Journal:Cross-border data transfer regulation in China

Full article title	Cross-border data transfer regulation in China
Journal	Rivista Italiana di Informatica e Diritto
Author(s)	Li, Yuan
Author affiliation(s)	University of Macerata
Primary contact	Email: Unknown
Year published	2021
Volume and issue	3(1)
Page(s)	69–80
DOI	10.32091/RIID0028
ISSN	2704-7318
Distribution license	Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International
Website	http://nir.ittig.cnr.it/www.rivistaitalianadiinformaticaediritto.it/index.php/RIID/article/view/73
Download	http://nir.ittig.cnr.it/www.rivistaitalianadiinformaticaediritto.it/index.php/RIID/article/view/73/55 (PDF)

Abstract

With the growing participation of emerging countries in global data governance, the traditional legislative paradigm dominated by the European Union and the United States is constantly being analyzed and reshaped. It is of particular importance for China to establish the regulatory framework of cross-border data transfer, for not only does it involve the rights of Chinese citizens and entities, but also the concepts of cyber-sovereignty and national security, as well as the framing of global cyberspace rules. China continues to leverage data sovereignty to persuade lawmakers to support the development of critical technology in digital domains and infrastructure construction. This paper aims to systematically and chronologically describe Chinese regulations for cross-border data exchange. Enacted and draft provisions—as well as binding and non-binding regulatory rules—are studied, and various positive dynamic developments in the framing of China’s cross-border data regulation are shown. Despite certain limitations, China's Cybersecurity Law, together with its Civil Code and Personal Information Protection Law, demonstrates China's great willingness towards a stronger data protection regime and more flexible regulatory mechanism.

Keywords: China, cross-border data flow, cybersecurity

Introduction

The regulation of cross-border data transfers represents one of the greatest challenges that information security experts and legislators are facing around the world. The breadth and effectiveness of global data protection law is fragmented by the divergence among various data protection standards. As such, the potential negative effects are difficult to ignore. From the perspective of countries, the adoption of the “adequate level of protection” approach de facto restricts the efforts of less developed regions—especially those that have not enacted data protection laws—from entering the world of global dataflow. It further leads to the elimination of such countries from participating in global digital trade and exacerbates the polarization of the world economy. From the perspectives of entities, particularly those in the information and communications technology (ICT) sector, the legal requirements set out in different jurisdictions are likely to impose additional administrative and technical burdens when conducting business internationally. The overlapping jurisdictions over various countries, cumbersome transfer assessment rules, and excessive discretionary powers of supervisory authorities have led to increased compliance costs while reducing the transaction efficiency of multinational businesses. Additionally, from the perspective of data subjects, individuals’ rights and responsibilities vary from nationality, residence, or information collection region. It is, however, contrary to the original purpose of protecting personal data while promoting data sharing.

Global data transfer

The benefits that can be derived from cross-border data flows are growing, while the ability of countries to reap such benefits may vary. Although it is widely recognized that countries should have a common interest in facilitating cross-border dataflows and reconciling different policy objectives in this field, the implementation of the free flow of cross-border data remains vague. Due to differences in digital economic development, legal systems, and data sovereignty objectives, it is difficult for countries to impose effective regulations on cross-border data transfer through one’s own. In contemporary legislations, a trend of preference for establishing one data flow model inside a region within a given group of countries is emerging.

A multilateral international agreement

The Convention for the Protection of Individuals with regard to Automatic Processing of Personal Data (Convention 108) adopted by the Council of Europe in 1981 is the first and only updated binding multilateral international agreement to set standards for transborder data flows. The early version of Convention 108 provided general principles that require signatory countries not to restrict or impose any special authorizations to prevent the flow of personal data among the member states and aims to achieve greater unity between its members. Convention 108 was further developed in the Additional Protocol in 2001 to introduce the concept of an “adequate level of protection” for the intended data recipient countries that are not the signatories to Convention 108. Such exporting party is also subject to exceptions where the transfer is in the need of individual’s legitimate interests and public interest, or is based on authority-approved contractual clauses.

Convention 108 is the result of the implementation of the European Convention on Human Rights with regard to privacy protection. It attempts to build consistent data protection principles to safeguard individual’s rights while keeping active exchanges of such personal information across the borders. As great as it may appear, the significance of Convention 108 is limited. Although international agreement as an instrument for dealing with modern societal and legal topics is advantageous in terms of the applicable scope of the rules, enforcement, and guidance, its complex and lengthy establishment procedures have slowed down the reaction time to the emerging issues in the international community, especially in areas where international consensus has not yet been reached.

A bilateral international agreement

In view of the latency of the international community’s cooperation in the field of cross-border personal data transfer, multiple emerging countries engaging in the digital economy have actively launched bilateral negotiations based on their own development needs. By reaching a bilateral agreement, a legal basis for the personal data exchanges between signatory countries is developed. The E.U.-U.S. Privacy Shield Framework is such an example. In 2014, as a direct response to the Snowden revelations, the Schrems I case led to the Court of Justice of the European Union (CJEU) revoking the Safe Harbor Framework as a valid mechanism for transfers between the E.U. and the U.S. The E.U. and the U.S. then successfully developed the alternative Privacy Shield Framework, putting forward more stringent and descriptive data transfer requirements for data controllers. The framework received wide criticism, the the E.U. Commission’s adequacy determination for the Privacy Shield has been upheld. American companies may be permitted to acquire personal data from a total of 28 European countries after registering under the Privacy Shield program and demonstrating that they fulfill the “adequacy protection” requirement by self-certification procedures. The Privacy Shield Framework additionally includes verification, assessment, and supervision mechanisms, as well as special rules related to arbitration procedures. The bilateral agreement allows two countries to make more detailed arrangements for cross-border data transfer issues. It is advantageous in terms of negotiation efficiency and enforcement, as well as the flexibility of contents. However, its scope of application is limited to the jurisdictions of the two countries. For the establishment of a regional framework of personal data cross-border transfer, such a bilateral agreement has very limited effect on bridging different legal standards.

Soft laws

Soft laws often play important roles in encouraging reluctant states to consider and eventually agree upon policies and strategies in areas where serious differences exist. Many international organizations have issued soft laws to regulate cross-border transfer of personal data, which has given certain guidance to the national legislation and implementation. The OECD Privacy Guidelines released in 1980 serve as the first internationally agreed upon set of personal information protection principles and focus on balancing between the needs for digital economy and the protection of an individual’s rights. It addressed the needs for greater efforts to tackle the global dimension of privacy through improved interoperability and provided the member states a basic framework for the free flow of personal data for further negotiations.

The APEC framework, published by the Asia-Pacific Economic Cooperation in 2004, is a framework to protect privacy while enabling regional personal information transfers to promote consumer trust and business confidence, to lighten compliance burdens, and boost digital economies. The data controllers’ obligations are particularly emphasized as a data subject’s consent is mandatory prior to the transfer of their personal information, and the adequate level of data protection must be guaranteed. This framework is used as a basis for the APEC Cross-Border Privacy Rules (“CBPR”). The U.S.-led CBPR system comprises a Privacy Enforcement Authority, privacy certification institutions, and recognized entities operating upon nine general privacy principles and a bundle of practical requirements. A joint APEC-EU working team has attempted to discover more opportunities for “double compliance” via E.U. BCR and APEC CBPR referential.

Additionally, the Southern African Development Community (SADC) developed the Model Law on Data Protection in 2010, containing general data protection principles for cross-border data transfer. Notwithstanding the efforts, many African countries continue to struggle with enacting laws to regulate the collection and processing of personal information. The organization’s practices stopped at proposing a broad framework of guidance. While further discussions over effective solutions to the conflicts of applicable laws of personal data transborder regulation are needed, these and other international negotiations and cooperative efforts remain worthy of recognition.

Problem statement

China is imminently in need of a strong and more coherent data transborder flow regulatory framework, backed by transparent enforcement and legal certainty. As the world’s second largest economy, China’s demand for data exchange across borders has grown significantly. On one hand, cross-border e-commerce transactions reached 134.7 billion RMB (approximately 17.7 billion euro) in 2018, with expectations in 2015 of it reaching more than one trillion euro by the year 2020, accounting for 37.6% of China’s total imports and exports. On the other hand, technical innovations have brought unprecedented threats to privacy and data security. Furthermore, global trade and political tensions are rising. Against this background, China needs to carefully assess domestic and international economic and legal situations to create a quality strategy for cross-border data flow regulation.

China’s cross-border data transfer regulation is an evolving project still under development, with various administrative regulations and department rules continuing to expand. The Personal Information Protection Law has been incorporated into the law-making plan of the 13th Standing Committee of National People’s Congress, released with the draft for public comment on October 21, 2020. The legislators especially emphasized the protection of public interest and state security, taking into account the needs of the protection of data subjects' rights, and took a sheepish position on the regulation of cross-border data transfer. The Cybersecurity Law (enacted in 2017) for the first time addressed data localization and security assessment of data export requirements for Critical Information Infrastructure providers. The Civil Code of China (adopted May 28, 2020) newly introduced greater protection of privacy rights and personal information. It clarified that (i) the rights and interests of natural persons over their personal information are civil rights and private rights; (ii) natural persons’ rights to their personal information belong to personality rights; and (iii) the distinction is made between privacy and personal information. These three pieces of legislations constitute the foundation of China’s personal information protection laws.

The Measures on Personal Information and Important Data Export Security Assessment (draft for comments) was released in 2017 by the Cyberspace Administration of China (CAC). It was planned to contain elements in the scope of the security assessment, such as the consent of the data subject, the security protection status of the data recipient, and risk of data leaving China. Upon receiving constructive criticism, the CAC updated its draft a second time in 2019. One essential element–the important data–was removed, while one important element–the standard contractual clauses–was introduced.

About this paper

This paper aims to provide a comprehensive analysis of China’s cross-border data transfer regulation. The rest of the paper is organized as follows. The next section demonstrates how the personal data protections laws have evolved owing to transitions in the Chinese economy, with a focus on the objectives and characteristics of cybersecurity law, followed by how the Cybersecurity Law (CSL) is enforced and how authorities are responsible for the enforcement. The subsequent section highlights the Data Export Regulations in China, broadly classified into critical information infrastructure data export and personal data export, as well as how the approaches vary in terms of the measures and assessments. The paper ends with the conclusions derived from this study, as well as mentions of important drafts of laws and regulations to demonstrate possible future developments in China.

The evolution of China's personal data protection laws

Chinese concepts of privacy and personal data protection vary through different historical periods. Most of them are rooted in traditional Chinese ethics or moral standards, and partially integrated with the ideology of socialism. With the economic transition from a central planned market to a free market in the 1990s, Chinese communities began to experience greater variety of roles in participating economic, societal, and political activities. Although traditional predominant values still hold a deep influence on people’s behaviors, individualism and subjectivity have dramatically been promoted in their social life. Scrutiny and concerns over the importance of an individual’s privacy and protection of emerging personal data processing are ever growing. Baidu, the largest Chinese search engine provider, was sued by a consumer rights protection association for illegally collecting user data without consent. Alibaba, another internet giant, was challenged by Chinese users for the misuse of their digital transaction records and social media profiles on Zhima Credit (an online credit service that offers loans based on users’ digital activities). The concept of privacy in contemporary China has been gradually expanded, and individuals have raised their expectations for the right to be left alone.

Prior to the CSL, China’s personal data protection policy was integrated in a number of laws and administrative rules through the protection of personal dignity and reputation. For example, Article 28 of the Chinese Constitution provides citizens an inviolable personal dignity from “insult, defamation or false charge.” Article 252 of Criminal Law (1997) prohibits any violation to the freedom of a citizen’s communication rights by hiding, destroying, or illegally opening other’s letters. And Article 101 of General Principles of Civil Law (1986) confers natural persons and legal persons the right of reputation. The Supreme People’s Court in 2001 for the first time confirmed the legal ground for claiming remedies for the damages caused by the violation of one’s privacy or other personal rights granted by these laws and rules.

Personal Information was firstly defined in the Notice of the Supreme People's Court, the Supreme People's Procuratorate and the Ministry of Public Security on Legally Punishing Criminal Activities Infringing upon the Personal Information of Citizens in 2013, stating that the “personal information of citizens include the name, age, valid certificate number, marital status, employer, education background, resume, family address, phone number and other information or data that can identify the identities of citizens or involve the personal privacy of citizens.” In response to the rapid development of technology, Chinese authorities released over 200 laws, administrative regulations, and sector-specific rules regulating the collection and processing of personal information across domains like banking, healthcare, medical records, and disease control. However, a comprehensive framework for personal data protection laws is still urgently in need.

The Cybersecurity Law

In November 2016, the finalized version of the Cybersecurity Law (CSL) was passed by the Standing Committee of National People’s Congress, imposing new cybersecurity requirements on network operators that “own or manage networks, or provide network services.” It applies to any activities related to the “construction, administration, maintenance and use of networks.” The CSL is the most up-to-date, highest-level legal instrument concerning personal information protection in China. Three pillars constitute the substantive provisions of the law: a multi-level protection scheme, critical information infrastructure protections, and personal information protections.

Objectives

Article 1 of the CSL sets multiple objectives aiming to “protect cybersecurity; safeguard cyberspace sovereignty, national security, and social public interests; protect the legitimate rights and interests of citizens, legal persons, and other organizations; and promote the healthy development of economic and social informatization.” This is aligned with the special aspect in terms of multiple objectives in Chinese lawmaking, particularly those areas that face most of the challenges brought forward by emerging issues. As this provision suggests, the objectives are to govern everything within the country’s cyberspace infrastructure, ranging from internet activities to data export.

The downside is, however, observable. It is not unusual that such generality and flexibility—and sometimes excessive omissions—can be found in the drafting of Chinese law. Coupled with a wide discretionary power conferred on lower-level competent authorities in order to implement the law, predictability and certainty of law are often compromised. Furthermore, in order to identify a complete set of independent objectives and to prioritize them, law makers are required to use clear concepts, logical foundations, and thought-provoking procedures. In China, most of the data protection rules were made in response to an existing problem. However, due to insufficient experience in data protection law making and “rent-seeking” among various authorities, one essential aspect that is missing is that of a unified value for the protection of personal information. It is not yet crystal clear in other jurisdictions, as technology and law in this regime are significantly interdependent. Without a clear value set ahead of time, multiple objectives would affect the fundamental principles as well as the conceptual framework of data protection. The immediate consequence has been the vague defining of rights and obligations for those involved stakeholders. This echoes the prior mentioned lack of legal predictability and certainty.

Multi-level protection scheme

Article 21 of the CSL requires all network operators to be obliged with different security measures according to the cyberspace Multi-level Protection Scheme (MLPS). Under the MLPS, network operators shall safeguard cyberspace from interference, destruction, or unauthorized access, and protect internet-hosted and –transmitted data from leak or fraud. Security obligations include but are not limited to (i) the establishment of an internal security management protocol; (ii) the appointment of a person in charge of security affairs; (iii) the deployment of technical measures for cyberattacks; (iv) the recording of internet-based operational activities for no shorter than six months and the response plan for security incidence; and (v) the classification, backup, and encryption of important data.

The MLPS was born from the demands of national computer system security in 1994 and thus falls under the competence scope of the Ministry of Public Security (MPS). After a series of developed administrative regulations, the updated draft of the Regulation on Cybersecurity Multi-level Protection Scheme was released in 2018. Together with a bundle of supplementary national technical standards, the so-called MLPS 2.0 framework of cybersecurity in China was finalized. The MLPS Regulation as a supporting document of CSL’s Article 21 defines descriptive obligations and requirements for the network operators, which fall under different levels of MLPS. Eleven general obligations are listed to clearly allocate the liability and to set technical and organizational security measures. Specific obligations need to be met according to the level of the network operator’s activities that would affect the state and public security, scaled from 1 (the least risky) to 5 (the most risky). After being classified via a self-assessment, network operators are required to deploy special security measures such as personnel management, dataset backup, and encryption to protect important data.

Compliance with the MLPS 2.0 will be essential for understanding the personal data export regulation in China. This is true not only because such compliance is mandatory, but also becayse the second pillar of the CSL concerning critical information infrastructure protection is based on the classification within MLPS.

Critical information infrastructure

The consideration of critical information infrastructure (CII) is a major challenge in implementing China’s cybersecurity strategy and had been a recurring discussion at top-level national cybersecurity meetings. On the basis of the cybersecurity MLPS, the state implements key protections to CII which, “if destroyed, suffering a loss of function, or experiencing leakage of data, might seriously damage national security, social welfare, and public interests.” A non-exhaustive example list (including public telecommunication and information service, energy, transportation, water resources, finance, public service, and e-governmental information) is given in Article 31 of the CSL, showing the broad scope of the application of the CII requirement. In principle, any network operators that are being graded above level III (including level III) under the MLPS shall be regarded as CII operators.

CII operators must follow stricter security requirements due to the nature of the data being processed. More importantly, Article 37 of the CSL rules states that “critical information infrastructure operators that gather or produce personal information or important data during operations within the mainland territory of the People’s Republic of China, shall store it within mainland China.”

Transferring CII information outside of China is only allowed under exceptional circumstances where actual needs for business are in place and a security assessment is approved by competent authorities. Under the CSL, a CII operator is the only entity that is required to comply with the data localization policy and security assessment for cross-border data transfer. However, the definitions of CII and other key concepts such as important data remain unclear.

CII is in essence a network facility, information system, digital asset, or a collection of such elements. In the early stages of informatics, CII was considered a part of critical information (CI) systems that was scoped clearly. With the changing of the technical landscape, sources of risks are far beyond the scope of CI, such as the attacks coming from virtual entities, i.e., the information communication technology (ICT) or operational technology (OT) domain. At present, large-scale network destruction of CII is a high-risk yet low-probability incident, with very few examples of CII being damaged from cyber-attacks or data leakage able to be provided. Therefore, the assessment of security and risks of CII mainly rely on the experts in the domain, instead of evidence or case studies. This brought inconsistency in determining the scope of CII and eventually made it difficult to implement relevant policies. Generally, all ICT service providers fall within the scope of CII operators according to the laws, which is not efficient in the digital economic community.

Personal information protection

There is no chapter entitled “personal information protection” in the CSL, yet provisions related to the protection of personal information are scattered through this law. Chapter 4 on Network Information Security covered most of the personal information protection provisions. Most of the obligations are imposed upon network operators. Data subjects’ rights have been conferred passively through the legal obligations for network operators. For example, the network operator shall correct or delete information on the request of the data subject when the personal information are incorrect or wrongly processed.

The structure comprises basic principles for processing personal information, legal grounds for processing personal information, and a non-exhaustive example list of prohibited conduct. Personal information can only be collected when the data subject is informed and agrees to the purpose and scope of the collection. The processing of personal information must follow basic principles listed in Articles 40, 41, 42, 47, and 49 of the CSL, which share substantive similarities with the APEC privacy framework. Consent is the only legal ground for processing of personal information. This is to ensure that the data subject has sufficient autonomy to decide the way his or her personal data will be collected, processed and distributed. Such autonomy is endorsed by the sufficient informing requirement, meaning that only after data subject is informed of the purpose, scope, and means of processing of the personal data can he or she be capable of giving genuine consent. The network operator has to perform the information obligation before collecting the individual’s personal data.

Enforcement and authorities

The CSL’s provisions relating to data privacy formed the most comprehensive and broadly applicable set of privacy rules. It acts as an umbrella that covers a bundle of administrative regulations and numerous normative texts scattered across most of the industries. To date there is no independent authority for data protection. Multiple competent authorities or supervisory authorities are in charge of the implementation and enforcement of the rules.

Regulatory framework

Various types of documents have the force of law in China. Among all the legal instruments, the Constitution enjoys the highest primacy yet is rarely applied directly. The law made by the National People’s Congress or the Standing Committee of NPC has the highest legal effect in the respective regime, including the CSL.

Administrative regulations are rules promulgated by the State Council. Its legal effect is lower than the laws of the NPC but higher than the Department rules. To date, two administrative regulations have been issued: the Regulation on Critical Information Infrastructure Security Protection and the Regulation on Cybersecurity Multi-level Protection Scheme. Additionally, sector-specific administrative regulations also affect China’s personal data export study, such as the Regulation on Computer Information Security Protection and the Regulation on Human Genetic Resources Information Management.

Department rules are legal documents issued by the ministries and commissions under the State Council, along with other agencies with administrative functions directly under the State Council. The applicable scope is determined by the competence of the issuing government department. For example, the aforementioned Measures on Personal Information and Important Data Export Security Assessment is a department rule issued by the CAC. To date, around 30 department rules have been issued by various authorities in the field of security, data protection, and export.

Judicial interpretations are the explanations to specific legal questions made by the State Supreme judicial institutions during the application of the laws. Both the Supreme People’s Court and the Supreme People’s Procuratorate have released interpretations relating to cases that infringe personal information.

Standards (no legal effect) are mandatory or voluntary technical standards published by the Standardisation Association of China (SAC). In Cybersecurity and Data protection fields, the TC260 group under the SAC is responsible for a series of standards titled “Information Security Technology” that covers methodologies, definitions, or scopes of the norms. Within China, national standards play an important role in implementing laws and regulations. Despite the non-compulsory nature, they are better understood as a quasi-regulation rather than a technical specification typically presented in Western context. Since 2010, over 240 national standards in this field have been published. The necessity of such a large amount of technical standards being in force remains debatable, however.

Additionally, local regulations are directly applied within the scope of the provinces, autonomous regions, and municipalities directly under the Central Government.

Competent authorities

Under the CSL, different parties are in charge of specific area of works. The State is required to (i) make cybersecurity strategies, (ii) clarify fundamental requirements and objectives of cybersecurity, and (iii) guide key areas of cybersecurity policies and measures. Additionally, the State shall adopt measures to guarantee the cyberspace free from attacks, interferences, and crimes. The network-related industrial associations shall provide guidance for entities’ self-regulation and promote the healthy development of the industries. The network operators are required to fulfill obligations addressed in the CSL and to uphold societal responsibilities.

Respectively, the Congress is responsible for determining the scope of CII and key areas. The Cyberspace Administration of China, an administrative agency directly under the State Council, is in charge of the coordination and management of all cybersecurity related issues. The MIIT (Ministry of Industry and Information Technology of the People’s Republic of China) and MPS are responsible for supervising and managing affairs within the scope of their competence. The SAC publishes national and sectorial technical standards.

The CAC, also framed as an agency directly under the Chinese Communist Party, inherently carries a heavy stroke of political color. It is the most important supervisory authority of cybersecurity and directly reports to the State Council for managing internet information and content. It works independently from the Ministries of Information, Public Security, or Commerce. The CAC also leads the drafting of department rules implementing the CSL. Its branches at the provincial level are the main enforcement institutions that supervise, investigate, and impose administrative fines.

Enforcement

Enforcement of the CSL and related rules in China follows a typical bottom-up approach. Supervisory authorities have broad discretionary powers as well as the competence to impose administrative fines upon entities. Overlapping areas of jurisdictions often pop up among different authorities. The CAC is responsible for coordinating all issues that arise through the enforcement. Although not legally binding, the competent authorities often refer to the Information Security Technology standards when performing assessments or issuing certifications.

The supervisory authorities have been actively performing their duties since 2015. Means of enforcement include communication with the operator, supervising the modification of business, or administrative fines and termination of the operation. A special operation targeting the illegal collecting and processing of personal information through mobile applications is jointly conducted by the CAC, MIIT, and SPS.

It is rebuttable that the CAC has the competence in imposing administrative fines. According to the Organic Law of the State Council, the CAC is not one of the departments under the State Council. The legal ground for the CAC should be Article 11 of the Organic Law of the State Council ruling that “the State Council may, according to work requirements and the principle of simplified and efficient administration, set up a certain number of directly subordinate agencies to take charge of various specialized work and a certain number of administrative offices to assist the Premier in handling specialized affairs.” However, it is not explicitly informed which agency the CAC is established for. The official documents issued by the later agencies are categorized as “other regulatory documents,” which cannot be enforced as the basis for administrative fines.

According to the CSL, it is clear that the responsibilities of the CAC are coordination and supervision. Therefore, the rules and measures issued for imposing fines might not be legitimate, and their legal effect could be challenged (emphasis mine). Such a gap originated from the boost of cybersecurity legislation, and it shall be bridged in future law making efforts. With the work-in-progress nature of the Personal Information Protection Law, the CAC is expected to (i) remain as an agency under the CCP for supervising internet-based affairs, and the national independent Data Protection Authority will be formed for data protection regulation; or (ii) be conferred legitimacy under the new law.

Data export regulations

Critical information infrastructure data export

The starting point for the study of personal data export is to define the CII operator. Quoting the data localization requirement discussed in the “Critical information infrastructure” subsection, any personal information or important data that are involved in CII shall not be transferred abroad unless a security assessment is conducted with the supervisory authorities’ approval.

Defining CII

On July 11, 2017, the CAC released the draft version of the Regulation on Critical Information Infrastructure Security Protection (CII Regulation) for comments. Aligned with the CSL, the scope of the CII shall be determined by a two-step test: (i) whether or not a business falls within the industry or sector listed in the CII Regulation, and (ii) whether or not the business is graded at Security Level III or above, as demonstrated in Table 1.

Table 1. Security levels under the Regulation on Cybersecurity Multilevel Protection Scheme Subject-matter of the infringement Severity of damage Harm Serious harm Particularly serious harm Legitimate interests of citizens, legal persons, or other organizations I II III Social order and/or public interest II III IV State security III IV V

Additionally, the CAC’s Guidelines on State Cybersecurity Inspection (no legal effect) proposed three aspects to help with self-evaluating the CII:

1. key business domain, e.g., data center cloud service, domain name resolution service, or voice data and internet basic network-hub in the telecommunication sector;
2. information system or industrial control system that supports the key business, e.g., a generator set control system or information management system; and
3. quantity of CII devices, e.g., registered users above 10 million, or active users above 1 million, or daily transactions exceed 10 million RMB for a platform-based service.

Defining CII operator

The rules apply to registered entities operating inside the territory of the PRC, as well as those which do not register inside China but offer business and services to Chinese customers. The criteria to determine whether the entity provides business or service in China includes: (i) using RMB as currency; (ii) using Chinese as the language; and (iii) delivering goods to China. Any of the abovementioned criteria is sufficient to lead multinational companies to store their collected personal information and important data inside China.

Personal information export

Personal information

Personal Information is defined by the draft version of the Personal Information Protection Law (Article 4) as “a variety of information that is recorded by electronic or other means and can be used separately or in combination with other information to identify a natural person.” It is a commonly adopted “capacity to identify” methodology.

In the Information Security Technology – Personal Information Security Specification 2017, based on the definition given in the CSL, this standard enlarged the scope of personal information by using a more expansive wording as any information “recorded by electronic or other means.” This targets all operators from both public and private sector, as well as all collecting and processing activities of personal data they conduct. Furthermore, the standard added that personal information is any information able “to identify a specific natural person or reflect activities of a specific natural person.” This may be consistent with the broad interpretation of personal data held by the CJEU.

The concept of "important data" has been repeatedly addressed in the CSL. It is of crucial importance for assessing CII and CII data export requirements, yet surprisingly it’s not defined in the law. The draft of Information Security Technology – Data Export Security Assessment Guidelines defines important data as “raw data and inferred data collected or generated by entities, organizations, and individuals inside of China, that do not involve state secrets, but are closely related to state security, economic development, or public interests.” Publicly accessible government information is excluded from the scope of important data. An index for determining important data is attached with this standard, comprising of 27 main categories and 223 sub-categories. The categorization is similar to the U.S. Controlled Unclassified Information (CUI) system.

Measures on Security Assessment of Cross-Border Transfer of Personal Information and Important Data (2017, Draft One)

On April 11, 2017, the CAC circulated the draft for public comments entitled “Measures on Security Assessment of Cross-Border Transfer of Personal Information and Important Data” (the 2017 Measures). Unlike the CSL, the 2017 Measures expand the subject-matter of Article 37 CSL from “CII providers” to “network operators.” Under the CSL, any owners or managers of networks and network service providers are defined as network operators. This was disappointing since the main issue that practitioners were expecting from the 2017 Measures was to distinguish between the CII operator and the ordinary network operators. A clear definition of “important data” is also missing, only stating that it’s data “closely related to state security, economic development, or public interests.” It further cited the previously mentioned Data Export Security Assessment Guidelines as the reference.

Being the first legislation concerning data export regulation in China, the 2017 Measures provided guidance to assess the necessity of the export and data that are prohibited from exporting. Security assessment is classified into self-conducted assessment and authority conducted assessment. Data that do not exceed the benchmark (500,000 pieces of personal information/1,000 GB data/important domains) can be exempted from administrative procedures of approval. Unfortunately, all essential issues were kept untouched, or otherwise worded vaguely, making it very difficult to comment.

Measures on Security Assessment of Cross-Border Transfer of Personal Information (2019, Draft Two)

After receiving a large number of public comments, the CAC published in 2019 the second draft titled “Measures on Security Assessment of Cross-Border Transfer of Personal Information” (the 2019 Measures). As its name suggests, the 2019 Measures only apply to personal information. The legal requirements set out in the 2019 Measures are significantly more onerous than the 2017 Measures. Within two years of receiving comments, the legislators demonstrated an observable preference in a regulatory data export approach.

Data localization

The 2019 Measures require all personal information to be stored domestically for security assessment before being provided to recipients outside of China. Two aspects are implied: all personal information need to be locally stored and all personal information exports need to go through security assessment.

While data localization is gradually adopted in international data regulation standards, one should note that data localization does not necessarily mean restrictions on cross-border data flows. Either the E.U. General Data Protection Regulation (GDPR) or the U.S. CUI system both emphasize that data localization, backed with transparent regulatory rules, can reconcile the objectives of safeguarded state security and personal rights, as well as the free flow of data across borders, which are of equal importance. The 2019 Measures aims to function as a precise and predictable mechanism for cross-border personal data transfer.

Security assessment

Network operators shall submit applications for a clearance for the personal information export to the province-level Cyberspace Administrations after a transfer contract is signed with the recipient. After receiving the application, the supervisory authority shall conduct a security assessment based on the submitted documents and complete it within 15 working days, with the possibility of extensions depending on the complexity of the export.

The security assessment focuses on (i) legal compliance, (ii) protection of a data subject’s rights, (iii) enforceability of the transfer contract,and (iv) the recipient’s record on whether it had infringed a data subject’s rights or had a security incidence. When serious data leakage or data misuses occur, the data subjects are unable to protect their legitimate interests, or the parties are unable to provide protection of the personal information, the authority can request the network operator to pause or terminate the transfer. The security assessment shall be performed at least once every two years. When the substantive factors such as the purpose of transfer or the retention period have changed, a new application of assessment shall be submitted.

Standard contractual clauses

The requirement of the legally-binding contractual agreement between the network operator and the recipient is probably the biggest surprise in the 2019 Measures. This so-called transfer contract is similar to the E.U. Standard Contractual Clauses, taking into consideration the limitation of territorial jurisdiction and recognizing ‘’inter partes’’ autonomy.

The contractual clauses are required to include:

• (i) the purpose, type, and retention period of the personal information export;
• (ii) that the data subject is the beneficiary of the clauses involving the data subject’s interests;
• (iii) the legal grounds for which the data subject is able to claim remedies when infringement occurs;
• (iv) that when the recipient is unable to perform the contract due to its state’s legal environment changing, the contract shall be terminated or reassessed; and
• (v) that the termination of the contract shall not exempt the obligations involving the legislative interests of the data subject, unless their personal information is destroyed or anonymized.

The 2019 Measures further clarify the contractual obligations of network operator and recipient, respectively.

The adoption of standard contractual clauses integrates the regulatory requirements into contract autonomy. It is expected to indirectly abide off-shore entities by China’s standard. This approach largely depends on the supervision of the post-transfer performance of the parties. Considering that China is still waiting for her own Personal Information Protection Law, it is more likely that China’s personal data protection and cross-border transfer regulation will be tilted towards the European standard. On the other hand, there is no clear line between personal information and important data. Important data naturally could contain a large amount of personal information. The regulation on important data and important data export is waiting for the other boot to drop.

Personal Information Protection Law (2020, Draft One)

On October 21, 2020 the Legislative Affairs Commission of the Standing Committee of the National People’s Congress released the draft of the Personal Information Protection Law (PIPL) and invited public comments. Different from the 2019 Measures, the PIPL draft does not require all kinds of personal information trans-border activities to be examined through the security assessment.

Derogations

Cross-border transfer of personal information is by default not allowed, unless at least one of the derogations is granted:

1. When the amount of personal information being processed reaches the threshold for CAC security assessment, the personal information processor shall firstly store the personal information inside China. Such personal information can only be transferred outside of China after the security assessment is conducted and approved by the CAC.
2. Prior to the cross-border transfer, the processor shall provide the data subject with information, including the identify and contact of the recipient, the purpose and means of processing, the types of included personal information, and the means for the data subject to implement their rights. The transfer is allowed when the individual’s consent is obtained.
3. A personal information protection certificate is issued by a CAC-recognized organization.
4. Contractual obligations over the recipient with regard to personal information protection are recognized (similar to the contractual clauses described in the previous subsection).

Restrictions

For protecting China’s data subjects and data sovereignty in the global data governance, as well as achieving a delicate balance in international relations, the PIPL draft for the first time introduced restrictions and countermeasure clauses over personal data. The measures embodied a “black list,” on which the entities subject to restrictions or countermeasures will be included, restricting or prohibiting their transfer of personal information. The applicable conditions of restrictions and countermeasures have also been strictly limited. Those subject to the restrictions include foreign institutions or individuals engaged in personal information processing activities that (i) damage the rights of Chinese data subjects and (ii) endanger China’s national security and public interests. Those subject to the countermeasures are countries or regions that impose discriminatory restrictions, prohibitions, or similar measures on China.

DPIA requirement

The data protection impact assessment (DPIA) is one of the most important means for the continuous and autonomous operation of the compliance operations that personal information processors shall demonstrate and/or self-certify. Prior to PIPL, DPIA was recommended via non-mandatory technical standards. For the first time, DPIA is now ruled as a legal compliance with more stringent requirements put forward for the establishment of an organization’s internal compliance system. Specifically, the DPIA is required when personal information is transferred to a recipient that is located outside of China. A minimum period of three years has been proposed as the retention time for keeping the results of the DPIA and the record of the associated information processing.

Transfer by national agencies

The access and transfer of personal information are possible based on the request for international judicial assistance. Where national agencies need to transfer personal information abroad, special laws and regulations shall be complied with.

Conclusion

With the increasing participation of emerging countries in global data governance, the traditional legislative paradigm dominated by the European Union and the United States is constantly being broken and reshaped. It is particularly important for China to establish the regulatory framework of cross-border data transfer, not only for involving the rights of Chinese citizens and entities, but also ensuring cyber sovereignty and national security, as well as the framing of global cyberspace rules.

China keeps leveraging data sovereignty to push law makers to support the development of critical technology and infrastructure in digital domains. The cross-border data transfer regulation prefers a strict unidirectional data flow that focuses on controlling the flow of the data being transferred outside of China. The regulation is largely driven by the CAC agencies, which weakens autonomy for individuals and entities in terms of self-governance and enforcement. It is better to objectively value the importance of efficiency in the digital economy and to avoid the excessive rigid adherence to traditional sovereignty, which includes the data localization requirement as the strongest manifestation of data sovereignty imposed.

In practice, either the “common European data space” proposed by the European Data Strategy, or the “certified governments” recognized by the APEC CBPR system are both an attempt to establish cross-border judicial corporation frameworks among trusted entities for the application of rules and efficient enforcement. However, China has not established a mutual trusted mechanism for trans-border data flow with other countries. The proposed initiatives largely remain at the conceptual level without practical operability.

Despite the limitations, there are various positive dynamic developments in the framing of China’s cross-border data regulation. The CSL, together with the Civil Code and Personal Information Protection Law, demonstrate great willingness towards a stronger data protection regime and more flexible regulatory mechanism. By introducing contractual obligations and statutory derogations while strengthening the domestic personal data protection standard, it is observable that China’s legislation is continually moving towards the European approach. Given the fact that countries are unlikely to form a corporation framework in a short period of time, cross-border data transfer between China and the E.U. would be profoundly rooted in bilateral and multilateral trade and investment negotiations.

Notes

This presentation is faithful to the original, with only a few minor changes to presentation, though grammar and word usage was substantially updated for improved readability. In some cases important information was missing from the references, and that information was added. The original lists citations and footnotes all together under "Notes"; this version split the two out and and lists them in order of appearance, by design. The original articles Note 11 does not at all verify the quoted statistics; a citation to support at least the 2018 statistic was found and used for this version. Another citation was found and added for this version to support the claim more than one trillion euros e-commerce at 37.6% total of imports and exports. The quote about defining personal information had no citation in the original; for this version, a source was found, with slightly altered English text, and used. The citation for the Cybersecurity Law is added in multiple places for this version. The quote from Article 11 of the Organic Law of the State Council was updated to match the original, and a citation was added for this version. A citation was added for the Personal Information Security Specification definition of "personal information." A citation was addded for the quote about important data. A citation was added for the 2017 Measures. A citation was added for the PIPL draft.