Tightening the noose around
tech companies over the collection and use of customer data, the People's Republic of China passed the Personal Information Protection Law (PIPL) on August 20. The new law is set to come into effect on November 1, 2021.
So far, the European Union's General Data Protection Regulation was considered the most stringent in the world, but China's PIPL takes things a step ahead.
The Standing Committee of the National People’s Congress,
China’s top legislative body, said that the law has been introduced in the wake of an increase in
online scams and individual service price discrimination.
A spokesman for the National People's Congress told state news agency Xinhua that the law has been framed keeping in mind the people who "feel strongly about personal data being used for user profiling".
What's Personal Information Protection Law?
Under the new data protection law, state and private enterprises that use the personal information of customers will be required to obtain user consent. According to the law, individual consent should be obtained when processing sensitive personal information such as biometrics, medical and health, financial accounts and whereabouts.
The law also mandates them to reduce data collection. PIPL calls for suspension (or termination) of services for apps that 'illegally' process customer data, according to a Xinhua report.
PIPL also restricts companies from setting different prices for the same service based on clients' shopping history. "Companies must stop using systems to scan through consumers' data and offer them different prices for goods based on that information," it said.
However, the most problematic provision of the law for the foreign technology companies operating in the country is the one that forbids the personal data of Chinese nationals from being transferred to countries with lower standards of data security than China. PIPL states that if sensitive personal data is leaked, it can lead to "discrimination… or seriously threaten the safety of individuals".
The companies that fail to comply will face fines of up to 50 million yuan (US $7.6 million) or 5 percent of their annual turnover.
The stocks of big tech companies of the country suffered a major drop after the announcement of the law.
China's recent crackdown on tech firms
The law is preceded by Beijing's stringent action against tech firms for allegedly misusing customer data.
Days after China's biggest taxi service
DiDi Chuxing got itself listed on the New York Stock Exchange, the Cyberspace Administration of China (CAC) banned the application and got it removed from app stores. The Chinese government cited a breach of customer data as the reason behind the punitive action.
On June 30, DiDi had rolled out its initial public offering worth $68 billion. This was the second-biggest public listing in the US by a Chinese company, after Alibaba Group Holding Limited.
China's market regulator State Administration for Market Regulation (SAMR) levied a fine of 18 billion yuan ($2.75 billion) on Jack Ma-owned
Alibaba, an e-commerce platform, for alleged violation of anti-monopoly rules and abuse of its dominant market position.
The Chinese officials also suspended Ant's IPO rollout, which was to be the highest valued public listing ever, in November 2020. Ant, the fintech arm of Alibaba, was expecting to raise $37 billion from the market.
China’s State Council, on July 23, barred for-profit companies from tutoring in core curriculum subjects. Foreign investment in such companies was also banned. The state council also refused to issue any new licences for online education businesses and added that all existing outfits must register as non-profits.
The move, according to the Chinese officials, was a measure to reduce financial pressure on parents as the fees charged by most of the after-school tutoring businesses were eye-watering.
