beyondbrics

The eight year prison sentence given yesterday to the American geologist Xue Feng for spying has revived the controversy over China’s often vague secrets laws but it is also another blow to Shanghai’s ambitions to become an international financial centre.

Xue, a naturalized US citizen born in China, was convicted of spying and collecting state secrets by a court in Beijing which said that his actions had “endangered our country’s national security”. According to the verdict, he got access to documents about the geology of oil wells in China and a database with information about 30,000 oil and gas wells belonging to PetroChina, which was then sold to his employer, the consultancy IHS.

There are plenty of questions about the case that make it rash to rush to judgement, especially as IHS has had little of substance to say. But two of the conclusions that are being drawn have huge importance for Shanghai and mainland financial markets. The first is the fact that the information he obtained appears to have been classified as a state secret only after the event:

As I understand it, this database was not classified as a state secret until afterwards,” said Joshua Rosenzweig, a senior researcher at Dui Hua. “Under Chinese state secrets laws, we have seen in the past that you can’t always go into a transaction knowing beforehand that what you are doing is wrong, because you can’t always know what is a state secret.

Then, according to a report by the Associated Press (which first revealed Xue’s arrest), geologists say that the sort of information he collected is widely available in most countries and represents no threat to national security, given that the government has complete control over who has access to the resource.

Cases like this cast a dark cloud over Shanghai’s ambitions. To become one of the cities where cross-border finance feels at home, Shanghai needs more than just a big domestic economy at its back – it also needs to be a place where important information can be circulated freely and where the legal framework is clearly understood by all. China’s interest in meeting such conditions has been questioned before, including during the various attempts by Beijing to exert more control over the market for financial information.

The erratic application of catch-all state secrets laws is another major obstacle.

Related reading:
Xue Feng, U.S. Geologist, Gets 8-Year Sentence, Was Tortured In Chin, The Huffinton Post