BEIJING • 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 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 financial penalties of up to 5 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 digital infrastructure to make electronic information a national economic driver and help shore up the Communist Party's legitimacy.
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 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," Ms Bigg said.
Chinese tech stocks were mixed yesterday. 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, among the worst performers.
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 United States - 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 on 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 US, where lawmakers have called for breaking up Internet titans like Facebook and Alphabet, and in Europe, where regulators have prioritised antitrust actions and giving users more control over data.
US President Joe Biden ordered a security review of foreign software applications on Wednesday after revoking the Trump administration's bans on Chinese-owned apps TikTok and WeChat that had faced opposition in US courts.