Beijing postpones implementing new e-commerce regulations

Beijing stays hand on new cyber regulations agreed last month as analysts say foreign firms are set to be targeted.

beijing // In a rare move, China today held back implementation of new regulations that were passed last month on goods imported from overseas markets using e-commerce platforms.

The government said it will now make adjustments to the rules before they are brought in.

The decision indicated that Beijing is going through a process of rethinking over the use of the internet for a variety of business and security-related functions.

On Monday, the government ordered Beijing's Baidu, one of the world's largest search engines, to revamp its vast business spanning several countries. The cyber administration of China asked the Nasdaq-listed Baidu to formulate a new and more credible algorithm and restrict the amount of promotional content by May 31.

These developments have taken place against the backdrop of the government drafting and finalising three different laws on cybersecurity and new counter terrorism laws. Foreign companies and industry lobby groups are worried that the proposed regulations may impinge on their privacy and force them to share "sensitive intellectual property" with the government in the name of "national security".

"Foreign companies feel they are vulnerable towards potential scrutiny and even attacks by Chinese authorities," Yun Sun, a senior associate with the East Asia programme at the Washington think tank Stimson Center, told The National today.

She said the new laws make foreign companies vulnerable towards potential scrutiny or even potential investigation by Chinese authorities. “This reduces the security level for these companies and their products, and also threatens the credibility for their operations in the global market,” she said.

Beijing says the new laws have mainly been brought to deal with the threat of terrorism from militants involved in the East Turkmenistan movement in western China’s Xinjiang province, and the enhanced global fears after the recent terrorist attacks in parts of Europe and Egypt. The Xinjiang-based militants have attacked targets in Beijing and Kunming cities besides carrying out bomb attacks in the western province in recent years.

“The government’s main objective is to fight terrorist using the cyber space to further their activities. But it also wants to control data flow. It is this aspect that would hurt businesses,” Ada Wang, a legal counsel and compliance officer with TUVRheinland, said yesterday.

“The new laws will not just affect foreign companies. It would also hamper Chinese companies operating overseas because the government does not want sensitive date to leave the country,” she said. Indeed, the rules make it obligatory for companies to use specified infrastructure, and ensure that their websites are hosted in satellites hovering over China, and not in foreign locations.

Other Chinese experts and businessmen see it differently. “There will be a new phase for internet development in China,” said Xiong Huang, a researcher at Communication University of China, said listening to the Chinese president Xi Jinping talk about the importance of internet security at a conference in Beijing last month.

Following the event, Jack Ma, the founder and chairman of China's giant e-commerce company Alibaba Group, said: "This is the first high-profile meeting in the internet field for our country. Not only does the meeting show how much China values the internet as a national strategy, but the country has a quite high level in both practice and theory on the development of the internet. I'm firm about the internet development in China after the speech."

What the regulations might do is force more foreign companies to enter into joint ventures with local enterprises to make sure they do not cross the line and attract the wrath of the authorities empowered with the new legislation.

The laws cover all businesses engaged in transmission of data via cyber space. The regulations state that companies are expected to: assist authorities in unravelling complicated data whenever required; use data infrastructure that is based in China; use encryption technology before transmitting data outside China; never generate or use data in any manner that would affect the country’s national security; disallow any person, groups or organisation to use their internet platforms to disseminate propaganda against Chinese political systems, or instigate the local population against government authorities.

One of the implications of the new law is that it will involve additional costs to build secure internet infrastructure and hire legal services to deal with compliance issue. This is partly because the new law is vague about compliance requirements, and not specifically pinpointed, an analysts said.

Companies based in Hong Kong will now be treated as offshore enterprises, and treated as foreign firms under these laws. This can be a bothersome to foreign companies because many of them are registered in Hong Kong, and not in mainland China.

One analyst, who declined to be named, said that the rules are not meant to target foreign companies. “They have merely come in the way of these laws because they impose a wide range of restrictions on the use of internet, and flow of data,” he said.