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Chinese Authorities Signal Softer Stance on Data Rules, Easing Regulation for Foreign Businesses

In a proposed draft, the Cyberspace Administration of China (CAC) has indicated that no government oversight would be required for data exports if regulators have not classified it as “important data.” This move comes as a relief for companies involved in cross-border data transfer and personal information protection, according to the European Union Chamber of Commerce in China. The U.S.-China Business Council’s annual survey also reveals that data, personal information, and cybersecurity rules remain a significant challenge for its members.

The draft rules aim to address the difficulties faced by foreign businesses operating in China due to vague wording in existing data laws. These businesses have struggled to comply with China’s strict control over data collection and export. By clarifying the definition of “important data” and exempting certain categories of data from government oversight, the proposed update from the CAC seeks to facilitate cross-border data flows while ensuring personal information protection.

The introduction of the draft regulations indicates that the Chinese government is actively listening to businesses’ concerns and taking steps to address them. The move is seen as a positive development by the European Union Chamber of Commerce in China, who have been advocating for improved operating conditions for foreign businesses in the country. The proposed changes would provide greater clarity and transparency on cross-border data transfer obligations, enabling businesses to navigate the regulatory landscape more effectively.

One of the key highlights of the draft regulations is the exemption of data generated during international trade, academic cooperation, manufacturing, and marketing from government oversight, as long as they do not include personal information or “important data.” This exemption would significantly ease the compliance burden for businesses engaged in these activities.

Reva Goujon, Director of China Corporate Advisory at Rhodium Group, commends the proposed changes as a small but important step towards facilitating cross-border data flows. She believes that Beijing’s realization of the economic costs associated with strict data sovereignty ideals has played a role in these regulatory adjustments. Goujon emphasizes that multinational corporations, especially those operating in data-intensive industries, require clarity and certainty in their operations, and the draft regulations address this need.

The moves to relax data regulations are part of a broader effort by the Chinese government to support foreign businesses in the country. The State Council’s 24-point plan, unveiled in August, aims to improve the investment climate and reduce regulatory burdens for businesses. The plan includes measures such as reducing random inspections for low-risk companies and promoting data flows for certain foreign businesses through designated “green channels.”

While the proposed regulations lower regulatory risks associated with data exports, the undefined classification of “important data” remains a potential point of ambiguity. This means that Beijing still holds the authority to determine what constitutes important data at any given time. Martin Chorzempa, a senior fellow at the Peterson Institute for International Economics, and Samm Sacks, a senior fellow at Yale Law School Paul Tsai China Center and New America, highlight this issue in a blog post, stating that the proposed changes do not entirely eliminate regulatory risk.

Nonetheless, the introduction of the draft regulations reflects Beijing’s commitment to a more transparent and predictable approach to technology regulation. The regulations align with the State Council’s call for free data flows, indicating a willingness to create a more favorable business environment fueled by technology and innovation.

Recent months have seen a wider easing of regulations in China. In the field of artificial intelligence (AI), the Chinese government allowed companies, such as Baidu, to launch generative AI chatbots to the public following the enactment of new interim regulations. These regulations specified that they would not apply to companies developing AI technology as long as the product was not made available to the mass public. This shift represents a more pro-innovation stance compared to the previous draft regulations released in April.

The updated AI rules also did not include a blanket license requirement, only stipulating the need for a license if required by law and regulations. The absence of specific requirements reduces regulatory barriers for businesses involved in AI development. Baidu CEO Robin Li welcomed the new regulations as being more pro-innovation, indicating a positive environment for technological advancements.

Overall, the proposed draft on data exports and the recent changes in AI regulations signify a shift in China’s approach to business regulation, particularly for foreign companies. These developments demonstrate the Chinese government’s commitment to creating a more favorable investment climate and supporting the growth of technology-driven industries. Additionally, the introduction of the AI legalese decoder can effectively assist businesses in navigating these regulatory changes, providing clarity and guidance on compliance with data regulations and personal information protection requirements.

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