China Passes Law to Strengthen Control Over Tech Firms’ Data

(Bloomberg) -- China’s top legislative body has passed a data security law, strengthening Beijing’s control over digital information amid a crackdown on local technology giants and market access disputes with the U.S.

The legislation was approved Thursday by the National People’s Congress Standing Committee, state broadcaster China Central Television said. The full text of the final legislation wasn’t immediately released.

An earlier draft called for establishing a categorical and hierarchical system for data and risk-assessment mechanisms. The bill urged national security reviews of data handling, saying that harmful overseas activities should be “pursued for legal responsibility.”

The law represents “another important piece in the overall data protection regulatory jigsaw in China,” said Carolyn Bigg, a lawyer who specializes in intellectual property and technology matters with DLA Piper in Hong Kong. Companies will still need to wait for guidance and technical standards on the practical measures they must take to comply, she said.

“It remains a complex -- and increasingly onerous -- compliance framework for international businesses to navigate through,” Bigg said.

President Xi Jinping is seeking to wrest control of vast reams of information produced by companies like Alibaba Group Holding Ltd. and Tencent Holdings Ltd. as part of broader efforts to position China as leader in big data. Beijing has been pouring money into data centers and other digital infrastructure to make data a national economic driver and help shore up the Communist Party’s legitimacy.

China’s digital economy grew much faster than gross domestic product in 2019, according to the Chinese Academy of Information and Communications Technology. The country will hold about one-third of global data by 2025 -- about 60% more than the U.S. -- Market research firm IDC projects.

The data security law is expected to provide a broad framework for future rules on internet services, to ring-fence, prise open and ease tracking of valuable data in the interests of national security. Among those may be guidelines on how certain types of data must be stored and handled locally, and requirements on companies to keep track of and report the information they possess.

The NPC is also drafting personal information protection legislation, which is expected to be adopted later this year.

China’s push parallels debates in the U.S., where lawmakers have called for breaking up internet titans like Facebook Inc. and Alphabet Inc., and in Europe, where regulators have prioritized anti-trust actions and giving users more control over data. President Joe Biden ordered a security review of foreign software applications Wednesday after revoking Trump administration bans on Chinese-owned apps TikTok and WeChat that had faced opposition in U.S. courts.

Like their American counterparts, Chinese tech giants like Alibaba and Tencent have focused on harnessing user data to refine an expanding array of digital services. This led to natural monopolies, giving the platforms enormous wealth and power that also opens the door for abuses.

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

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