China Proposes Rules to Curb Trade Secret Violations, Could Bar New Foreign Investment

Key Facts

China’s Ministry of Commerce has drafted special rules to protect trade secrets and opened them for public comment, in a proposal that could allow Beijing to restrict the activities of foreign entities in China and across its borders. The draft targets acts that violate Chinese trade secrets during international economic or commercial activities if they threaten China’s sovereignty, security or development interests. Proposed measures include restricting or prohibiting new investment by the entities concerned, as well as restricting or prohibiting their imports or exports of goods and technologies linked to China. These measures remain proposals under consultation and have not taken effect as binding rules. The ministry set November 24, 2026, as the deadline for public comments on the draft.

The proposal’s scope could extend to foreign companies engaged in trade or investment linked to China if authorities determine that their conduct violates Chinese trade secrets and threatens the interests identified in the draft. The measures go beyond addressing an alleged violation and could extend to new investment decisions and the movement of goods and technologies linked to China. The proposed powers leave the final text, including which conduct is covered and how it is linked to threats to sovereignty, security or development interests, important to the implementation phase. The draft comes amid trade and technology tensions between Beijing and Washington, but sources do not establish that the U.S.-China dispute prompted it. On October 24, China’s Ministry of Commerce urged the United States to stop expanding proposed restrictions on U.S. investment in China. The ministry said the U.S. proposal includes adding biotechnology to the restricted sectors and expanding coverage to include high-performance computing and hypersonic systems.

Beijing said it opposed the U.S. proposal on investment restrictions and reserved the right to take unspecified countermeasures. Earlier, on October 20, China’s Ministry of Commerce said the United States had imposed sanctions on 5 Chinese companies over allegations of trade secret theft; Beijing rejected the allegations and said it would take the necessary measures in response. The dispute adds direct context to the debate over trade secrets, while the proposed Chinese draft remains separate from the U.S. sanctions mentioned. China also published another draft on October 16 to restrict or prohibit exports of 40 technologies, including artificial intelligence, semiconductors and solar energy. These moves place trade secrets within a broader debate over technology controls and national security, without by themselves establishing a causal link between the drafts or between them and the U.S.-China dispute.

The draft comes as data from China’s Ministry of Commerce, reported by Reuters, showed that foreign investment utilized in China totaled 548.8 billion yuan in the first nine months of 2026, down 4.3% year on year. The decline had been 5.3% in the first eight months, meaning the pace of contraction eased in the nine-month reading. By contrast, foreign investment flows into high-tech industries rose 33.8% between January and September, according to China’s vice commerce minister. The official said research and development and design services led the growth. The readings for the same period show a divergence between a decline in overall foreign investment and growth in high-tech industries, with both figures relating to investment flows rather than the impact of the proposed draft.

In explaining pressures on foreign investment, the vice commerce minister cited worsening geopolitical conflicts, weak growth momentum and an increase in protectionist and unilateral measures. These factors, according to the official as reported by Reuters, reflect challenges facing investment flows, while high-tech industries recorded growth over the same nine months. China has general rules to protect trade secrets that took effect on June 1, 2026. They define a trade secret as commercial information not known to the public and having commercial value, for which the owner has taken appropriate steps to keep it confidential. In March, China’s market regulator called for consideration of applying unfair competition rules beyond its borders to trade secret violations abroad if they harmed the market or the rights of companies or consumers inside China. The current draft adds proposals targeting acts by foreign entities in international economic or commercial activities, with its contours to become clearer after consultations end on November 24.