China has passed a law stipulating increased state surveillance, tighter border controls for data and more transparent user information.
The Cybersecurity Law introduces greater state control and involves data localization which stores data within China’s borders. The law is likely as deliberately vague as possible so that the maximum amount of companies can fall under its umbrella. Any company deemed part of the conveniently wide-reaching remit of the “critical information infrastructure” is subject to security checks, though the content of these reviews is purely speculation. The law will take effect in June 2017.
This affects tech companies, particularly foreign firms operating in the country, who are worried about market exclusion. In order to be allowed to operate in China, companies will need to disclose sensitive information and prove it is secure. The options for companies choosing to stay are either to change their business model or incur high costs.
Also affected is China’s huge population of avid smartphone users and gamers. Instant messaging services like WeChat would have to censor ‘prohibited’ content and have a real name policy. This encourages self-censorship as personal information is requested and there are no fake usernames to hide behind.
This isn’t the first inkling other countries have had of China’s cybersecurity and heightened surveillance direction. In 2015 China drafted legislation requiring companies to share their source codes but removed it under pressure from protesters.
The law is reminiscent of the 2015 US Cybersecurity Act, which China is quick to reference as a comparison point. Zhao Zeliang, spokesman for the Cybersecurity Administration of China (CAC) established by President Xi Jinping, said the term ‘trade barriers’ is purely a matter of perspective and not what China intends. Government administration has focused heavily on cybersecurity, especially in the wake of Snowden blowing the whistle on Americans hacking Chinese networks.
This is something of a catch-22 situation for China, who aim to be a technology leader and want to protect themselves against cyber threats but are harming their opportunity to be a major player in the sector by alienating foreign companies. This could be good news for Europe as the continent may see a flock of startups heading its way.
In the era of cybercrime, more and more money is going to be pumped in by governments to counter the threats. They will need to walk the line between sharing intelligence and oversharing personal and private data.
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Securities Disclosure: I, Emma Harwood, hold no direct investment interest in any company mentioned in this article.