China's new data law gives President Xi Jinping power to shut down tech firms

President Xi Jinping's administration has tightened control over the hoard of information produced by China's tech companies.
President Xi Jinping's administration has tightened control over the hoard of information produced by China's tech companies.PHOTO: XINHUA/EPA-EFE

BEIJING (BLOOMBERG) - China's new data security regime gives President Xi Jinping the power to shut down or fine tech companies as part of his drive to wrest control of vast reams of data held by giants like Alibaba Group Holding and Tencent Holdings.

Firms found mishandling "core state data" can be forced to cease operations, have their operating licences revoked or fined up to 10 million yuan (S$2 million) under a law passed on Thursday (June 10) by the nation's top legislative body.

Companies that leak sensitive data abroad can be hit with similar fines and punishments, and those providing electronic information to overseas law enforcement bodies without permission can face penalties of up to five million yuan and business suspensions, according to the law published on the website of the National People's Congress (NPC).

The law, which goes into effect on Sept 1, stipulates that major decisions involving data security will be made by central national security officials.

Mr Xi's administration has tightened control over the hoard of information produced by the nation's tech companies as part of broader efforts to position China as a leader in big data.

Beijing has been pouring money into data centres and other infrastructure to make electronic information a national economic driver.

The law represents "another important piece in the overall data protection regulatory jigsaw in China", Ms Carolyn Bigg, a lawyer who specialises in intellectual property and technology issues with DLA Piper in Hong Kong, said before it was passed.

Companies will still need to wait for guidance and technical standards on the practical measures they must take to comply, she added.

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

Chinese tech stocks were mixed on Friday. Alibaba fell 1.2 per cent and Tencent slipped 0.8 per cent at the close in Hong Kong, while Meituan advanced 3.1 per cent.

A sub-gauge of tech shares on the CSI 300 Index of key firms listed in Shanghai and Shenzhen dropped 1.5 per cent.

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 per cent more than the US - market research firm IDC projects.

The new data law is expected to provide a broad framework for future rules on Internet services, and 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 for companies to keep track of and report the information they possess.

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

China's push parallels debates in the United States, where lawmakers have called for breaking up Internet titans like Facebook and Alphabet, and in Europe, where regulators have prioritised anti-trust actions and given users more control over data.

President Joe Biden ordered a security review of foreign software applications on Wednesday after revoking Trump administration bans on Chinese-owned apps TikTok and WeChat that had faced opposition in US courts.

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

Now, Mr Xi has declared his intention to go after platforms that amass data to create monopolies and gobble up smaller competitors. That has led to a crackdown in China's tech sector, with regulators fining Alibaba a record US$2.8 billion (S$3.7 billion) for abuse of market dominance, and warning dozens of other top Internet companies to rectify anti-competitive practices.