BEIJING/WASHINGTON Fri Feb 27, 2015 7:30am EST
A man types on a computer keyboard in Warsaw in this February 28, 2013 illustration file picture.
CREDIT: REUTERS/KACPER PEMPEL/FILES
(Reuters) - China is weighing a far-reaching counterterrorism law that would require technology firms to hand over encryption keys and install security "backdoors", a potential escalation of what some firms view as the increasingly onerous terms of doing business in the world's second largest economy.
A parliamentary body read a second draft of the country's first anti-terrorism law this week and is expected to adopt the legislation in the coming weeks or months.
The initial draft, published by the National People's Congress late last year, requires companies to also keep servers and user data within China, supply law enforcement authorities with communications records and censor terrorism-related internet content.
Its scope reaches far beyond a recently adopted set of financial industry regulations that pushed Chinese banks to purchase from domestic technology vendors.
The implications for Silicon Valley companies, ranging from Microsoft to Apple Inc, have set the stage for yet another confrontation over cybersecurity and technology policy, a major irritant in U.S.-China relations.
"It's a disaster for anyone doing business in China," said one industry source. "You are no longer allowed a VPN that's secure, you are no longer able to transmit financials securely, or to have any corporate secrets. By law, nothing is secure."
The Obama administration has conveyed its concerns about the anti-terrorism draft law to China, according to a U.S. official.
Although the counterterrorism provisions would apply to both domestic and foreign technologies, officials in Washington and Western business lobbies argue the law, combined with the new banking rules and a slew of anti-trust investigations, amount to unfair regulatory pressure targeting foreign companies.
"The true test will come with implementation," said Scott Kennedy, the Director of the Project on Chinese Business and Political Economy at the Center for Strategic and International Studies in Washington.
