Analysis: beyond security crackdown, Beijing maps state-controlled data market

BEIJING, July 20 (Reuters) – China’s sweeping regulatory action against internet giants such as ridesharing company Didi Global Inc, which has thrilled the industry, is part of a larger national plan to to create a national market for the country’s vast treasures of big data.

The plan, which has been fermenting for years but gaining momentum quickly, is designed to help support the Chinese economy over the next several decades and includes pilot projects for state-supervised data exchange markets, according to political documents.

It also threatens to further isolate the Chinese internet industry from the world and escalate tensions with Washington.

Data is becoming a critical battleground between China and the United States, driven by fears on both sides that uncontrolled collection by private companies could allow state actors to arm information on infrastructure and other interests. national.

In September, China is set to implement its data security law, which requires companies that process “critical data” to conduct risk assessments and submit reports. Organizations that process data affecting national security must submit to annual reviews.

Earlier this month, Chinese regulators pulled Didi (DIDI.N) from app stores nationwide, days after its U.S. IPO, citing security concerns, causing its stock to drop.

GLOBAL STRATEGIC PLAN

But China’s efforts to take control of data for national security reasons are only one aspect of a strategic goal to create a state-supervised market for such information, including government data as well as those collected by private companies, and help support slowing economic growth, experts say.

This information could encompass just about any type of data – from health records and court documents to cards and purchase histories.

“Audits of overseas IPOs, cross-border transfers, and open access to certain types of data hamper Beijing’s goal of not only taking over oversight of the county’s vast data assets,” but also to trivialize them, “said Kendra Schaefer, head of technology policy research. at Beijing-based consulting firm Trivium China.

The plans require a huge bureaucratic effort to categorize, standardize and value the data, show the policy documents, laying the groundwork for it to be exchanged nationally while preventing access abroad to the most sensitive information.

“User data obtained by a large number of Internet service platforms (…) are public resources and should be included in the national unified and hierarchical monitoring system,” the Center said this month. Internet information from China.

THE FIFTH FACTOR

Plans for a state-controlled data marketplace have been in the works for years.

In a closed-door meeting in 2017, President Xi Jinping urged policymakers to research global data governance and “come up with a Chinese plan” to “open, process and confirm property rights and protection of data property ”.

The project was supercharged in April 2020, when a State Council document said data would be the fifth “factor of production” – on par with labor, technology, land and capital in terms of resources. national economies.

This was quickly followed by the Data Security Bill, which mandates a mass audit of big data.

“They’re playing foursome chess here,” said Samm Sacks, cyber policy researcher at think tank New America.

“It’s not just a national security policy, it’s a much more deliberate plan asking ‘how do we really harness the value that comes from data economically? “”

A digital economy development plan released by the State Council in March outlines a five-part plan for “experimental data markets” and calls on authorities to “implement and strengthen economic supervision” of Internet platforms.

The powerful province of Guangdong last week announced plans to launch such a platform by the end of the year to exchange and oversee the movement of data, including a customs center for international transfers. Read more

“BARBARIAN” GROWTH

Globally, governments have wrestled with how to manage internet platforms and their vast power, based on their vast collection of user data.

In China, which has tight control over private companies, these efforts are in principle simpler.

“The government has long wanted to regain control of the data held by these private platforms as a strategic asset, then Didi gave them the perfect opportunity as they flouted these important stakeholders who were not ready for the introduction. on the stock market, ”Sacks said.

But China’s efforts come with risks, Sacks said.

The data law’s broad definition of what could be considered “national key data” is vague, adding to the uncertainty for businesses, their customers and investors.

A Chinese tech stock index (.CSIH11136) has fallen 40% from early-year highs amid growing regulatory crackdown ranging from anti-competitive practices to data security.

“They are undermining the confidence of customers who are suspicious of Beijing to have this data. It will ultimately make it more difficult for these companies to be truly global players and to be successful outside of China’s closed system,” Sacks said. .

Foreign companies that collect data in China are required to undergo the same security examinations when transferring data outside the country.

“Chinese internet companies must step out of the comfort zone of the barbaric growth of the past and adapt to China’s new institutional environment,” Fang Xingdong, an academic from Zhejiang University, said in a recent Global editorial. Times.

Reporting by Cate Cadell Editing by Tony Munroe and Kim Coghill

Our Standards: Thomson Reuters Trust Principles.


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