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Two Sessions 2021 (Lianghui)
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Policymakers revealed intentions to build a “Digital China” with clearer boundaries for how and when mainland tech companies can use the data they collect from users. Photo: Reuters

China’s ‘two sessions’ 2021: plans for ‘Digital China’ transformation come with increased regulations for personal data

  • In a new work report and 14th five-year plan, China seeks to nurture digital industries such as artificial intelligence, blockchain and cloud computing
  • Policymakers at the ‘two sessions’ are also speeding up the roll-out of two laws protecting personal information and data security

At China’s biggest annual political gathering, known as the “two sessions”, policymakers revealed intentions to build a “Digital China” with clearer boundaries for how and when mainland tech companies can use the massive amounts of data they collect from users.

In his work report to the National People’s Congress (NPC), Premier Li Keqiang highlighted “innovation-driven development” and efforts to create “new strengths for the digital economy” under the country’s 14th five-year plan that was submitted to delegates.

“We will work faster to develop a digital society, digital government, and healthy digital ecosystem as we pursue the Digital China initiative,” the premier said in his speech.

The National Development and Reform Commission, the key agency involved in drafting China’s five-year plans, said it will research and draft policy documents on the new internet industry, with a focus on guiding the integration of the digital and physical economies.

The draft plan also shows Beijing’s intention to speed up the roll-out of two “fundamental” pieces of legislation: the Personal Information Protection Law and the Data Security Law.

China drafts new rules to curb excessive data collection by apps

Both laws build on the existing framework set up by the Cybersecurity Law. The Personal Information Protection Law focuses on protecting personal privacy, while the Data Security law is aimed more at protecting national security, establishing rules around markets for data and how the government collects and handles data.

In the new plan, China aims to increase added value in the digital economy to 10 per cent of gross domestic product (GDP) by 2025, up from 7.8 per cent in 2020.

The target is ambitious but reasonable considering the untapped potential of the digitalisation of traditional industries, said Li Yi, chief research fellow at the Shanghai Academy of Social Sciences, in an interview with the Post. “In the past two decades, the digital economy has transformed the way average consumers live, work and entertain [themselves], but there’s still huge room in the so-called industrial internet.”

The plan also calls for nurturing new digital industries, including artificial intelligence, big data, blockchain and cloud computing, along with expanding the use of 5G technologies to more industries such as smart transport and logistics. The new five-year plan specifically encourages companies to share data from search, e-commerce and social media services for the development of a third-party big data platform.

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In 2019, China’s digital economy was valued at 5.2 trillion yuan (US$803.4 billion), according to an estimate from the China Academy of Information and Communications Technology, under the Ministry of Industry and Information Technology (MIIT). At 40 per cent the size of that in the US, it was the second largest digital economy in the world, accounting for 36 per cent of China’s gross national product.

While seeking to increase digitalisation, the 14th five-year plan also increases scrutiny of internet platforms, continuing a government crackdown on monopolistic practices and unfair competition.

“China’s digital economy is entering a new phase of development after a ‘wild era’ with great tolerance from the regulators,” Shanghai Academy of Social Sciences’ Li said. “That tolerance and encouragement from the government has led to the explosive growth of internet companies in the early years, but as Big Tech has now gained more power, the regulators will be more cautious with their tolerance.”

This increased regulatory scrutiny of Big Tech comes as the country prepares to place more restrictions on the handling of data with two new laws.

China tries to rein in Big Tech with new law on user data

The Personal Information Protection Law will add a range of compliance requirements for internet companies, which have been rampantly collecting user information without oversight, said Michael Tan, partner at Taylor Wessing. The Data Security Law, on the other hand, is meant to protect China’s data sovereignty and companies with cross-border operations, he added.

The laws are needed even though the government should encourage companies to leverage the full potential of data and new technologies, according to AnJie Law Firm partner Samuel Yang.

“Considering the robust development of our country’s digital economy, relevant laws, including the Personal Information Protection Law and the Data Security Law, urgently need to be rolled out,” Yang said. “And they need to strike a balance between economic development and the protection of personal information and data security.”

The government is also exploring legal frameworks and ethical rules in emerging fields such as autonomous driving, online health care services, financial technology and smart delivery, according to the five-year plan.

China’s strengthened regulatory regime came after Beijing’s tighter scrutiny of Big Tech late last year. In November, regulators called off Alipay owner Ant Group’s scheduled dual listing in Shanghai and Hong Kong at the last minute. Then on Christmas Eve, China’s antitrust watchdog launched an investigation into alleged anticompetitive practices by Ant affiliate Alibaba Group Holding, the owner of the South China Morning Post.
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