In A Quest To Rein On Tech Giants, China Turns To Data Protection

China is looking to tighten rules around how its citizens’ personal data is collected, as it moves to further rein in the power of technology giants like Alibaba and Tencent.

A strong data framework could help countries define how the next-generation internet looks as well, one expert said, pointing out that it could become a geopolitical issue as China looks to challenge the U.S. in the technology sphere.

But the move has also raised debate about whether those same rules will apply to one of the country’s biggest data processors — the government.

Last year, Beijing published the draft version of the Personal Information Protection Law (PIPL), laying out for the first time a comprehensive set of rules around data collection and protection. Previously, various pieces of piecemeal legislation governed data.

It’s seen as part of a bigger effort to rein in the power of Chinese technology giants which were able to grow unencumbered over the past few years through the vast collection of data to train algorithms and build products, experts said.

Users are becoming more knowledgeable, and they are becoming angry with companies abusing their personal information.

In February, China issued revised antitrust rules for so-called “platform economy” companies, which is a broad-brush term for internet firms operating a variety of services from e-commerce to food delivery.

“The government wants to rein in some … of those technology giants,” Rachel Li, a Beijing-based partner at the Zhong Lun Law Firm, told CNBC by phone. “This legislation … goes along with other efforts such as antitrust.”

Data protection rules

Globally, there has been a push toward more robust rules to protect consumer data and privacy as technology services continue to expand.

In 2018, the European Union’s landmark General Data Protection Regulation came into effect. Called the GDPR for short, it gives citizens in the bloc more control over their data and grants authorities the ability to find companies that fall foul of the rules. The U.S. has yet to enact a nationwide data protection law like Europe.

Now China is attempting to do something similar.

“After years of Chinese internet companies building business models around Chinese people’s lack of awareness about privacy, users are becoming more knowledgeable, and they are becoming angry with companies abusing their personal information,” Winston Ma, adjunct professor at the New York University School of Law, told CNBC via email.

China’s Personal Information Protection Law applies to the country’s citizens and to companies and individuals handling their data.

Here are key parts of the law:

i) Data collectors must get user consent to collect information and users have a right to withdraw that consent;

ii) Companies processing the data cannot refuse to provide services to users who do not consent to have their data collected — unless that data is necessary for the provision of that product or service;

iii) Strict requirements and rules for transferring Chinese citizens’ data outside the country, including getting government permission;

iv)Individuals can request for their personal data that’s being held by a data processor;

v)Any company or person falling foul of the rules could be fined no more than 50 million yuan ($7.6 million), or 5% of the annual turnover. They could also be forced to stop some of their business.

What it means for tech giants

In short, the law means more scrutiny and potential changes to the business models of China’s internet giants.

The PIPL is one part of Beijing’s efforts to regulate the country’s big technology firms — a move which gathered steam after Ant Group’s record $34.5 billion initial public offering was pulled in November.

Chinese billionaire Jack Ma’s empire has been under the spotlight. On Saturday, China’s State Administration for Market Regulation fined Alibaba 18.23 billion yuan ($2.8 billion) in an anti-monopoly investigation, that began in December.

In general, the age of ‘exponential growth in the wilderness’ for Chinese technology companies’ expansion is over, whether domestic or over