US companies warn that China’s data rules risk creating a ‘digital island’

China’s ‘particularly restrictive’ data laws risk increasing the cost of doing business for US companies in the No. 2 economy and could lead to digital decoupling, a new report from a US business group warns.

Government-imposed restrictions on the flow of data across borders, ambiguous regulations and inconsistent enforcement “are particularly difficult for multinational companies”, according to the US-China Business Council, which describes itself as a private sector organization. more than 260 American companies operating in the Asian nation.

“If policies are rigidly implemented, one possible result is the creation of islands of data that force companies to localize technology, people and processes, disconnecting them from global operations,” the group said. trade in the report released Thursday, based on discussions. with more than 30 American companies.

Chinese President Xi Jinping’s government has introduced a series of data, privacy and cybersecurity regulations over the past five years, citing the need to better protect personal information and strengthen national security. The government also wants to build digital infrastructure and data centers across the country with the aim of creating a data marketplace that propels economic growth.

The strategy is also politically motivated, with Xi saying last year that he intended to sue “platform” companies that hoard data to create monopolies. The government subsequently imposed on Alibaba Group Holding Ltd. a record $2.8 billion fine for abuse of market dominance and called on other major internet companies to rectify anti-competitive practices.

The moves have also rattled investors, and last month analysts at JPMorgan Chase & Co. called China’s internet sector “uninvestable” in part due to regulatory concerns.

Many U.S. companies were working with regulators at the regional level of the Chinese government to help them navigate the regulatory environment, according to the U.S.-China Business Council report. They are also putting more resources into local teams to look into compliance issues, he added.

The report indicates that companies in the automotive, hospitality, healthcare and financial services sectors are more regulated than others. He cited potentially higher business expenses, such as purchasing local servers, which could cost up to several million dollars.

“At a minimum, companies would like to see clearly how they can comply and they want to be part of that discussion,” said Matthew Margulies, the board’s senior vice president of China operations. “There are legitimate safeguards necessary for privacy and data security – no one disputes that – but there are concerns that the security elements of the equation may override or overshadow certain business realities.”

Photograph: Pedestrians use escalators in the Lujiazui financial district in Pudong in Shanghai, China, February 7, 2022. Photo credit: Qilai Shen/Bloomberg

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