Click here to read the full Client Advisory by Steptoe.

With the coming into effect of the new PRC Encryption Law on January 1, China is moving steadily to develop and implement an encryption regime that protects core state security interests, while allowing businesses that do not implicate state security to create, trade and use encryption relatively freely. Additionally, it appears that restrictions on foreign investment in the encryption sector and the deployment of foreign encryption technologies, products and services in Mainland China are to be relaxed. The expectation is that the new regime will be rolled out on a phased basis in 2020.

What does this mean for the import and export of commercial encryption to and from Mainland China?

The Encryption Law provides that commercial encryption contained in mass consumer products will not be subject to control upon import from or export to Mainland China. However, commercial encryption that possesses the function of encryption protection and affects national security or societal interests will be subject to import controls, and commercial encryption that affects national security or societal interests or is subject to international obligations to which China has committed, will be subject to export controls.

MOFCOM, the State Cryptography Administration (SCA) and the General Administration of Customs are due to formulate and publish a catalog listing commercial encryption products subject to import and export controls. Before publication of the catalog, entities that engage in commercial encryption research, production, sales, service, import and export still need to obtain licenses from the SCA before engaging in import or export of encryption products and equipment containing encryption technologies or export of encryption products.