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Understanding China's New Cybersecurity Law

It might mean bad news for foreign tech companies

June 2, 2017 | Retail & Ecommerce

A new cybersecurity law that took effect in China yesterday may portend an even tougher road ahead for foreign technology firms looking to establish themselves in the market.

The new law, which was passed in November 2016, is ostensibly designed to protect the country from threats related to hacking, terrorism and other crimes.

But it also imposes some onerous rules on companies based outside the country, requiring them to store user information and other business-related data on servers located in China. It also requires firms to pass national security reviews and possibly share technological information with China’s national security bodies.

If the rules sound vague, that’s because they are.

In fact, they’ve been slammed by entities representing foreign businesses, such as the American Chamber of Commerce in China, for just that reason.

China’s strategy of leaving out the details is likely a deliberate one. The country’s government has long employed a similar approach in writing unclear laws governing censorship of other types of content

The benefits of an unclear approach are twofold. First, without clearly defined content rules, people are much more likely to censor themselves to avoid running afoul of the law. Second, the lack of clarity gives regulators, courts and other enforcers of the law wide latitude to punish those it feels have overstepped undefined bounds.

Apple is a prime example of a foreign company that has strained itself to adhere to China’s online content regulations in the absence of clear guidance. In April, regulators fired a warning shot at the firm by publicly requesting it more carefully screen live streaming apps to ensure they were in compliance with content laws.

The move came a few months after news broke in January that Apple had removed two apps published by The New York Times at the request of government regulators in China.

Similar troubles have faced four of the US’s largest technology and internet service companies—Facebook, Amazon, Netflix and Google—none of which have figured out how to clear China’s tough regulatory hurdles. Ride-sharing platform Uber is another well-known example of a US company that was unable to deftly navigate its way through government rules.

As a result, none of these firms are in business in the country—with the exception of Amazon, which barely registers a presence there—leading cynics to suggest that the regulations are intended more as protectionist policies insulating Chinese firms from foreign competition than anything else.

Obstacles to Shopping via Mobile Devices According to Digital Buyers in China, Sep 2016 (% of respondents)

But all of this is not to say that regulators in China are completely without valid concerns about cybercrime. Those worries appear to be mirrored by consumers.

A survey of digital buyers conducted in September 2016 by PricewaterhouseCoopers (PwC) found that nearly one-third (29.3%) cited the lack of security on mobile sites as an obstacle to shopping on them. That’s a substantial figure in a country where mcommerce sales are expected to grow from $883.7 billion this year to $1.97 trillion by 2020.

Another poll, this one conducted in November 2016 by the Payment and Clearing Association of China (PCAC), found that more than seven in 10 mobile payment users in China were willing to use biometrics to authenticate transactions—an indication of how widespread security concerns are among consumers.

Rahul Chadha

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