The Chinese government recently rushed out two new laws in an effort to increase its control over data and to counter foreign sanctions. These new laws have exponentially increased the risks of doing business in China.
The first new law Beijing enacted is about data security. The law claims that data collected by government entities and companies in critical sectors such as finance, telecommunications, and other areas are part of “core state data.” Therefore, this data should be treated as “a new type of state-owned asset, and its data rights belong to the state.” The language of what constitutes “core state data” is intentionally vague, so the Chinese government can easily claim any data falls into that category.
By classifying a wide range of data as state assets, the law grants the Chinese government enormous power to reprimand any firms found misusing or mistreating “core state data,” including revoking business licenses, ordering a firm to pay 10 million yuan ($1.6 million) for each violation, or shut down business operations altogether.
For sizeable Chinese tech firms, it is not the financial penalty but the threat that the government could shut down their businesses at a moment’s notice, regardless of the size of their operations, that has jolted them.
Tech giants such as Tencent hurried out statements to declare loyalty to the Communist Party and promise to “be completely compliant with whatever regulations that will become in place.” Such total surrender of user data should alarm all consumers, especially foreigners who use these Chinese firms’ products and services. They should know their data and privacy are not protected and will end up in the hands of the Chinese government.
Foreign businesses in China are not exempt from the law. The Chinese government has already demanded all foreign tech companies store their data collected in China as a prerequisite to access the great Chinese market. American tech companies such as Apple and Tesla have built data centers in China to store data they collected in the nation.
The new data security law expands such data-localization requirements to more foreign companies, including financial institutions. As reported in the Wall Street Journal, Citigroup and BlackRock have agreed to comply with the data-localization mandate as the pre-condition for establishing wholly-owned subsidiaries in China.
In addition, according to the same Wall Street Journal reporting, Chinese regulators are working on sector-specific rules to “strengthen control over data considered important to state interests.” Indeed, one shouldn’t be surprised when Chinese authorities demand more foreign companies from various sectors to hand over data as long as it is cleverly labeled “state assets.”
Furthermore, the new data security law also extends the Chinese government’s “long-arm” control and enforcement overseas. 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 up to 5 million yuan ($781,470) and business suspensions.”
In compliance with American law, for example, HSBC bank shared the financial information of a Chinese official who the U.S. government is sanctioning with the FBI without Beijing’s permission. Under China’s new data security law, HSBC’s operation in China may either have to pay financial penalties or see their business shut down. Clearly, the new data security law aims to give the Chinese government greater control of data and access to data and compel both Chinese and foreign firms not to enforce foreign government’s sanctions on China.
As if this data security law isn’t terrible enough, Beijing sprinted out another new law to address the increase of foreign sanctions on China head-on. The United States, under the former Trump administration, imposed several sanctions against several senior Chinese Community Party officials, senior officials in Hong Kong, and a few Chinese military-affiliated business entities over their human rights abuses against Uyghur Muslims and Hong Kong pro-democracy activists.
Beijing had hoped that these sanctions would go away once Trump left the office. Yet, the Biden administration, along with the European Union, Britain, and Canada, launched a coordinated sanction against senior Chinese government officials over their alleged roles in putting Uyghurs and other minorities in “arbitrary detention” in Xinjiang.
Beijing has been exploiting different ways to push back foreign sanctions. In January, the Chinese government announced it would allow Chinese businesses to sue in Chinese courts for compensation over losses that result from foreign government embargo.
After the EU announced its sanctions against Chinese officials over their human rights violations against the Uyghurs, Beijing retaliated by imposing sanctions on four EU entities, including a well-known German think tank and 10 EU individuals, ranging from parliament members to scholars. Beijing’s reprisal angered so many EU countries that the European Parliament voted with an overwhelming majority to halt the ratification of a new Sino-EU investment pact, a deal the EU and China agreed to on principle last December after working on it for seven years.
Rather than modifying its behavior after the Sino-EU investment deal setback, Beijing doubled down by rushing out a new anti-sanctions law last week. The objective is to give the Chinese government additional legal cover to impose “countermeasures“ against foreign entities and individuals and their families for enforcing foreign sanctions against Chinese businesses and individuals. The countermeasures include “denying and revoking visas or expulsion, seizing and freezing assets within China, blocking transactions and cooperation with Chinese individuals and entities, as well as ‘other necessary measures’ that weren’t specified.”
This new anti-sanctions law also calls for establishing a joint task force at once, involving several government agencies, for “overall planning and coordination” of anti-sanctions work.
The anti-sanctions law is effective immediately, which means American businesses and their expats in China are forced into an impossible situation: if they do not enforce the U.S. government sanctions on Chinese companies and individuals, they will violate U.S. law; if they do implement American sanctions, American business, expats, and their families in China will not only suffer financial loss but also likely be expelled from China under China’s new anti-sanctions law.
Foreign businesses, including many large American companies, have long accepted that there are some risks to doing business in Communist China. But they often argued that the payoff of accessing the Chinese market has been so great that bearing certain level risks has been worth it.
Thus, while being vocal about social justice in their home countries, many of these firms have pretended that they never noticed Beijing’s human rights violations, and somehow Beijing’s actions never contradict the liberal values these companies claim to uphold — some of whom have even gone to great lengths to defend the Chinese government’s human rights violations against Uyghurs and Hong Kongers in their home countries. They probably thought they could ride the Communist Party’s gravy train forever without having to make legally and morally compromising decisions publicly.
All of this demonstrates once again just how little most foreign companies understand the true nature of the CCP. The party always demands total control and values loyalty more than anything else. Dealing with the party is like bargaining with a devil. Unfortunately, of course, the devil will eventually ask for your soul.
Once foreign companies become addicted to the financial lure of the great Chinese market, the party compels them to choose between breaking the laws of their home countries in exchange for market access and profit or subjecting their operations and people in China to grave danger.
The question that foreign companies in China have to ask themselves at present is this: given the well-documented human rights abuses by Beijing, the rising risks of doing businesses in China, and the impossible situation the Communist Party puts them in, how can they justify continuing to operate in Communist China? The authoritarian regime’s new laws should be the wake-up call to all foreign companies that the time to take your business and your people out of China is now.