China hits pause on controversial cyber rules

China is pressing pause on controversial new cybersecurity requirements that alarmed foreign businesses and caused President Obama to express his concerns directly to Chinese President Xi Jinping, Reuters reported.

The rules would require all foreign companies operating in China to install Beijing-approved encryption and submit all private source code for government inspection. The proposal has become another aggravating factor in the already tense cybersecurity relationship between Washington and Beijing.

{mosads}China has presented two drafts of its pending law before the National People’s Congress, and the final law was expected to go into effect in just a few months. That progress has been temporarily halted.

“They have decided to suspend the third reading of that particular law, which has sort of put that on hiatus for the moment,” said White House Cybersecurity Coordinator Michael Daniel on Thursday at the Information Technology and Innovation Foundation.

U.S. officials have spoken out repeatedly against the law. Industry groups in the U.S. and Europe have argued the regulations would stop them from being able to operate in the rising economic power.

“We did see that as something that was bad not just for U.S. business but for the global economy as a whole, and it was something we felt was very important to communicate very clearly to them,” Daniel said.

Obama himself told Xi that the move would backfire.

“Those kinds of restrictive practices would ironically hurt the Chinese economy over the long term because I don’t think there is any U.S. or European firm, any international firm, that could credibly get away with that wholesale turning over of data, personal data, over to a government,” the president told Reuters earlier this month.

China has defended the rules as a way to protect the country’s cyberspace from terrorism. Officials argue they have the right to control their own cyber domain, a concept known as cyber sovereignty.