China’s data protection rules among ‘core challenges’ facing British firms, despite steps to open economy

Beijing’s new rules on data protection, favouritism of local firms and restrictions on cross-border capital flows are major challenges for British firms
The British Chamber of Commerce has called on China to provide clarity on data security rules that threaten integration with global operations

China economy

Frank Tangin Beijing

Published: 9:00am, 26 May 2021

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British businesses see China’s cybersecurity and data restrictions as among the biggest challenges to operating in the world’s second largest economy, adding to long-standing obstacles like market access and competition with state-owned enterprises, the British Chamber of Commerce said on Wednesday.

Beijing continued opening its vast consumer market last year, while taking steps to tighten rules about how citizens’ personal data is collected and used.

The British Chamber of Commerce has called on Chinese authorities to set clear boundaries for what is considered within the realm of national security, provide more detail on the definition of “important data” and work with foreign businesses to smooth out necessary cross-border data flows.

“There has been some market opening and positive movement on regulatory challenges, but cybersecurity and IT restrictions, accessing and moving company finances and competition with state-owned enterprises continue to inhibit the growth of British companies operating in China,” the business lobby said in its latest position paper.

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“The core challenges facing British businesses in China remain largely unchanged from last year.”

The chamber, which represents hundreds of British companies, warned of significant uncertainties in the enforcement of China’s cybersecurity and proposed new data security laws, making it difficult for the business community to factor relevant compliance into local business models and to integrate it into global operations.

“Companies are already subject to some level of security assessment requirements and controls on cross-border data transfers, which slow their operations,” the chamber said.

Many foreign companies are now keeping consumer data onshore, including Apple, whose iCloud services for mainland users are being handled at a data centre in the southwestern province of Guizhou.

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Electric car maker Tesla said last month that data generated by Chinese users is stored onshore and it was developing a platform for customers to access their data.

But the chamber urged China to ensure its Cybersecurity Law gives foreign firms reasonable scope to share information overseas that is crucial to their business operations.

Authorities need to establish a clear and transparent boundary around the right of access to company IT systems for both Chinese regulators and third parties in the case of a security assessment, security breach, or general investigation, it added.

The foreign business community is often a key force against trade protectionism and disengagement in China, given its knowledge of the country’s massive market opportunities. But many are vulnerable to bilateral diplomatic disputes, as seen during the Chinese boycott of Swedish clothing brand H&M and other foreign clothing retailers in March for refusing to use cotton from Xinjiang in their clothing.

The region’s apparel sector, particularly cotton, has come under intense scrutiny from foreign governments, rights groups and the global industry itself over accusations of forced labour, which Beijing denies.

In a major foreign policy review released in March, the British government labelled China a “systemic competitor” and “the biggest state-based threat” to its economic security. It also joined the United States, the European Union (EU) and Canada in March in sanctioning five Chinese officials over suspected Xinjiang human rights issues.

The Chinese Ministry of Foreign Affairs responded by imposing sanctions on nine British nationals and four British entities and warned the union “not go further down the wrong path”.

The British chamber called for the governments of China and Britain to remain engaged.

There are also concerns that, even if greater market openings take place as promised, foreign businesses will only gain limited share

British Chamber of Commerce

“Challenges in the UK-China relationship cannot be resolved unless both parties engage in dialogue and negotiate in good faith,” it said, suggesting common ground in areas like climate change.

At the same time, the report repeated the group’s concerns over restrictions on cross-border capital transfers and the competition with state-owned enterprises.

“In reality there are still many rules designed to favour state-owned enterprises (SOEs) and therefore protect them from competition from private companies,” it said.

“There are also concerns that, even if greater market openings take place as promised, foreign businesses will only gain limited share, given the time that SOEs, in particular, have had to establish dominance in these sectors.”

China is Britain’s third largest trading partner after the US and the EU, with trade in goods and services reaching 713 billion yuan in 2020, a fall of 8 per cent from a year earlier, according to the position paper.

This article appeared in the South China Morning Post print edition as: Data rules ‘inhibiting growth of U.K. firms’