[NEWS IN FOCUS] China’s anti-espionage law spooks Korean firms

Korean Inc. is hunkering down in China as the country tightens controls for foreign nationals and organizations through an amended law the Chinese authorities say will combat espionage.

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Korean Inc. is hunkering down in China as the country tightens controls for foreign nationals and organizations through an amended law the Chinese authorities say will combat espionage.

No Korean companies have become the target of the amended anti-espionage law yet, according to multiple government and industry sources contacted by the Korea JoongAng Daily, but it still poses fresh dangers to doing business in the country.

Some companies are encouraging their China-based employees to change their communications channels away from WeChat, a dominant instant messaging service in China, while others are relocating to Korea and other regions.

The revised law broadens the definition of espionage to add all documents, data, materials and articles that concern “national security and interests” to the existing clause of state secrets and intelligence. Given that it barely defines what constitutes espionage, the law could be used as the basis for turning certain business activities into criminal acts.

Korean business and trade associations are stepping up warnings, following the imposition in the beginning of July.

“The definition of documents, data and articles that concern national security and interests remain vague,” said Korea International Trade Association in a report issued to the entities operating in China.

“Therefore, the companies should consider undergoing legal consulting to verify whether their materials come with the risk of violating the law,” it said.

While the revision is widely considered as being aimed at U.S. companies, those headquartered in Korea, an ally of the U.S., are increasingly concerned if the extended control could affect their businesses.

“Korean business people that I know here have stopped using WeChat and adopted other non-Chinese applications to avoid a possible crackdown,” said a source based in Beijing working for a trade-related agency.

Undated video footage run by China's CCTV shows Chinese police conducting law enforcement work during a raid at the Capvision office in Shanghai. [CCTV/AP]

Chinese security forces raided the Chinese offices of U.S. consultancies — Bain, Mintz and Capvision — in May, and state-run broadcasters shot scenes of the investigation.

Ever since the U.S.-China trade row which dates back to 2018, Korean companies’ sales and investment into China have been shrinking.

Samsung Electronics and SK hynix have not made any major investments in China since 2019, with former President Donald Trump signing an executive order barring U.S. companies from using information and communications technology from Huawei that year.

Samsung Electronics runs memory chip production lines in Wuxi, China, but sales from the Chinese units have been on a steep decline, registering 5.6 trillion won ($4.2 billion) in the first quarter, down 46.8 percent compared to the previous year, according to the reports released by the company.

At the same time, sales in the North American region increased by 27.8 percent to reach 29 trillion won.

China’s sales proportion also reduced to 12 percent last year compared to the 16 percent recorded in 2021 and 2020. The contribution from North America rose to 39 percent from 35 percent in 2021 and 33 percent in 2020.

Samsung Electronics' workforce in China has shrunk 49 percent from 34,843 in 2017 to 17,891 as of the end of 2022, according to the company.

Another industry source with knowledge of Korean companies’ operations in China said that there has been a notable increase in fake news about their relations with the Chinese government, a possible orchestration intended to provoke the U.S.

“There have been some groundless reports in China about Korean companies like SK hynix forging a favorable relationship with the Chinese government,” the source said.

“We don’t know exactly where these reports come from and what they are for, but in the growing tension between the U.S. and China, I think they are intended to leverage their link with Korean companies to apparently worry the U.S.,” she said.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]