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China cracks down on economic leaks

By Ed Flanagan, NBC News

BEIJING – Getting caught leaking state secrets is no laughing matter in China


Two Chinese government officials were convicted and sentenced to jail this week for leaking state secrets to securities firms in China.

On Monday, Wu Chaoming, a researcher at the People’s Bank of China, and Sun Zhen, from the National Bureau of Statistics, were sentenced to six and five years, respectively, for passing on sensitive information to people they shouldn’t have.

Four other people who weren’t identified by officials have also been arrested in connection with leaked economic secrets.

The cases show how some officials have learned to profit from the veil of secrecy that surrounds sensitive economic data in China. These and other recent cases also illustrate how easy it is to run afoul of the country’s wide-reaching and opaque privacy laws. 

The country’s topsy-turvy stock market is still heavily influenced and guided by the government’s “silent hand.”  This, paired with the fact timely data is often in short supply, makes advanced knowledge of economic information especially valuable.  So, for example, finding out about upcoming government moves to curb inflation would allow traders and brokerage houses to reap a tidy profit.

Up-to-date information is also especially valuable in China, whose super-charged economy – GDP grew by more than 9 percent in the third quarter of 2011, outpacing most of the rest of the world – is growing so fast that valuable data in the public domain quickly becomes stale.

While declining to say what specific secret information had been leaked, Du Yongsheng, Deputy Director of the National Administration for the Protection of State Secrets, on Monday said some of the officials arrested had not directly sold secrets to brokerages.  Rather, they were paid for “speaking engagements” by firms eager to get a heads up economic trends.

Unsurprisingly, the government has launched an aggressive campaign to eliminate both intentional and accidental leaking of classified economic information.

In prepared remarks to the media yesterday morning, the Deputy Director General of the ponderously named Procuratorial Department of Duty and Infringement on Citizen’s Rights of the Supreme People’s Directorate, warned that the government would “strike hard” against those who tried to profit from such leaks.

"The leaking of national macroeconomic data harms economic operations, prevents fair market competition and affects government credibility, thereby causing heavy losses to the interests of the country, society and individuals," the official, Li Zhong Cheng, said.

In Sun and Wu’s cases, their advanced knowledge of money supply, gross domestic product numbers and the consumer price index put them in an excellent position to trade on their insider information.

There has long been a culture of paying for what is perceived to be secret economic data, as well simply getting a read on policy important debates, writes Tom Orlick, a Wall Street Journal reporter and author of “Understanding China's Economic Indicators.”

“Well-connected academics and analysts in government think-tanks routinely request a consulting fee for meetings with investment banks and their clients,” according to Orlick.

Journalists looking to get a scoop or a steer on important economic data have also been warned.

“I think it’s normal for some media organizations, in particular foreign media organizations to try to forecast China’s economic data, to judge the economic performance of our country,” Director Li said. Some reporters were also using “back channels” to verify state secrets, he said.

“[This is] not allowed,” Li added.  “I’d like to remind our friends from the media here of the importance of abiding by China’s laws and regulations… otherwise you will be subjected to the consequences of the law.”

What exactly is a state secret?

While the government last year laid down new laws ostensibly meant to curb the number and scope of state secrets leaks, critics say the definitions are still vague and could be used to silence political opposition.

According to the Law of the People’s Republic of China on Guarding State Secrets, they can be defined in the following ways:

1. Secret matters concerning major policy decisions on state affairs; 2. Secret matters in the building of national defense and in the activities of the armed forces; 3. Secret matters in diplomatic activities and in activities related to foreign countries and those to be kept secret through commitments to foreign countries; 4. Secret matters in national economic and social development; 5. Secret matters concerning science and technology; 6. Secret matters concerning activities for safeguarding state security and the investigation of criminal offenses; 7. Other matters that are classified as state secrets by the national department for the administration and management of state secret-guarding.

The ambiguity of these classifications have led to high-profile arrests and convictions of foreign businessmen.  The most notable case involved Stern Hu, an Australian national who was sentenced to 10 years in prison for stealing commercial secrets.

Less well publicized was the plight of Xue Feng, an American geologist working for an American consulting firm who was arrested in 2007 and sentenced to eight years in prison for trying to buy a database that showed the location of oil wells belonging to a Chinese government-owned company – information that was readily available for sale online.

Both men were charged and sentenced before the new state secrets regulations were passed, but it is unlikely that the new laws would have helped them.

It remains to be seen when, and if, the state secrets laws will be defined more narrowly.

What is clear is that the policy will remain an effective way for the Communist Party to keep corrupt officials in line, and a headache for foreign companies trying to compete against companies that are plugged into the government’s economic planning apparatus. 

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