). The relevant responsible CAC official has answered journalists' questions concerning the Measures.

Q: Could you please introduce the background of the Measures' rollout?

A: Critical information infrastructure (CII) is of the highest importance for national security, economic security, social stability, and the health and security of the masses. Our country has established a cybersecurity review system, with the objective to discover as quickly as possible and avoid the purchase of products and services bringing risks and harm to the operation of CII through the measure of cybersecurity review, to ensure the security of CII supply chains, and to safeguard national security. The rollout of the Measures has provided important structural guarantees for our country's conduct of cybersecurity review work.

Q: What is the legal basis for cybersecurity review?

A: Cybersecurity review work is conducted on the basis of the National Security Law and the Cybersecurity Law. Article 59 of the National Security Law provides for our country's establishment of national security review and supervision structures and mechanisms, to conduct national security reviews of network and information technology products and services that influence or may influence national security, as well as other major matters and activities. Article 35 of the Cybersecurity Law provides that, "CII operators purchasing network products and services that might impact national security shall undergo a national security review organized by the State cybersecurity and informatization departments and relevant departments of the State Council."

Q: What content will cybersecurity reviews mainly review?

A: Cybersecurity review focuses on assessing the national security risks that may be brought by CII operators purchasing network products and services, including: the risk that after products and services are used, CII could be illegally controlled or suffer interference or destruction, as well as the risk that important data could be stolen, leaked or damaged; harm to the continuity of CII operations due to interruptions in the supply of products and services; product or service security, openness, transparency, diversity of sources, as well as the reliability of supply channels and the risk of supply interruptions including for reasons of politics, foreign affairs, trade, etc.; the extent to which product and service suppliers abide by Chinese laws, administrative regulations, and departmental rules; and other factors that may endanger the security of CII and national security.

Q: Which network operators purchasing products and services must consider reporting for cybersecurity review?

A: CII operators purchasing networks products and services, where national security is or may be influenced, shall conduct cybersecurity reviews according to the Measures.

On the basis of the spirit of the Central Commission for Cybersecurity and Informatization "Notice Concerning Critical Information Infrastructure Security Protection Work-Related Issues," important network and information system operators in sectors and areas including telecommunications, radio and television, energy, finance, road and water transport, railroads, civil aviation, post, water management, emergency management, hygiene and healthcare, social security, national defence science, technology and industry, etc., shall consider reporting for cybersecurity review according to the requirements in the Measures when purchasing network products and services.

Q: When are they to report for cybersecurity review?

A: Under usual circumstances, CII operators shall report for cybersecurity review before officially signing contracts with a product or service provider. If they report for cybersecurity review after signing the contract, it is recommended that they indicate in the contract that the contract may only become effective after the product or service purchase passes cybersecurity review, in order to avoid losses resulting from non-passing of cybersecurity review.

Q: Are there time limitation requirements for cybersecurity review?

A: Under usual circumstances, cybersecurity review is completed within 45 working days. Where circumstances are complicated, this period may be extended by 15 working days.

For review items listed for the special review procedure, it may additionally require 45 working days or longer.

On the basis of the requirements of the Measures, the period for additional submission of materials is not counted into the review time limits.

Q: How are commercial secrets and intellectual property rights of CII operators and product and service providers guaranteed during the review process?

A: Cybersecurity review fully respects and strictly protects enterprises' intellectual property rights. The Measures provide that related bodies and individuals participating in cybersecurity review shall strictly protect enterprises' commercial secrets and intellectual property rights. They have the duty to protect the secrecy of non-published materials submitted by CII operators and product and service providers, as well as other non-public information they obtain during review work; without the agreement of information providers, they may not divulge it to non-related parties or use it for purposes unrelated to review. Where CII operators or product and service providers believe review personnel have not been objective or fair, or have not upheld their duty to protect the secrecy of information they obtained during review work, they may report the matter to the cybersecurity review office or a relevant department.

Q: Will cybersecurity review restrict or discriminate against foreign products and services?

A: The Measures clearly provide the content that must be reviewed, from which it can be seen that the objective of cybersecurity review is safeguarding national cybersecurity, and not restriction or discrimination against foreign products and services.

Opening up to the outside world is our basic national policy, the policy that we welcome foreign products and services to enter Chinese markets has not changed.

Q: Which legal liabilities will be borne for violation of the provisions of the Measures?

A: On the basis of the provisions of Article 65 of the Cybersecurity Law, those who should report for cybersecurity review and have not done so, or who use products or services that have not passed cybersecurity review, will be ordered by the relevant controlling department to cease such use, and be punished with a fine ranging from the purchase value to ten times the purchase value; the directly responsible leading personnel and other directly responsible personnel will be subject to a fine of more than 10,000 but less than 100,000 yuan.

Q: To whom should cybersecurity review be reported?

A: On the basis of the Measures, a cybersecurity review office is established within the CAC. Concrete work will be entrusted to the China Cybersecurity Review Technology and Certification Center.

The China Cybersecurity Review Technology and Certification Center acts under the leadership of the Cybersecurity Review Office, and is responsible for tasks including receiving reporting materials, conducting formal review of reporting materials, and concretely organizing review work.