Addressing the first session of the 16th Group of 20 (G20) Leaders’ Summit, Chinese President Xi Jinping announced an intention to join the Digital Economy Partnership Agreement (DEPA). President Xi said, ‘China attaches great importance to international cooperation on digital economy and is ready to work for the healthy and orderly development of digital economy.’ Membership to this group would open a series of opportunities for China in the digital economy sector. As China strives to rein the global digital economy, membership in this group would bring it closer to this goal. However, on the road to DEPA, China would face a handful of troubles, especially in its domestic policy and regulations. Let us take stock of some of the critical issues that could create hurdles for China in its ascent to DEPA.

The DEPA is an agreement implemented by Singapore, New Zealand, and Chile in June 2020 with an aim of facilitating economic engagement and trade through digital modes. This first-of-its-kind agreement establishes new approaches and collaborations in digital trade issues, promotes interoperability between different regimes, and addresses new issues brought about by digitalization. DEPA encompasses several features that allow participants with cross border flows of data to develop mechanisms to protect personal data from being transferred across borders, along with expanding access to government data, among others.

China’s bid to join this agreement is the second big announcement following its application to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The move reflects a sudden and structural shift in China’s approach towards its engagement in the global digital economy. Chinese membership can significantly strengthen the group. The current signatories undoubtedly practice an open and free digital economy but are not among the major global players. As against them, China is the second-largest digital economy in the world. China’s digital economy reached 35.8 trillion yuan ($5.5 trillion) in 2019, accounting for 36.2 percent of the GDP, with a growth rate three times higher than that of the traditional manufacturing economy. China is home to 11 out of the 20 largest digital giants in the world. DEPA membership will immensely help China gain better access to these economies. It will penetrate further to the niche areas of the digital economy. Through this pact, China can come even closer to these economies while deepening its dominance. But for this, China needs to bring a series of amendments in its domestic as well as external policy to comply with DEPA.

Currently, China is ranked as the most data-restrictive country in the world by the Information Technology & Innovation Foundation. China restricts any flow of personal information overseas if it risks undermining national security and public interest. China’s recently-enforced Personal Information Protection Law (PIPL) strictly regulates the storing, transferring, and processing of personal information. It potentially limits cross-border transfer of information that may pose a potential threat to national security. In contrast to this, other members of DEPA such as Singapore practice an excessively liberal policy in data storage and cross-border transfers. Amendments in this law are necessary to bring synergy with DEPA.

China’s concerns about cyber-security and the recent incidence of cracking down on Didi Chuxing can have an adverse impact on the perception of firms from DEPA economies. China suddenly removed the app of the ride-hailing firm Didi Chuxing from all the app stores in China after it landed in trouble with China’s data regulators. Didi Chuxing is the largest ride-hailing firm in China, with more than 377 million active users and providing services in 16 countries. This incident will definitely have a ripple effect on foreign investors. China may be required to amend its cyber-security law and implement a more modest version in order to comply with DEPA principles, which strongly advocate co-operation in cyber security to achieve global prosperity for their firms.

The existing DEPA members are committed to duty-free electronic transmissions of goods and services between a person of one Party and a person of another Party. China supports this practice in the WTO and voted in favor of implementing a permanent moratorium on electronic transmission of goods and services. However, China is also aware that it risks losing a huge volume of revenue if it accepts this law. The UNCTAD estimates that, despite being a net exporter of digitized goods, China will potentially suffer a revenue loss of around US$ 493 million.

DEPA requires its participants to provide non-discriminatory treatment to digital products created, produced, or published in the territory of another Party. But China’s biased treatment toward foreign firms is well-documented, evident in the absence of global tech giants such as Facebook, YouTube and many others. China also extends preferential treatment to its state-owned enterprises (SOEs). Thus, a course correction is necessary for China in its conduct toward foreign firms.

DEPA affirms public access to and the use of government information to foster economic and social development, competitiveness and innovation. China needs to work on this aspect as well in order to fall in line with DFPA principles.

DEPA economies tightly protect Intellectual Property Rights (IPR) which is currently in a dire state in China. In fact, China has been called a global copycat as it devoted itself prodigiously to the production of other countries’ innovations. Reforms are mandatory to accommodate DEPA regulations.

China’s application for DEPA membership comes at a time when world trade is increasingly getting digitalized and a rule-based order is the urgent requirement of the hour for this sector. A unified set of rules would be followed by the countries, and would boost the global digital economy. Chinese accession to this agreement would not only help its firms to tap overseas markets, but also possibly inspire others to join the club. However, the journey to this group passes through a bumpy road and China needs to walk it cautiously to reach its destination.

 

Dr. Rahul Nath Choudhury is a Research Fellow at the Indian Council of World Affairs, New Delhi. Views expressed here are his personal.

The views expressed in this article are those of the authors alone and do not necessarily reflect those of Geopoliticalmonitor.com