China Makes Basic Business Data National Security Risks

December 9, 2021 Updated: December 12, 2021

News Analysis

The world’s understanding of China increasingly resembles the old Soviet Union joke: the authorities pretend they are paying wages, workers pretend they are working. China blocking basic business data threatens to shut them off from the world even more.

For years, as China printed unreliable economic data, changed it whimsically, or censored it altogether, investors were content to carry on pretending in the unrequited hopes of economic payoff. The new data security law, however, has changed everything.

Despite its deserved reputation as strict police chief, Chinese regulators more often resemble the bumbling Keystone Cops. Founded in 2012, ride-hailing app Didi did not receive its first business license until 2017 when it was already doing billions in revenue annually, and processing hundreds and thousands of rides daily.

For years, Chinese regulators took a similarly lax approach to all the data being hoovered up by tech firms, like Didi, about consumers and businesses. As long as Beijing could watch anything people did, little concern was given to what else happened with the data. Now that is changing.

In an environment where quality information is at a premium, firms treated their proprietary data as a valuable resource with many entering the data brokering business to sell directly, expand into related businesses, or by creating economic indicators for investors. With no legal framework for data management and minimal regulatory guidance, the Chinese data market was the Wild West.

For years, investors have relied on non-traditional economic measures to better understand China. Similar to Chinese Premier Li Keqiang and his famed index of freight traffic, bank loans, and electricity consumption, investors have constructed shadow measures that better replicate real activity. From online searches that attempt to better capture the labor market or night time light emissions that better capture real activity, investors have been turning to non-traditional data to better understand China.

Due to a variety of data leaks that have caused great embarrassment to the Chinese Communist Party, Beijing passed a data security law on Sept. 1 that intends to address a variety of ongoing problems. While similar laws have passed in jurisdictions like the European Union with its General Data Protection Regulation (GDPR), the primary motivation for China is different. In Europe the driving motivation centers around consumer privacy and protection that seeks to make information open and available. In China, the driving motivation is national security concerns seeking to protect data from people and specifically foreigners.

Epoch Times Photo
A Chinese policeman blocks photos being taken outside Zhongnanhai, which serves as the central headquarters for the Chinese Communist Party, in Beijing, on April 11, 2012. (Mark Ralston/AFP/Getty Images)

With Beijing’s expansive definition of what data constitutes national security, data flows from China to foreign-owned enterprises have ground to a halt. This is not merely data most people would think of as national security risks, but a wide variety of data that business utilizes. Large amounts of underlying economic data has not been updated in more than a year and many cases even longer. Commercial shipping data has been blocked from being used by foreigners. Other Chinese firms are reporting they are being told to not sell data or information to foreigners. Beijing is even forcing Didi to relist in Hong Kong ostensibly on the fear that it may share data with U.S. regulators endangering national security.

This shift in policy comes as Beijing has taken an even harder authoritarian line in the run up to Chairman Xi Jinping’s presumed re-election in 2022. Never known for its open information environment, Beijing has taken an increasingly restrictive approach to any form of information access.

A recent report noted that China has imprisoned more journalists than any other country with citizens being imprisoned for using a VPN or making jokes on WeChat. This restriction on information is now spreading well beyond political or national security restrictions extending to basic information that businesses need to understand markets. The importance of the Chinese economy means that it is now having global spillovers.

There is little directly that investors or countries can do to influence the information environment inside China. However, there are things that can be done to pressure China on its use of information.

Lost through many years of Chinese of information restrictions is the lack of reciprocal treatment. Chinese firms want the openness of liberal democratic states both for business purposes and for economic or information warfare purposes. Whether it is social media platforms or basic access to economic data, democratic states must push back against the information shut down in China.

The United States and other countries need to restrict channels through which China gathers information on open democratic states. From limiting journalist visas to blocking information flows to Chinese companies, Washington must push for reciprocity in general information flows.

As the old Soviet Union joke went, after sentencing a prisoner to 10 years for telling a political joke, the judge laughing told another judge, “I just heard the funniest joke, but I can’t tell you or I had to give you 10 years.” If only this wasn’t the current approach by Beijing to data.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.

Christopher Balding was a professor at the Fulbright University Vietnam and Peking University HSBC Business School. He specializes in the Chinese economy, financial markets, and technology. A senior fellow at the Henry Jackson Society, he lived in China and Vietnam for more than a decade before relocating to the United States.