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 Ltd. and Tencent Holdings Ltd.
Firms found mishandling “core state data” can be forced to cease operations, have their operating licenses revoked or fined up to 10 million yuan ($1.6 million) under a law passed Thursday by the Asian 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 up to 5 million yuan and business suspensions, according to the law published on the website of the National People’s Congress.
The law, which goes into effect Sept. 1, stipulates that major decisions involving data security will be made by central national security officials.
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,” Carolyn Bigg, a lawyer who specializes 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 said.
“It remains a complex — and increasingly onerous — compliance framework for international businesses to navigate through,” Bigg said.
Chinese tech stocks were mixed Friday. Alibaba fell 1.2% and Tencentslipped 0.8% at the close in Hong Kong, while Meituan advanced 3.1%. A subgauge of tech shares on the CSI 300 Index of key firms listed in Shanghai and Shenzhen dropped 1.5%, among the worst performers.
The article was published on Bloomberg. Featured image from Hindustan Times.