2021 saw the Chinese regulatory scene shift significantly as regulators targeted tech giants such as Tencent, Ant Group, and ride-hailing app Didi. So after a tumultuous 2021, many tech companies planning to expand into China may be wondering what to expect from Chinese regulators in 2022. David Messenger, Executive Chairman of cross-border payments company LianLian Global, provides some pointers.
Chinese markets represent a lucrative opportunity in cross-border trade, and learning how to navigate the fast-changing regulatory landscape certainly allows agile companies to reap the benefits. Global Data reports the value of e-commerce is expected to continue growing at a CAGR of 11.6% between 2021 and 2025. Global Data also predicts that by 2025 the Chinese e-commerce market will reach US$3.3 trillion.
However, market participants have to cope with a fast-evolving regulatory environment that is not likely to stabilize in 2022. Anticipating trends in China can be tricky, but first-hand knowledge of the situation on the ground gives valuable insight into where regulations might become more stringent. This is why it is so important for foreign companies looking to tap into Chinese markets find local partners.
From this perspective, in 2022 companies should anticipate further regulatory developments in data and privacy as well as anti-monopoly laws.
Data and privacy regulation
Previous shifts in data regulation signalled the aim of Chinese regulators to introduce a more comprehensive legal system for data and privacy law. The current global legal landscape is fragmented and covered by multiple national laws. We forecast the emergence of data protection regulations similar to the EU’s GDPR. China’s Personal Information Protection Law (PIPL), enacted in November last year, has similar elements to GDPR. For example, both laws allow people more control over personal information and regulate how companies use this information. As such we can expect more laws in China to bring data and privacy under a comprehensive legal system.
Additionally, recent regulations recognize that data plays an important role in national security. In 2022 companies will be pushed to make sure they have the right data architecture so that data is stored and backed up in China. This is a challenge for foreign payments companies operating in China as cross-border transactions require data to flow across borders. Increased transfer restrictions, as well as the need to store and process data locally, may increase the cost of infrastructure and compliance.
Implementation will be phased in, so most foreign companies will have time to adapt. However, having a local partner will still be essential if foreign companies need to engage with regulators and figure out how to best meet the new standards
All in all, data privacy has been marked by regulators as an important area of attention and they are likely to continue to strengthen requirements. For cross-border businesses, it means they will have to keep up with new developments in the regulatory process in order to minimise compliance risks. Additionally, it will be important to partner with payment providers who have oversight of these processes and can ensure all data is processed and stored correctly.
Anti-monopoly and competition regulation
In 2021 Chinese regulators passed more stringent regulations on anti-competitive behaviour, specifically targeting tech giants. For example, new laws stop e-commerce platforms from forcing vendors to deal exclusively with them. The aim is to prevent tech companies from using their dominant market position in anti-competitive behaviour.
We predict that in 2022 Chinese regulators will continue their tough stance on anti-competitive behaviour and will push for tighter enforcement of existing antitrust and anti-monopoly regulation. The State Administration for Market Regulation in China has already begun issuing its first antitrust fines. For foreign companies, a local “China-born” partner will become essential to avoid such fines and reduce compliance costs as national regulators ramp up enforcement.
However, more stringent anti-monopoly laws could offer an opportunity for smaller players, especially in the fintech industry. The new regulations encourage a more open ecosystem that allows new players to expand in areas previously dominated by existing tech giants.
Overall, foreign fintech companies can expect another year of fast-moving change and huge opportunity in China. But with the right partner, they can aim to navigate 2022 – and the regulatory changes it brings – with confidence. (Source: paymentsjournal.com)