03 May 2017

Building an Institutional Framework for Cyber Security Review --- Understanding the Measures for Security Review of Network Products and Services (Tentative)

By Susan Ning(partner), Wu Han(senior associate), Zhao Yangdi(associate), Chen Linlin(associate)

The Cyberspace Administration of China (“CAC”) announced on 2 May 2017 the Measures for Security Review of Network Products and Services (Tentative) (the “Review Measures”), which will be formally implemented from 1 June 2017. The 16 articles of the Review Measures set up an institutional framework for the security review of network products and services. This is an integral part of the whole cybersecurity regime established by the Cybersecurity Law of the People’s Republic of China (the “Cybersecurity Law”). The Review Measures represents a further step and makes improvements to the CAC’s Measures for Security Review of Network Products and Services (Draft Review Measures) (the “Draft Review Measures”) which was released on 4 February 2017. This article will canvas the main provisions of the security review system for network products and services, the highlights of the Review Measures and the issues to be addressed, to provide guidance to companies in terms of cybersecurity compliance.

The Institutional Framework for the Security Review of Network Products and Services

The security review structure set up by the Review Measures includes: products and services subject to review, review focuses, authorities in charge of the review, rights and obligations of network product and service providers and legal responsibilities. Details are as follows:

 Framework
Products and Services Subject to Review  mportant network products and services procured by the network and information system which concerns national security. (Article 2)
Network products and services procured by important industries and sectors such as public communication and information services, energy, transport, water conservancy, finance, public services, e-government or other operators of critical information infrastructure (“CII”) which may endanger national security .(Article 10)
Review Focuses
Security and controllability of network products and services:
Security risk inherent in the products or services, risk that the products or services are illegally controlled or interrupted during operation;
Supply chain security risk in the manufacture, testing, and delivery of products and key components and their technical support;>
Risk that suppliers illegally collect, store, process, or use user information in providing products and services;
Risk that suppliers engage in acts that jeopardize network security or harm the interests of users by taking advantage of the users’ reliance on the products or services;
Other risks that may jeopardize national security.(Article 4) 
Reviewing Authorities  Cyber Security Review Commission (to be established jointly by the CAC and relevant departments) is responsible for directing and coordinating the security review. (Article 5)
Cyber Security Review Office organizes and implements security review. (Article 5)
Department for the protection of CII determines whether the products and services purchased by CII operators will affect national security. (Article 10)
Cyber Security Review Expert Committee responsible for comprehensive assessment. (Article 6)
Third-party institutions recognized by the state for cyber security review provide third-party assessment. (Article 7)
Competent departments for finance, telecommunications, energy, transport and other important industries or sectorsare responsible for security review of their own industries or sectors. (Article 9)
Rights and Obligations of Network Product and Service Providers  Obligations: They must cooperate in cyber security review, and be responsible for the truthfulness of their submitted materials. (Article 12)
Rights (remedies): If in their opinion a third-party institution or a relevant organization or their staff does not act objectively, or fails to comply with the confidentiality obligations regarding information obtained in their review, they may file a complaint to the Cyber Security Review Office or relevant departments. (Article 14)
Legal Responsibilities  Any breach of these Review Measures will be dealt with in accordance with applicable laws and regulations. (Article 15) 


Highlights in the Review Measures Compared with the Draft Review Measures

1. The term “public interest” has been removed

Article[1] of the Review Measures explicitly states that the Review Measures is enacted under the National Security Law (the “National Security Law”), the Cybersecurity Law, and other relevant laws and regulations of the People’s Republic of China. Pursuant to Article 59[2] of the National Security Law, the national security review and supervisory systems and mechanisms are set up to deal with “network information technology products and services that affect or may affect national security”. Article 35 of the Cybersecurity Law provides: “Where CII operators purchase network products and services that may affect national security, they must go through a security review organized by the national cyberspace authority in conjunction with relevant departments of the State Council.” 

The Review Measures does not use the term “public interest” that appeared in Articles 1, 2, and 4(5) of the Draft Review Measures. That is because implementing measures must be in strict accordance with the extent authorized by its higher-level statute and should not have an uncertainly expanded range of products and services subject to security review and the standards of review.

2. Standards of review are clarified

Article 4 of the Review Measures stipulates that reviews will focus security and control of network products and services. Article 4 (2) amends the earlier Draft  by substituting “supply chain security risk in the production, testing, and delivery of products and key components and their technical support” for “risks in the research and development, delivery of and technical support of products and key components”.

Because product R&D involves know-how, trade secrets and other core business resources, a risk review at the R&D stage is significantly more taxing Enterprises will also need to protect know-how and trade secrets from loss or damage during the security review. It is more practical and meaningful to evaluate security risks after it has been decided to actually make new products The Review Measures requirement of the security review at the time of “production and testing” rather than at the “research and development” stage is an improvement on the Draft.

It should also be noted that Article 4(2) requires a review of “supply chain security risk”. In the light of Article 3[3] of the Review Measures, it can be seen that the CAC has adopted an overall “process control” instead of “node control” in the review of network products and services. Given the complexity of network products and services supply chains and diversified business models (including outsourcing), it is inadequate for network security reviews to just focus on end products and services . To be comprehensive reviews should cover all aspects of supply chains not just end products and services and their direct providers. 

3. A “negative list” and a “white list” are created

Article 2 of the Review Measures states: “Important network products and services purchased for network and information systems relating to national security shall be subject to network security review”. Article 10 states: “Any network product or service purchased by an operator in key sectors or industries or by a CII operator shall be subject to national security review if the product or service may affect national security…” These provisions are in line with Article 35 of the Cybersecurity Law. Article 10 of the Draft Review Measures which reads “party and government departments and key sectors shall firstly purchase network products and services passing a review, and shall not purchase any network product or service that fail a review” is not repeated in the Review Measures. 

For both purchaser and supplier the above revision removes an uncertainty in the Draft Review Measures. Can “grey” network products and services that have not been reviewed be purchased? Are there any restrictions on purchasers who are not “party and government departments or key sectors”? The Review Measures makes clear that a purchaser, whether or not in “party and government departments or key sectors”  must buy products and services that have passed a network security review whenever they are “important network products and services in network and information systems concerning national security”. That means products and services that “have not been reviewed” (grey list) or “fail a review” (negative list) are both prohibited from the market.

4. Transparency of review results increases

Article 8 of the Review Measures, states: “…to carry out cyber security review of network products and services, and publish or circulate within certain groups the review results”. Article 13 of the Review Measures provides: “The Cyber Security Review Office is to publish security assessment reports on network products and services from time to time” instead of “… to publish security assessment reports on network product and service providers from time to time” contained in the Draft Review Measures.

The Draft Review Measures did not specify either the relationship between “review of network products and services” and “security assessment on network product and service providers”, or the purpose and possible influence of the said “security assessment report on network product and service providers”. Some enterprises were concerned that these reports would be considered a “negative list”, i.e. if a provider was negatively assessed in the report, all its network products and services would be adversely affected. The Review Measures reduces this concern by clarifying that the assessment will be of “network products and services”, and not a qualitative conclusion regarding the security and credibility of the “provider”. In addition, the assessment reports published from time to time will guide the purchase of products and services, so as to make assessment reports useful.  

5. There are more remedies and penalties

Article 14[4] of the Review Measures permits reporting to the Cyber Security Review Office when network product and service providers believe that an institution has made a non-objective and unfair assessment or r other concerns.  Article 15 confirms that violations will be dealt with in accordance with applicable laws and regulations. 

Things to Be Clarified or Supplemented in the Review Measures

1. Scope of products and services to be reviewed

According to Article 2 of the Review Measures, “important network products and services to be purchased for networks and information systems concerning national security are subject to network security review.” However, the Review Measures does not define the scope of “network and information systems concerning national security” nor does it indicate which parts of security network and information systems are “important network products and services”. Therefore, enterprises are still uncertain about the applicable scope of the Review Measures. 

Based on the context of the Cybersecurity Law and the Review Measures, preliminary observations may be made that “network and information systems concerning national security” at least include “critical information infrastructure”. It is said that the CAC will publish a “Guidelines on Critical Information Infrastructure” in the near future in order to partially specify the scope of Article 2 of the Review Measures. But what about other “network and information systems concerning national security” that are not “critical information infrastructure”? Both the criteria and the decision making authority for defining the scope are uncertain and will need specification in further guidelines. 

Moreover, the concept of “important network products and services” is so broad that, without specific criteria, it may be expanded at will and cause significant uncertainty. The Cybersecurity Law prevails over the Review Measures, is it practical that its provisions should apply mutatis mutandis to the operation of the Review Measures? For example, will the “catalog of critical network equipment and specialized network security products” provided in Article 23[5] of the Cybersecurity Law be used as reference for identifying some of the “important network products and services”?

2. Review of “providers” and the “supply chain” of network products and services

Articles 3[6] and 11[7] of the Review Measures have omitted the expressions “to conduct reviews of providers of network products and services” contained in the Draft Review Measures and Article 13 changes “publish security assessment report on providers of network products and services” to “publish security assessment report on network products and services” accordingly. Such changes have made clear that the review focuses on “network products and services” rather than “providers”. We can see from such changes that reviews of enterprises are not included in security reviews and related enterprises need not worry that reviews will be targeted at them.

It is noteworthy that the matters to be reviewed stipulated in Article 4 of the Review Measures remain “the risk of product and service providers taking advantage of users’ dependence on the products and services to harm cyber security and users’ interests”. Article 6[8] of the Review Measures still includes “product and service providers’ security credibility status” as one of the assessment considerations of the Network Security Review Committee. Thus, we may not rule out the possibility of reviews of “the providers of network products and services”.

As noted above, Articles 3 and 4 (2) specifically require “supply chain risks” to be reviewed. To identify and prevent risks, it would be necessary to review the whole supply chain, but is it possible or practical to review all the related outsourced technical and service providers? This issue needs to be clarified.

3. Access to remedies

Under Article 14 of the Review Measures providers of network products and services may complain to the Cyber Security Review Office if they believe their assessment by a third party to be unfair. However, the Review Measures does not give any remedies following the Cyber Security Review Office review. For instance, if the results are negative, can providers apply for another review after they have made improvements? If the provider challenges the decision of the Cyber Security Review Office to uphold a third party assessment, can it file a complaint, and to whom?

4. Penalties are too general and unclear

Article 15 of the Review Measures states: “Any breach of the Review Measures must be dealt with in accordance with applicable laws and regulations”. Article 65[9] of the Cyber Security Law contains penalties for operators of CIIs that buy network products or services that have not been examined for security or passed any security review. Otherwise, the reference to “applicable laws and regulations” is too general, and gives no clear expectations of possible penalties and legal consequences.

5. Procedures to be further confirmed

Article 7 of the Review Measures states: “The state designates third-party institutions of network security review in accordance with related laws, to undertake third-party assessment of network security reviews”. However, the “related laws” are not clear and whether cyberspace authorities will release detailed qualifications, designating standards and specific procedures for third-party institutions needs to be further confirmed.

In addition, Article 8[10] of the Review Measures says that “the office of network security review shall, in accordance with related requirements…determine review targets pursuant to procedures…”, but there are currently no clear procedures for determining review targets. Whether the cyberspace authorities will formulate and release procedures in the future will be a concern for enterprises.

As the implementing rules of the Cyber Security Law, the Review Measures have been drafted and released before the entry into force of the Cyber Security Law. They reflect the state’s resolution to safeguard national security and network sovereignty and the importance it attaches to the security of network products and services. Although some of the details of the Review Measures remain to be clarified, there is no denying that the Review Measures establish a fundamental framework for the security of network products and services. It is likely that reviews of network products and services will be undertaken in full as soon as the Review Measures come into force. The security review results will affect the sales and purchases of network products and services, Accordingly we will pay close attention to any updates of operational guidance and law enforcement practices arising from the Review Measures to help avoid any negative impact on businesses. 


[1]Article 1: The Review Measures is enacted under the National Security Law, the Cybersecurity Law of the People's Republic of China, and other laws and regulations.

[2]Article 59: The state shall establish systems and mechanisms for national review and supervision, carry out state security review on foreign investment, specific items, key technology, network information technology products and services that affect or may affect national security, construction projects related to state security, and other significant matters and events, so as to prevent and neutralize national security risks in an effective way.

[3]Article 3 The network security review of network products and services and their providers shall be carried out by the combination of enterprise commitment and social supervision, of third-party evaluation and government regulation, and of laboratory testing, on-site inspection, online monitoring and background investigation.

[4]Article 14 Where network product and service providers believe that a third-party institution or other relevant unit or individual is not objective or fair, or fails to perform the obligation of confidentiality with respect to any information obtained in the course of the review, they may report this to the Cyber Security Review Office or other relevant departments.

[5]Article 23 Critical network equipment and specialized network security products shall follow the national standards and mandatory requirements, and be safety certified by a qualified establishment or meet the requirements of a safety inspection, before being sold or provided. The state network information departments, together with the relevant departments of the State Council, formulate and release a catalog of critical network equipment and specialized network security products, and promote reciprocal recognition of safety certifications and security inspection results to avoid duplicative certifications and inspections.

[6]See footnote 3.

[7]Article 11 Third-party institutions undertaking network security reviews shall evaluate network products and services and their providers mainly in such aspects as controllability, transparency and reliability based on the principles of objectivity, justness and fairness, in accordance with related provisions and by reference to the relevant standards, and shall be liable for the evaluation results.

[8]Article 6 The network security review commission shall employ  a committee of network security review experts, to comprehensively evaluate the security risk of network products and services and the security and reliability of their providers on the basis of third-party evaluation.

[9]Article 65 Where operators of key information infrastructures, in violation of Article 35 hereof, use network products or services that have neither been examined for security nor passed the security examination, they shall be ordered by the relevant competent departments to stop using such products or services, and a fine of no less than one but no more than ten times the purchase amount shall be imposed; as for the persons directly in charge or other directly responsible persons, a fine of no less than CNY10,000 but no more than CNY100,000 shall be imposed.

[10]Article 8 The office of network security review shall, in accordance with the requirements of the relevant state departments, opinions of national industry associations, market reactions and enterprise applications, organize third-party institutions and experts to conduct network security reviews of network products and services, and release the review results or announce them within a certain scope.

Data Central

Have you checked out our new Data Hub? Data Central contains a range of resources to help our clients minimise the legal, regulatory and commercial risks this data-driven environment presents and ensure that its full value is being realised.

A Guide to Doing Business in China

We explore the key issues being considered by clients looking to unlock investment opportunities in the People’s Republic of China.

Doing Business in China
Share on LinkedIn Share on Facebook Share on Twitter
    You might also be interested in

    We sum up the definitions of accredited investor and qualified institutional buyer as proposed by the U.S. Securities and Exchange Commission.

    10 September 2020

    CFIUS has cleared a greenfield wind farm project in Texas, to be built by GH America Energy, a subsidiary of Shanghai-listed Guanghui Energy Co., Ltd. The project is in Val Verde County, along the...

    29 June 2020

    On 30 April, 2020, the China Securities Regulatory Commission (“CSRC”) and the National Development and Reform Commission (“NDRC”) jointly released the Circular on Work Related to Advancing the Pilot...

    24 June 2020

    CFIUS cleared another China acquisition. The clearance came in late February but was only publicly announced by the NYSE-listed buyer in its recent SEC filing. The deal involves the acquisition of...

    17 June 2020

    This site uses cookies to enhance your experience and to help us improve the site. Please see our Privacy Policy for further information. If you continue without changing your settings, we will assume that you are happy to receive these cookies. You can change your cookie settings at any time.

    For more information on which cookies we use then please refer to our Cookie Policy.