China Tells State Companies to Strengthen Protection of Commercial Secrets

China issued rules calling on its state-owned companies to strengthen protection of their commercial secrets, which it defined broadly to include information ranging from acquisitions to technologies.

The State-Owned Assets Supervision and Administration Commission, which oversees the more than 120 companies controlled by the central government, defined commercial secrets as any practical information that is not publicly available and may potentially bring economic benefit to enterprises.

Companies should protect these secrets accordingly, the commission said in a statement yesterday.

China’s definition of commercial secrets has fueled concern among foreign companies after former Rio Tinto Group employee and Australian citizen Stern Hu was sentenced to 10 years in prison last month for taking bribes and industrial espionage. Australian Prime Minister Kevin Rudd criticized the conviction for a lack of transparency and said it raised “serious” questions.

“It’s broad enough to cover every bit of business and technical information,” Nicolas Groffman, a Beijing-based partner at law firm Mallesons Stephen Jaques, said of the new rules. “We don’t know more about the definition of commercial secrets really.”

PetroChina Co., the world’s second-biggest company by market value, and Industrial & Commercial Bank of China Ltd., the world’s biggest lender, are among companies controlled by the central government. Others include China Mobile Ltd., Aluminum Corp. of China Ltd. and Air China Ltd.

Protection Office

All companies controlled by the central government should have an office and employees specifically assigned to ensure the protection of commercial secrets, the State-Owned Asset Supervision and Administration Commission said in the statement dated March 25.

Labor contracts with employees should also contain confidentiality clauses, it said. Employees found to have leaked commercial secrets will be prosecuted according to law, the commission said.

Commercial secrets include information about strategic planning, management, public listings, business models, property transactions, financial information and manufacturing processes, according to the commission.

The Chinese government sometimes uses legislation to bring attention to particular issues, Groffman said. “Because it’s new, people have to focus on it.”

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