We are seeing the formation of global digital war
The restructuring of TikTok, owned by the Chinese company ByteDance, has been under the market’s spotlight lately. Although some American companies such as Oracle and Walmart claimed that they had formed a preliminary plan with ByteDance on TikTok's reorganisation and data custody, other parties such as the US president, Donald Trump, seem to have different opinions on the plan, and a consistent final agreement has yet to be formed.
The US government's approach to TikTok shocked the entire capital market, and many believe that the US government disrupted the mode of market operation and brought extremely negative effects on investments in the United States. Moreover, the data security issues brought about by TikTok are not the same as the technical competition threats brought by Huawei. Why then, did the United States act so strongly on TikTok?
A digital war
From the perspective of global economic development trends, the US government's handling of TikTok needs to be understood not only from the perspective of the ‘decoupling’ between the United States and China, as it is not just an issue of data protection and security, but also the commencement of a ‘digital war’ on a global scale.
Recent reports have shown that the digital economy, which is mainly based on information technology and internet technology, is showing an increasingly strong development momentum, and that the physical isolation brought about by the Covid-19 pandemic has further accelerated its development.
In 2017, the scale of the US digital economy accounted for 57% of the country’s GDP, ranking first in the world. Comparatively, China’s digital economy was RMB 27.2 trillion, accounting for 32.9% of its GDP, ranking second in the world. According to IDC forecasts, by 2023, the output value of the digital economy will account for 62% of global GDP, signifying the start of the era of digital economy for the world.
The outlook for the global digital economy is undoubtedly optimistic. In this context, data, as the foundation of digital technology and applications, is being paid more and more attention to by countries. Major economies including China, the United States, and the European Union have begun to treat all kinds of data as their own national resources or even assets, and have established sovereign-based data protection and application rules.
If the internet economy that began in the 1990s was in an age of freedom of the digital economy, then countries around the world are currently entering an era of data protection and competition, as digital technology continues to develop. The European Union has clarified its regulatory thresholds for data protection through the General Data Protection Regulations (GDPR), hoping to establish its own voice and market initiative in the digital economy.
The United States has been advocating for a free flow of data for a period, similar to free trade. This is based on its own leading position in the digital economy and relies more on giant technology companies such as Google and Facebook to obtain data resources from other countries. With the rise in e-commerce and related fields, China's digital economy and technology companies are also developing rapidly, causing it to be in direct competition with and even challenging the United States. In this case, data localisation is becoming an important consideration for governments including that of the United States, which will have a decisive impact on the global digital economy and the development of giant technology companies.
Therefore, for Chinese companies, whether it is ByteDance or Tencent, they will face high data barriers in the process of going international. TikTok, whose business is concentrated in international markets, currently has 500 million users and over 2 billion downloads. It has more than 70 million users in the United States and more than 100 million in Europe, so one can only imagine just how massive the user data obtained by TikTok can be.
TikTok: data rich
No matter where the data is stored, it is a rich asset to TikTok, which can bring various derivative applications and generate commercial benefits with technical support. This is precisely what the US government is worried about. As Ciaran Martin, CEO of UK National Cyber Security Center, said recently, although apps such as TikTok do not directly pose security threats, Chinese companies intend to obtain a large amount of user data from other countries in order to train artificial intelligence applications and obtain technological advantages. Western countries should seriously consider their future data protection models, similar to what the EU has done.
In fact, the European Union has begun to gradually tighten its data policy recently as well as join the competition for data resources. The Office of the Irish Data Protection Commissioner (DPC) has recently made a preliminary decision that the mechanism used by Facebook to transfer data from the EU to the US should not be implemented. As Facebook has a huge amount of user data from around the world, it said that such restrictions may cause it to withdraw from the EU market.
TikTok on the other hand does not seem to attract much attention in Europe. Although it has more than 100 million users, its announcement to establish a data center in Ireland can temporarily alleviate European concerns about data. However, if TikTok continues to develop rapidly in Europe, it will eventually face increasingly stringent data audits in European countries. It should also be noted that India took advantage of China's border dispute to take measures and restrict the use of China's digital applications in India, indicating that more countries are joining the chaos of the so called ‘digital war’.
As the EU leaders said, the future economic landscape lies in the realisation of digital sovereignty in the digital economy. The United States' attack on TikTok and WeChat means that the digital war is taking the lead between the United States and China. It will also cause a series of changes in the field of technology, financial investment, and international trade. Therefore, this kind of competition has surpassed the previous trade wars, financial wars and technological wars, and its rivalry is reflected more on the overall development pattern as well as the competition for potential market space.
The fate of TikTok in this game between the United States and China is not only about whether companies can obtain commercial benefits and access to the social platform market, but also a strategic competition of data resources and digital assets between countries. This is actually a strategic competition for whether the digital economy can be fully developed in the future and whether the long-term economic growth potential can be realised.
Chan Kung is the founder of Anbound
China Takes Additional Step to Control Big Tech’s Data
China’s new Data Security Law will take effect on September 1st, allowing the government major control over the collection, use, and transmission of data. Tech companies have grown exponentially in terms of market size and overall power, and the Chinese government has no interest in alternative power hubs—especially those that belong to private enterprise.
With its Thursday legislation, companies will face extravagant fines if they export data outside of China without authorisation. The Chinese government claims that this will create a legal framework and help companies from taking advantage of citizens, but according to analyst Ryan Fedasiuk from Georgetown University’s Centre for Security and Emerging Technology, “China’s push for data privacy...is yet another move to strengthen the role of the government and the party vis-à-vis tech companies.”
How Do Other Countries Approach Data Privacy?
- Europe: The EU Charter of Fundamental Rights assures EU citizens the right to data protection. The bloc’s General Data Protection Regulation (GDPR), passed in May of 2018, put stringent restrictions on commercial data collection.
- Canada: 28 federal, provincial, and territorial laws govern consumer data privacy; DLA Piper ranks the country’s data protection legislation as heavy, in comparison to Russia (medium) and India (limited).
- The United States: As usual, the States doesn’t have a single comprehensive federal law for data privacy. Instead, its lawmakers have passed hundreds of local and state acts, many of which are seen by the Federal Trade Commission (FTC).
China, in contrast, thinks data should be a national asset and has written data collection into its five-year plan. Although its new legislation will help curtail private access to consumer data, the government may be the final beneficiary.
What Will China Do With the Data?
According to advisors, consumer data can mitigate financial crises and viral outbreaks. It can protect the interest of national security—no surprise—and help the government with criminal surveillance. Right now, Chinese regulators have summoned 13 major tech firms, including Tencent, JD.com, Meituan, and ByteDance, to meet with China’s central bank. Communist Party Chief President Xi Jinping can shut down any companies found violating the new privacy laws, as well as hit them with a fine of up to 10 million yuan—US$1.6mn.
How Will Laws Affect Foreign Firms?
Now, foreign firms must store data on Chinese soil, a practice that many companies protest will infringe on their proprietary data. So far, Tesla will comply: in late May, the electric car manufacturer promised to build more Chinese factories and keep the resulting information within Chinese borders. In fact, businesses hoping to start China-based businesses—such as Citigroup and BlackRock—will have to comply with the “data-localisation laws”.
The Chinese government has framed data as a critical source of intelligence for the party and central government. “You have the most sufficient data, then you can make the most objective and accurate analyses”, Mr Xi told Tencent’s founder, Mr Ma. “The...suggestions to the government in this regard are very valuable”.
Greater digital control is coming, that’s for sure. Mr Xi has named big data as an essential part of China’s economy, right up there with land and labour. “Whoever controls data will have the initiative”.