China Set to Reduce Major Obstacle for Foreign Businesses

06 Oct, 2023

China Set to Reduce Major Obstacle for Foreign Businesses

China appears to be adopting a more lenient approach towards its stringent data regulations, particularly concerning foreign businesses. In recent years, China has imposed strict controls on data collection and export through new laws, causing foreign companies to struggle with compliance due to vague terminology, such as "important data." However, in a proposed update, the Cyberspace Administration of China (CAC) has suggested that no government oversight will be required for data exports unless regulators specifically designate it as "important." This proposal was outlined in draft rules released on September 28, just before an eight-day holiday period, with the public comment period closing on October 15.

The release of these draft rules signals the Chinese government's willingness to address businesses' concerns, which has been positively received by organizations like the European Union Chamber of Commerce in China. These draft regulations aim to alleviate challenges associated with cross-border data transfer and personal information protection by specifying exemptions and providing clarity on how data handlers can determine what qualifies as "important data."

Lobbying efforts by the EU Chamber and other business organizations have likely played a role in prompting these changes. The proposed rules also allow data generated during international trade, academic cooperation, manufacturing, and marketing to be sent overseas without government oversight, provided they do not contain personal information or "important data." This move is seen as a step towards improving the investment climate and reducing economic uncertainty.

China's economic recovery from the COVID-19 pandemic has slowed since April, and raids on foreign consultancies earlier in the year added to the uncertainty faced by multinational corporations. The Chinese State Council's 24-point plan for supporting foreign businesses in the country includes measures to reduce random inspections for low-credit-risk companies and promote data flows with "green channels" for certain foreign businesses.

Despite these positive developments, some remain cautious because the definition of "important data" remains undefined, subject to Beijing's determination at any time. Nevertheless, the commitment to a more transparent and predictable approach to technology regulation, along with the State Council's 24 measures calling for free data flows, offers hope for an improved business environment.

In addition to the proposed changes in data export controls, China has also eased regulations in other areas, such as artificial intelligence (AI). Companies like Baidu were finally able to launch generative AI chatbots to the public, following the implementation of Beijing's "interim regulation" for AI management. This version of the AI rules exempts companies developing the technology from regulatory restrictions as long as the product is not available to the mass public, reflecting a more pro-innovation stance.

In summary, China's recent moves to ease data regulations and provide greater clarity to foreign businesses demonstrate its willingness to create a more favorable business environment. While challenges remain, these changes are seen as positive steps toward improving predictability and reducing regulatory hurdles for foreign companies operating in China.