Digital industrial policy through data security? – China’s approach and security exceptions under trade agreements

Abstract As industrial policy and national security become increasingly integrated, the extent to which national security may be abused to foster select economic sectors requires more dedicated studies. We make two major contributions in this paper. First, we offer a critical analysis of China’s digital industrial policy, focusing on data security regulation and practices. We show that China has sought to maintain a balanced approach towards data liberalization and protection without compelling evidence to suggest abuses of national security to bolster its data sector. Yet, major loopholes remain in China’s regulatory framework leaving room for discretion and abuse in deploying data security measures. As geopolitical tensions and strategic rivalries intensify, a data trade war in the name of national security is not a remote possibility. Second, we argue that the security exceptions under existing trade or digital economy agreements can hardly strike a desirable balance between data liberalization and security. Governments should join forces to modernize these exceptions, ideally via multilateral venues, by deliberating on data security goals and regulatory practices to build transparency and trust and lay the groundwork for negotiating more detailed exceptions for data security.