In recent weeks, Beijing has pushed through reams of regulations and policies designed to share up China’s data security, reinforcing the control it exercises over huge volumes of data used in governing the country, boosting the economy and ordering people’s lives.
Such moves in our opinion compromise a crucial part of the vision of Xi Jinping, China’s leader, to build what we call a “techno-authoritarian superpower” in which people are constantly monitored and directed to an unprecedented degree through government-controlled cyber networks, surveillance systems and algorithms. With better control over data, China cannot only build a more productive economy, but also a more efficient government that makes decisions based on hard science rather than intuition.
The embrace of digital sovereignty plays in our opinion a key role in protecting China’s national interest against enemy forces at home and abroad.
Xi’s data vision stresses control. In 2013, he already said that “whoever controls data has the upper hand”. Just one year later control of information had become an important aspect of a country’s “soft power”. It’s official classification in 2020 as a “fifth factor of production”, alongside labor, land, capital and technology, underlined data’s importance to Beijing. Personal data is collected not only through online interactions but also through a whole panoply of technologies designed to order a society of 1.4 billion people. Digital Social Security cards, digital money, smart cities, surveillance cameras and other technologies are being rolled out across the country, creating a grand experiment for 21st century authoritarian governance with the support of the 4th Industrial Revolution.
All this in our opinion forms a contrast with the Maoist echoes in Xi’s current political rhetoric-the strongman leader exhorting the country to prize “common prosperity”. But when it comes to data and technology Xi appears to be unveiling the blueprint from modern, high-tech dictatorship. Beijing wants to have it both ways. It believes that technologies will shore up social control and suppress political dissent without damping entrepreneurial vigor for the innovation that animate the world’s fastest-growing large economy.
Fastening innovation is still a topline priority for Beijing. It has in our opinion no intention of pouring water on the flames of innovation. Rather Beijing sees these tales on data as a trellis that guides development direction and determines the final shape of China’s digital economy.
In order to bend such troves of data to its will, Beijing has adopted multi-pronged strategy. It is publishing laws to govern the use of data, increasing the state’s access to data held by private companies and collecting vast amounts of it itself. The main purpose behind such effort is captured by last month’s release of the draft regulations on algorithms or mathematical instructions that govern much online behavior. These should, the draft law states, “orient towards mainstream values” and “actively transmit positive energy”. In other words, they should support-and certainly not oppose-the messaging of the Chinese Communist Party. The hardening of the legal regime around data usage is causing severe disruption for multinationals operating in China, large homegrown corporations as well as financial markets.
The Personal Information Protection Law, which is due to take effect in November, stipulates that data being moved out of China must either pass a security assessment by the Cyberspace Administration of China a government regulator, or obtain other forms of official approval. While the Data Security Law, which come into effect this month requires the protection of “core data”, defined as information involving national and economic security, people’s welfare, or important public interest. Definitions, so broad say experts, that they could cover almost anything. The laws mean or will mean that all data generated in China must stay in China, unless you have explicit permission to send some of it overseas on a case by case basis. The result is that China is becoming a data empire unto itself.
Multinationals operating in China will have little choice but to establish data Centre’s in China to hold customer information. And if law enforcement agencies wish to check consumer data collected by a multinational in China, they will be able to do so whenever they choose.
Tesla is one multinational that was quick to spot that setting up at data Centre was a route to greater harmony with Chinese authorities. It did so in Shanghai in May, a couple of months after Musk offered assurance that his company’s cars were not spying on customers. All data now generated from Tesla cars sold in mainland China will be stored within China.
Apple is another revealing case. In response to Beijing’s stiffening controls, it set up a data storage Centre in the southern province of Guizhou in 2017. The following year it announced that it’s iCloud service in China would be managed by the state-owned data management company Guizhou-Cloud by Data Industry Co. The US group said in a statement that “we control the encryption keys for our user’s data” in its China data centres. However, the company also complies with Chinese law enforcement requests to hand over customer data to authorities including if requested the encryption keys.
The foreign company held up most often by Chinese officials as a “model” of how multinationals should behave is Microsoft. The US tech giant already has 4 centres in mainland China, all operated by local partner 21Vianet, and a 5th is due to go live next year. Asked if data from its platforms, such as LinkedIn, can be accessed unencrypted form by Chinese authorities, Microsoft added: “Microsoft commits to follow all laws and regulations applicable to its provision of online services.”
The new data regime in our opinion is tearing apart a US-China capital markets relationship under which 248 companies with a total market capitalization of 2.1 trillion U.S. dollars had listed on US exchanges as of May this year. The future for mainland Chinese company listings in Hong Kong is also clouded by the new data regulations. The current focus of attention is Didi Chuxing, a Chinese ride-hailing company, which pushed ahead with plans for 4.4 billion USD share listing in New York before the Cyberspace Administration of China (CAC) had completed all of its data security clearances. In response, the CAC opened a national security review into the company and kicked Didi’s app off China’s online stores. The seriousness of the probe is in our opinion signaled by the fact that it involves multiple agencies, including China’s natural resources and transport ministries, the espionage agency, the tax administration, the police and the CAC.
In New York, lawyers have in the meanwhile filed a class-action lawsuit on behalf of Didi’s investors alleging they were misled by the company and its executives over its previous dealings with Chinese regulators. Questions over whether Didi accurately disclosed the pressure it faced from the CAC have also led to scrutiny of the banks that underwrote its listing, which included Goldman Sachs and Morgan Stanley.
To no surprise, Sheng Ronghua, vice-minister at the CAC, has said Beijing’s new rules on critical data disclosures by mainland companies that list on stock markets are the same no matter where they seek to go public, making it in our opinion unlikely that Hong Kong’s exchange will enjoy more lenient treatment than that governing New York listings. We have to understand that the new rules are published to protect the “safety” of critical information infrastructure to China’s government and that all companies, no matter what kind they are or where they are listed must comply with Beijing’s laws and regulations for China’s interest. Nevertheless, it is in our opinion very clear that Chinese regulators make a basic distinction between offering shares in the mainland and listing offshore in Hong Kong or overseas in New York. The CAC in addition has proposed, for instance, that companies with more than 1 million users should undergo security reviews before listing overseas. Regulators are also considering rules that would require data-rich companies to hand over management of their data to third-party firms if they seek to stage a share offering in the US.
One persistent frailty of authoritarian systems in history has been an information logjam between grassroots society and the ruling elite. The former Soviet Union foundered as much because of petty corruption and endemic shortages of basic goods as because of its expensive cold war rivalry with the US. The China Communist Party (CCP) has in our opinion now overcome the information acquisition problem, thanks in large part to the digital ecosystems it has established. Today’s China it’s far more perceptive of public opinion, less prone to policy blunders and far better equipped to manage its own bloated bureaucracy. Several countries – both democratic and authoritarian – have in our opinion started using digital systems to assist in governance and to provide services. But the scale and intrusiveness of China’s deployment are on a whole different level. We like to call it digital Leninism or techno-authoritarianism – it is scary and terrifying. It has this huge element of political control to it, but it is not solely focused on that. Beijing vision is also about governing more effectively using various technologies to overcome perennial governance problems. Understanding the way that China’s digital ecosystems work reveals in my opinion both – the programme’s ultimate aims and the shortcomings of this grand techno-authoritarian experiment.
Some technologies form basic building blocks. the installation of an estimated 415 million surveillance cameras makes China’s population by far the world’s most surveilled and let privacy become an illusion. And nearly 90 percent of anonymous respondents to a survey in Beijing said they were opposed to the use of facial recognition technology in public and commercial areas.
Nevertheless, surveillance cameras enable another technology in which China is deployment also leads the world: smart cities.
In 2020, the country was estimated to have some 800 smart cities under construction or in planning – about half of the world’s total. The concept behind the smart city is to use networked technologies to control traffic, allocate energy usage and dispense other services as well as to fight crime. The provision of services is also the purpose behind China’s digital Social Security cards, with which more than 300 million people can access or apply for unemployment benefits, prescription drugs, public transportation and other services through mobile phone apps. Yet, in terms of the capacity for social control such technologies pale next to the digital renminbi, which has been undergoing tests in several cities and may be ready for a formal launch after next year’s Winter Olympics in Beijing. All transactions will then be traceable in real time, providing a state surveillance capability that does not exist with the current mixture of cash and digital payments operated currently by private platforms such as WeChat Pay and Alipay. Once launched, a system of “controllable anonymity” will be rolled out, meaning the only transactions with authorities request to see will be visible. In addition, the digital renminbi in my opinion it’s likely to be a boon for CCP Surveillance in the economy and for government interference in the lives of Chinese citizens.
Other elements of the system, however, remain in our opinion so far imperfect. A social credit system that blacklists defaulters and aims to prevent them from making subsequent purchases of high-end items operates only imperfectly. The problem is that many of the high-end hotels, train stations, airlines and other service providers have not yet signed up, meaning that some defaulters are still able to skip detection and therefore continue on their spending sprees.
Ultimately, Xi’s new model still remains untested. It has yet to be proven that collecting large volumes of data will give the Chinese regime useful intelligence or help it to correct policies when needed. And some experts including ourself see a more sinister design.
China’s immense focus on the 4th Industrial Revolution with artificial intelligence, face recognition and data mining gives it a far lead ahead of any other western government and ensures that China has asymmetrically more information than everyone else. This lead therefore qualifies and enables Beijing to run system trials and experiment no other country or government in the world can currently compete with. To make it short: China and its Communist Party aim to lead and rule the world through data!