Chinese central bank wants tech companies to reveal user information to the state

China’s central bank is scrambling to get more than a dozen of the country’s top internet companies to meet the December deadline for revealing their users’ personal information to state-approved credit rating agencies.

The stalemate over who should control access to Internet companies’ vast databases of their users has come at a time when Beijing is working to tighten its grip on China’s tech sector and consumer lending.

President Xi Jinping, who recently secured a third five-year term as head of the Chinese Communist Party and commander of the armed forces, is determined to rein in China’s private technology sector companies as part of a broader effort to build a economy more controlled by the state.

The Chinese central bank has ordered Tencent, Meituan and other major platforms to reveal data about their users, from shopping records to travel histories, to two state-approved agencies, Baihang and Pudao, by early next month, according to people informed about the negotiations.

Baihang and Pudao, in turn, would receive payments to provide data to banks to help them assess the creditworthiness of potential borrowers, but Internet companies are resisting such an arrangement, the sources said.

Last year, China’s central bank moved to stop online platforms from selling data about its users directly to banks, citing fears about possible misuse of personal information. But a central bank adviser said the practice had continued because lenders were unwilling to pay the higher fees charged by Baihang and Pudao.

“Neither the platforms nor the banks have incentives to follow an order that harms their business,” said the adviser, who asked that his name not be mentioned because of the delicacy of the matter.

The central bank’s order applies to Internet companies seeking to partner with finance companies to make loans to individuals or small businesses.

“Even with a government as powerful as China’s, it never happens that you just create a rule and it magically applies, and everyone follows it,” said Karman Lucero, a data security expert at Yale University School of Law. . “It takes time for different regulatory authorities, institutions and companies to figure out what complying with the rule requires, and on top of that complexity there are people who go out of their way to slow things down.”

Some platforms also objected to the 25% equity stake that a competitor, Richard Liu’s JD.com, has in Pudao. “There is suspicion about the neutrality of Pudao,” said the executive of one of the rivals of JD.com, based in Shanghai.

Many Chinese banks, especially small regional lending institutions, rely on internet companies’ user data and their analytical tools to identify creditworthy customers. According to public records, the volume of loans granted in partnership with online platforms grew by 22% last year compared to 2020, compared with an overall growth of 12% in credit.

“We’re not going to comply until everyone else does,” said the executive at a Shanghai-based credit institution that works closely with platforms to provide consumer loans.

The lending boom has raised concerns that the monetization of customer data by internet platforms could undermine the protection of personal privacy, or even pose a threat to national security.

“How can I know who is selling data to when there is so little oversight?” said the central bank adviser, adding that regulators were now more focused on the security risks associated with mining consumer data than on its potential benefits. economic.

But an executive at a Beijing-based Internet platform argued that his company has credible safeguards for personal information, and “highly advanced” credit-rating algorithms. “The government wants [terceirizemos] a service that we can perform very well on our own,” he said.

Baihang and Pudao are run by former Chinese central bank officials. “The central bank wants to play a bigger role in regulating the way data is sold and used,” said Lucero. However, a study by Beijing’s Renmin University found that internet companies would incur a cost increase of up to 8% after transferring data and analysis to credit rating agencies.

Michael Li, owner of a Shanghai-based company that analyzes credit scores, said that “while the government views data as a valuable asset that cannot fall into the hands of internet tycoons, public officials lack the ability to manage this resource efficiently. That means there is a risk of killing the industry”.

Translation by Paulo Migliacci