New Chinese data law gives Xi the power to shut down tech companies

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China’s new data security regime gives President Xi Jinping the power to shut down tech companies as part of his drive to take control of vast amounts of data held by tech giants like Alibaba Group Holding Ltd. and Tencent Holdings Ltd.

Companies that mismanage “critical government data” may be forced to shut down, have their business licenses revoked, or be fined up to 10 million yuan (1.6 million yuan). dollars) under a law passed Thursday by the Asian nation’s highest legislative body.

Businesses that disclose sensitive data overseas may be subject to similar fines and penalties, and businesses that provide data to foreign law enforcement agencies without authorization may face financial penalties of up to $ 5. million yuan and business suspensions, according to the law posted on the People’s Congress website.

The main decisions regarding data security will be taken by central national security officials. The law comes into force on September 1.

Xi’s administration has tightened its control over the treasure trove of information produced by the country’s tech companies as part of broader efforts to position China as a leader in big data. Beijing has invested money in data centers and other digital infrastructure to make electronic information a national economic engine and help strengthen the legitimacy of the Communist Party.

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The law is “another important piece in China’s overall data protection regulatory puzzle,” said Carolyn Bigg, an intellectual property and technology lawyer at DLA Piper in Hong Kong, before its passage. Businesses will still have to wait for guidance and technical standards on the practical steps they need to take to comply, she said.

“This remains a complex – and increasingly onerous – compliance framework for international businesses,” Bigg said.

Chinese tech stocks were mixed on Friday. Alibaba fell 1.2% in Hong Kong, while Tencent and Meituan rose. A measure of tech stocks on China’s benchmark CSI 300 fell 1.6%.

Chinese President Xi Jinping appears on a screen during an event marking the 100th anniversary of the founding of the Communist Party of China at the Memorial of the First National Congress of the Communist Party of China in Shanghai on June 4. | REUTERS

China’s digital economy grew much faster than gross domestic product in 2019, according to the Chinese Academy of Information and Communication Technologies. The country will hold about a third of the world’s data by 2025 – about 60% more than the United States – projects by market research firm IDC.

The new data law is expected to provide a broad framework for future rules on Internet services, and to close, open and facilitate the tracking of valuable data in the interest of national security. These may include guidelines on how certain types of data should be stored and processed locally, and requirements placed on businesses to keep track of and report the information they hold.

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The AFN is also drafting privacy legislation that is expected to pass this year.

China’s push parallels debates in the United States, where lawmakers have called for smashing internet titans like Facebook Inc. and Alphabet Inc., and in Europe, where regulators have prioritized antitrust actions and giving users have more control over data. US President Joe Biden on Wednesday ordered a review of the security of foreign software applications after he revoked the Trump administration’s bans on Chinese TikTok and WeChat apps that had faced opposition from US courts.

Like their US counterparts, Chinese tech giants including Alibaba and Tencent have focused on harnessing user data to refine a growing range of digital services. This has led to natural monopolies, giving platforms enormous wealth and power that also open the door to abuse.

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Now Xi has declared his intention to go after “platforms” that amass data to create monopolies and gobble up smaller competitors. This has led to a crackdown on China’s tech industry, with regulators fining Alibaba a record $ 2.8 billion for abuse of market dominance and warning dozens of other big internet companies to rectify the practices. anti-competitive.

Here are some other key points of the law passed by the AFN Standing Committee:

  • Companies that have engaged in data processing activities outside Chinese territory in a manner that undermines national security will be held legally responsible.
  • China will put export controls on data related to national security.
  • The country will build a data protection system that prioritizes “essential state data”.
  • Beijing will take reciprocal action against countries that adopt discriminatory restrictions on investment and trade in data and related technologies.

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