Four Steps to Crisis: Chinese privacy law

Four Steps to Crisis: Chinese privacy law

The story of China’s ‘disappearing ships

How a Chinese privacy law could affect nearly US$2 trillion worth of global trade

The number of AIS signals being reported from ships in Chinese waters — an aspect crucial to global shipping trade — have plummeted by almost 85%, with the possibility of disrupting almost $2 trillion worth of global merchandise trade.

“China’s growing isolation from the rest of the world — along with a deepening mistrust of foreign influence — may be to blame” for the exacerbation of one of the deepest supply chain crises in human history.

Over the past few months, China has carried out several sweeping clampdowns on tech, real estate and foreign IPOs. The Cyberspace Administration of China has also taken steps, such as, proposing limits on major companies listing shares abroad as well as shielding against foreign governments possibly misusing personal data via a new privacy law. 

So, what do you get when you add a global shipping crisis to a Chinese privacy law and just the right supporting characters? The perfect storm, of course.

(I) The Personal Information Protection Law (2021)

A little over three months ago, China’s National People’s Congress passed the Personal Information Protection Law, to be implemented from November 1, designed to “protect online user data privacy”. This law essentially carried forward the state’s efforts to regulate cyberspace and impose a greater number of compliances for domestic and foreign organisations collecting and exporting data from the world’s second largest economy.

The law laid out conditions for not only companies to collect personal data, including obtaining an individual’s consent, but also called for periodic audits to ensure compliances with the law were being met.

The law, seen against the background of the broader regulatory tightening by Chinese regulators, rattled companies large and small.

(II) The Port Congestion Report (November 2021)

UK-based VesselsValue, a firm launched in 2011, has attempted for the last decade to bring in transparent market intelligence into the maritime and aviation sectors around the world. 

On the 4th of November, they released their ‘2021 Port Congestion Report’, where they outlined the severe congestion of shipping vessels in and around the Chinese coast, formed in part due to (i) the Australian coal ban in China, (ii) tailback from the Suez Canal blockage by the carrier ‘Ever Given’, (iii) record-high congestion at the Californian ports of Los Angeles and Long Beach, (iv) pressures along UK ports like Felixstowe, and (v) disturbances caused by the long-standing coronavirus pandemic.

Suffice to say, China, at the helm of the global supply chain, wherein much of the world’s supply of manufactured goods and some industrial commodities come from, lies on a knife’s-edge at the moment.

(III) The world’s largest ship owner

Based on data from the World Trade Organisation from 2020, China is involved in about 14% of global bilateral trade. That is a combined value of almost $4.65 trillion worth of merchandise being traded by China, out of the global total of about $35 trillion. Of this, the UNCTAD estimates that about 80% of global trade volume is carried out by sea.

Following estimates by the South China Morning Post, China’s exports alone contribute to about 40% of their GDP, with merchandise worth $2.5 trillion being traded via shipping (53% of net Chinese trade value for the year) in 2020.

This total sea-trade volume is distributed among China’s 34 major ports and 2000 minor ports, many of which, according to logistics start-up Cogoport, are globally relevant in terms of their economic and historical contributions. Of these 2000+ ports, Mainland China is home to seven of the world’s ten largest container ports.And, on November 22nd, VesselsValue released data that showed China had moved from 2nd to 1st place to become the world’s largest ship-owning nation.

(IV) The world’s most important logistics data

The Automated Identification System (AIS) is crucial to the global logistics industry. 

Initially developed to help avoid collisions between vessels and support rescue efforts in the event of a disaster, it provides locational positioning of ships, including data such as speed, course and name — to stations that are based along coastlines using high-frequency radio waves. It is used not only by vessels and ports around the world, but also by banks and traders as an indicator for the health of global trade. 

AIS data today has evolved into a valuable tool to enhance supply chain visibility and for governments to track activity in overseas ports. It is indispensable to the global shipping industry and is relied upon to “provide information on cargo volumes and help optimise logistics by predicting congestion so companies can make key decisions on shipping routes.” 

Additionally, given the recent surge in demand for goods and shortage of containers creating port disruptions around the world, AIS data becomes even more important to determine schedule times for shipments from key suppliers in China.

The Plunge

Given its importance, imagine the kerfuffle when around a week into the new Chinese privacy law being implemented, the number of AIS signals being reported from ships in Chinese waters plunged by almost 85%.

Figure 1: Daily Terrestrial AIS Positions in China Waters; Source: VesselsValue

On the 17th of November, Reuters reported that “although there (were) no specific guidelines on shipping data in the regulations, some domestic providers in China (had) stopped giving information to foreign companies as a direct consequence of the new rules.” 
Consequently, Chinese AIS data was down from almost 16 million positions a day on October 28 to about 300,000 a day on November 10. 
Greece-based tracking firm MarineTraffic, a leading global provider of ship-tracking and maritime intelligence, were among the foreign companies most affected by the plunge in AIS signals.
“If this continues, there will be a big impact in terms of global visibility especially as we come into the busy Christmas period with supply chains already facing huge problems all over the world,” said Anastassis Touros, AIS network team leader at MarineTraffic, according to Reuters.

The Crisis

Figure 2: Comparative signals from AIS transponders; Source: Financial Times; VesselsValue

So, how exactly is China’s Personal Information Protection Law the cause for this?

The law requires firms that process data to first receive approvals from the Chinese government before they release information beyond Chinese soil — a rule that, CNN reports, aptly highlights Beijing’s mistrust of their data in the hands of foreign governments. However, given that the law does not necessarily specify shipping data, companies currently may just be holding on to the data as a precautionary measure, according to experts. 

Further reporting from CNN, however, also reveals that:

“..some AIS transponders were removed from stations based along Chinese coastlines at the start of the month, at the instruction of national security authorities. The only systems allowed to remain needed to be installed by ‘qualified parties’”, according to Charlotte Cook, head trade analyst at VesselsValue.

With Christmas fast approaching, a loss of information from the largest player in global trade could prove to be detrimental to an already-strained global shipping industry, already struggling to deal with congested ports amidst rapidly rebounding demand conditions. 

Experts agree that decreased radar visibility will likely cause greater congestion and make it harder to time vessel arrivals at Chinese ports, which so far have already been gridlocked amidst pandemic-related disruptions and poor weather conditions over the past few weeks.

China’s desire to retain absolute control over all data and information points towards an increasing mistrust of global governments and a more concentrated effort towards self-sufficiency. CNN reports, for example, that “during the pandemic (President) Xi Jinping…doubled down on his push for self-reliance, stressing the need to create “independent and controllable” supply chains to ensure national security. Comments from several state media officials cited by the Financial Times reaffirm just this: 

“The intelligence extracted from this data endangers China’s economic security and the harm cannot be ignored.”

AIS data give insights into port activities to countries around the world; China is the only country so far to describe the data as a threat to national security.

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