TWS: July 19, 2021

Graph of the Week | Policy

Didi’s Dilemma: Regulators Go Daft Over Data

Tired of reading about China’s regulators? Scout’s honor, we’ll stop writing about them when they stop making headlines.

As the regulatory war against private industry in China enters its eighth month, more tech titans continue to succumb to probes, fines, and policy updates. Investors have begun to jump ship, costing these firms more than US$850 billion in market value since February highs.

The latest victim is Didi Chuxing, the leading Chinese ride hailing company. Didi recently filed for an IPO on the NASDAQ and raised more than US$4.4 billion. The firm’s joyride was short-lived:

  • One week after IPO, Didi shares have crashed more than 20% after Chinese authorities opened an investigation into the Chinese Uber.
  • Meanwhile, the company’s app has been removed from Chinese app stores.

Beijing’s concern lies with data standards. For one, China’s Cybersecurity Law and new Data Security Law make explicit mention against exporting data to foreign authorities; however, SEC policy may require that Didi hand over data for compliance. Two, China’s regulators have also pointed at anti-competitive data collection methods, a big no-no.

Bottom line: With the backdrop of 105 firms being fined in May for anti-competitive data collection, paired with the Data Security Law and Didi fiasco, it’s clear that data security has become the new regulatory battlefield that will likely see many more tech titans join the losers club.

Business | Trade

A Lover’s Quarrel with Global Reach

Relationships are never easy, and China may begin to feel the sting of getting “two-timed” by a couple of its partners. Following a tumultuous year for trade, New Zealand and Australia are both shoring up new FTAs and looking elsewhere to diversify their trade partners beyond Beijing.

Australian and New Zealand’s exports to China are both more than significant, once making up over 30% of all exports for both countries. But all good things come to an end, and the love triangle began to crumble in 2020 when Canberra launched a probe into the origins of the pandemic. After over a year of bitter trade quarrels, fast forward to today and Australia’s foreign ministers are hard at work hammering out free trade agreements with other nations.

New Zealand may be trying to avoid Australia’s fate after it agreed to strengthen trade ties with China in January by upgrading a 2008 trade agreement between the two economies. Yet, Wellington’s wandering eye has placed it in talks with the EU and the UK, preemptively expanding its trading partners while simultaneously keeping its bread-winning milk and kiwis flowing to China’s middle class.

Bottom line: The Sino-Australian trade conflict has given the world a glimpse into the risk associated with over-dependence on the Chinese economy in a time of an increasingly aggressive Beijing. Many countries that rely heavily on China for their export markets will continue to carefully observe how the Canberra-Beijing trade spat plays out, taking notes on how their own affairs with Beijing might evolve. Expect other major trade partners, especially those aligned with Washington, to begin exploring new FTAs and diversifying trade away from China.

Business | Policy

Big Tech Takes to the Hills in Hong Kong?

We’ve received a few questions and wanted to do a deep dive on last week’s WSJ publication that has everyone wondering whether Google, Facebook, Twitter, and the rest of the tech gang are heading for the hills following a proposed amendment to Hong Kong’s Personal Data Privacy Ordinance (PDPO).

Starting off: What were the amendments?

Hong Kong policymakers recently drafted a bill that would put in place one of the toughest anti-doxxing regimes in the world:

  • For those out of date on their tech legalese, doxxing is the practice of maliciously leaking an individual’s personal details.
  • It was commonly used by protestors and pro-Beijing politicians alike during the 2019-2020 protests.

Under the new bill:

  • Offenders would be on the hook for fines of up to HK$1 million (~US$125k) and up to 5 years in prison.
  • It would also make the crime extraterritorial, giving HK regulators the authority to issue a notice to remove content, or block access to that content, anywhere in the world.

So, what happened?

After the draft bill was unveiled, the Asia Internet Coalition (AIC) – a group representing the ‘who’s who’ of big tech – sent a lovely note to the folks over at Hong Kong’s Privacy Commissioner for Personal Data (PCPD):

  • At the top of the list were concerns that “local staff” of overseas platforms could be prosecuted because of doxxing activities and that the platforms could be blocked in HK altogether.
  • It was also worried by the ‘broad and vague’ language of the bill.

While it was reported that tech giants had ‘threatened’ to leave Hong Kong, we think this may be a stretch. Within the 7-page document, there was indeed a single and very brief mention that:

“The only way to avoid these sanctions for technology companies would be to refrain from investing and offering their services in Hong Kong…”

  • The document instead focused more on requesting that the PCPD re-evaluate the conditions of what constitutes a “legitimate” doxxing situation.

What does it all mean?

While hardly a threat, these are heavy words for the companies and the response shows that there may be significant consequences to the new law set to be ratified in October. While the AIC may oppose the amendment, the organization appears willing to work with the PCPD to find common ground.

Bottom line: The new law, if ratified, will raise a couple of worries for businesses. First, ‘what constitutes a breach of the law and who is liable for offenses?’ Second, ‘what do online platforms need to do to comply and what data needs to be handed over upon accusation?’ So, the big question remains – ‘Are Facebook, Twitter, Google, and the other big tech honchos leaving HK?’ The answer is, ‘We’ll see.’

P.S. – Reading between the lines:

This is one more step towards blurring the lines of accountability. Earlier this year, policymakers extended a similar draft law that would restrict journalist access to a central registry that contains the home addresses and identity information for company directors – a move that has sparked concerns over the ability to shed light on shady deals and illegal activity both inside government and out. Policymakers have also been keen to crackdown on free press in the city, which most recently led to the shuttering of pro-democracy newspaper, Apple Daily. Should this new anti-doxxing law indeed have the far reaching business and societal implications that many critics warn of, be on the lookout for additional sanctions.

Industry | Technology

Why China Has a Love-Hate Relationship with Cryptocurrency

As cryptocurrency commands increasingly larger headlines, Chinese officials have deemed the risk it presents to domestic financial and social stability too large to ignore. The PBOC has instructed Chinese banks and financial institutions to crack down on cryptocurrency speculation and trading activity, which has triggered a significant decline in the 2021 cryptocurrency market cycle.

Yet, blockchain technology, the infrastructure underpinning cryptocurrencies, has been designated as critical to China’s strategic goals.

Learn why Beijing thinks that harsher crypto regulation will distance cryptocurrency from blockchain technology and hasten the maturity of the blockchain industry without fear of the social or financial instability associated with crypto in our latest China insights article.

Full Article

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