China’s Data Play

December 2, 2021 Updated: December 22, 2021

News Analysis

Beijing is quietly overhauling how Chinese firms handle data, and these changes are likely to have global implications.

The management of how firms handle data has historically drawn little interest. But with the advent of internet-connected devices that can track or measure virtually every movement, governments have taken an increasing interest in who’s managing what and where data is stored.

In the last few weeks, the importance that the regime in Beijing places on controlling Chinese data has been made clear. Recently, a new law in China went into effect with the stated intent of safeguarding Chinese data. This has had an immediate effect on not just firms in China, but firms from around the world for seemingly basic data.

For example, Beijing has advised Chinese ride-sharing app Didi to delist from the New York Stock Exchange because of data security concerns. Given that China has long blocked any attempts by U.S. financial regulators to obtain data on Chinese firms listing in New York on national security grounds, the concern that Didi may share data seems misplaced, but speaks to Beijing’s concerns.

In another example, Chinese ships have gone dark or stopped providing data to comply with China’s data privacy law. However, this practice isn’t limited to ships, but also includes Chinese firms refusing to provide data to non-Chinese firms, whether they’re located in China or around the world.

Driving this change is Beijing’s view of what constitutes a national security risk. Historically, countries have thought of weapons, military strength, or top-secret research as national security data. However, that view is changing and China is ahead of most other countries in considering what constitutes a national security risk in the age of Facebook and Twitter.

China uses a vast array of domestic firms to collect data on foreign individuals and institutions around the world, relying on the openness of liberal democracies and the internet to gather information. It uses this data to classify and better target individuals it wants to approach or technology it wants to acquire. This open-source data is processed, analyzed, and provided to the state.

Epoch Times Photo
Huang Yongzhen, chief executive of Watrix, demonstrates the use of his firm’s gait recognition software at his company’s offices in Beijing on Oct. 31, 2018. Already used by police on the streets of Beijing and Shanghai, “gait recognition” is part of a major push to develop artificial-intelligence and data-driven surveillance across China, raising concern about how far the technology will go. (Mark Schiefelbein/AP Photo)

However, China goes even farther than open-source intelligence gathering. A vast array of devices manufactured or coded in China collect usage data on hoovering up information on products and consumers. Recently, a Chinese point of sale firm in the United States was raided when it was discovered that its terminals were sending data back to China.

Understanding the value of that data for national security purposes, given its collection on foreign individuals and institutions, Beijing is well aware of the potential for Chinese data to be used against China. Chinese fishing vessels have cooperated regularly with the People’s Liberation Army Navy, being referred to as the “maritime militia.” With Didi, China has been very protective of its digital maps for many years, purposefully shifting coordinates so that maps don’t translate digitally between countries and electronic operating systems.

However, even as authorities seek to bring all Chinese data under state control and protection, they’re seeking to remake data availability to the state within its borders. Beijing is pushing a data trading plan, encouraging Chinese firms to trade data and even creating centralized repositories. For firms outside of China, this idea would be an anathema.

Tech firms treat user-generated data as proprietary, giving them an advantage in generating better ads or sales possibilities for users. Not only would tech firms such as Google or Facebook likely open themselves up to legal liability by trading user data, but they would also lower their competitive edge.

However, in China, trading data creates greater pools for the government to access. Notably, it reduces the competitive edge of tech firms such as Alibaba that are seeking to sell more products to their customers if more firms have access to the same data. Willfully or by accident, in seeking to remake the data landscape for improved government control of key data, Beijing is killing the competitive advantage of tech firms. Thus far, there’s little evidence that this practice will spread beyond China, but only time will tell.

What’s undeniable is the greater priority governments are placing on data security and localization. The EU is looking at potential loopholes in its GDPR regime, and the United States is looking at enacting data privacy legislation, though it’s facing pushback by tech giants.

A primary goal of Beijing is to block access to Chinese data by global firms, but retain access to foreign data by Chinese firms in their civil-military fusion state. That should say everything about how Beijing values and wants to use 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.