China needs better data privacy policy to capture digital trade growth

The issue of cross-border data flows is complex and needs to be addressed urgently, but it’s a question of finding a balance between China and the U.S. rather than something black and white, Zhou said.

Part of the U.S. complaint in the latest trade dispute with China is that foreign companies are forced to transfer valuable technology when wanting to work in the Asian country. Beijing’s made such transfers illegal with its latest foreign investment law — still, it remains to be seen what happens in practice.

Helped by China’s population of well over 1 billion people, the country’s technology companies have grown rapidly into global giants. Two of the three largest start-ups in the world are Chinese (Bytedance and Didi), according to CB Insights. These and other companies generate and collect masses of data, especially as consumers enjoy the conveniences of mobile pay and rapid delivery of goods ordered online.

The widespread distribution of such information raises concerns about data privacy. Beijing has been taking some steps toward limiting excessive data collection by the private sector, and increasing intellectual property protection. But critics say the efforts are not enough. With quicker implementation of appropriate policy, the Hinrich report indicated, digital data flows could add value to China’s economy just as it is slowing down.

“To sustain China’s growth momentum into 2030 and beyond, China would need to hone competitive strategies beyond the low-cost advantage that has traditionally propelled its economic growth,” the report said. “Digital technologies are pertinent to this, by driving labor productivity and quality improvements.”

China became the world’s second-largest economy in just a few decades, but many questions remain about whether the growth is sustainable. Last year’s GDP rate was the country’s slowest since 1990, and Beijing expects a further slowdown in the growth rate this year.

The economic potential from digital trade is a global one as well, making concerns about relevant policy an international issue. In 2016, McKinsey Global Institute said in a report that digital flows had grown so rapidly since the turn of the century that they now had a greater impact on gross domestic product growth than trade in goods.