A new data security law in China is changing the game on how tech companies store and control data. It grants President Xi Jinping power to shutter or penalize tech companies found guilty of “mishandling core state data.”
The law, which passed on Thursday and takes effect on September 1, is in line with China’s bid to seize control of massive troves of data held by tech giants such as Alibaba Group Holding Ltd. and Tencent Holdings Ltd.
Under this new data regime, firms face either closure or revocation of operating licenses for violations. They can also be slapped with fines amounting to over 10 million yuan or $1.6 million.
Aside from the mismanagement of state data, other offenses for which tech companies may be sanctioned with fines up to 5 million yuan include providing data to overseas law enforcement agencies without state permission.
The law also mandates export controls over data that bears national security implications, the setup of a data protection system to prioritize “core state data,” and adopt reciprocal measures against countries with discriminatory practices on data-related trade and investment.
China wants to be a big data leader
The law aims to centralize data security handling to national security officials and lessen the private sector’s hold on big data. It is expected to bolster China’s ambitions to be a global leader in big data. To do so, it needs to consolidate control over the stockpile of information already in the hands of the country’s biggest tech firms.
In addition, Beijing has invested heavily in digital infrastructure and data centers to boost the national economy and reinforce the legitimacy of the Chinese Communist Party.
So far, the nation has had unprecedented growth in its digital economy, surpassing even its 2019 gross domestic product. Market research firm IDC projects that China will claim more than a third of the world’s data by 2025 – around 60% of what the US will hold by then.
For international business, however, this may not be good news.
According to Carolyn Bigg, an intellectual property and technology lawyer, China’s move is an “onerous compliance framework” that will end up hurting foreign businesses.
If the Chinese stock market were any indication, receipt of the law was mixed. Alibaba stocks fell 1.2%, Meituan rose by 3.1%, while Tencent slid to 0.8% in Hong Kong. Shanghai and Shenzhen-listed tech firms fared even worse, the latter dropping 1.5%.
China’s push for a more stringent data regime runs parallel to efforts in the US, where legislators are calling to break the monopoly that titans such as Facebook, Inc. and Alphabet Inc., have on data. Meanwhile, in Europe, legislators are prioritizing greater user control over data and anti-trust issues.
The monopoly of Alibaba and Tencent in data control is seen to be a pathway towards abuses. Xi has expressed strongly his desire to break up monopolies that amass enormous data and destroy smaller competitors. His policy issues have spurred the crackdown on the Chinese tech sector, particularly Alibaba, which was fined $2.8 billion for monopolistic practices.