I first visited Guizhou five years ago. It was an exotic visit to one of the poorest provinces in China. There was plenty of talk about how the southern frontier provinces of Yunnan, Guizhou and Guangxi had been mandated by Beijing to take the lead in developing economic ties with India and other countries close to their borders.
The obligatory flurry of grand events and delegation visits that frequently accompany such announcements in China had begun. Guiyang, Guizhou’s capital, already had China-quality expressways and a new city was coming up in the suburbs to act as a catalyst for the upcoming spur in economic activity. The specifics of which industries or companies would play a role in this economic rejuvenation was still unclear.
On subsequent visits, I started meeting some companies which had started formulating plans for the Indian market. Interestingly I also picked up frequent references to the newly coined term ‘big data’. I initially put it down to the possibility that as an Indian I was being subjected to a customized “IT pitch” by the hosts.
When I made another trip as part of a CII delegation this summary pitch had turned into full-fledged campaign. An MoU was also signed between the local government, a local university and India’s NIIT for training of data engineers. A grand Big Data Expo was also held in 2016 to herald the province’s foray into Big Data. A mammoth-sized data center which resembled a slice of Silicon Valley had also been constructed. Names of several global internet giants were being dropped but the identity of the first large client who would shift its cloud servers to Guiyang remained elusive. Soon China Mobile, China Unicom and China Telecom launched their data centers. This was followed by commitments from Alibaba and Tencent. No surprises here.
Last week Apple officially moved its iCloud data storage center to Guiyang after making an announcement last July. Nothing short of a coup this is for Guizhou. Well done!
Now behind this is also an evolving legal framework. China adopted a ‘data localization’ policy in its draft Cyber Security Law in 2016. This provision mandates personal information collected from Chinese nationals to be stored within the country. In July 2017 many parts of the new law came into force but implementation of the data localization requirement was postponed to 2018. During this period, a slew of companies including AirBnb, LinkedIn, Evernote and Uber have already established their cloud storage centers in China.
India is yet to implement such a data localization policy. In November 2017, a Committee of Experts set up by the Ministry of Electronics and Information Technology (Meity) issued a 200-page long white paper on a data protection framework for India. Six pages of the report are devoted to data localization. On a closer reading the paper appears to have taken a pro-US industry approach.
After all data localization will require US internet companies to make substantial investments in India. It makes a strong economic argument to advocate against data localization stating, “According to studies in countries that are considering or have considered forced data localisation laws, local companies would be required to pay 30-60% more for their computing needs than if they could go outside the country‘s borders” and then ends by saying “while data localisation may be considered in certain sensitive sectors, it may not be advisable to prescribe it across the board”. Interesting.
This suggests that Indian companies will spend more for their data storage if the Indian government forces data to be stored within our borders rather than in a foreign country. I decided to spend a few more minutes to investigate the source of data used by this committee of experts. A footnote in their white paper suggests that the finding that data localization will make storage costs more expensive is attributed to a paper published by a graduate student in 2016 and freely available on the internet here. With my curiosity piqued I read the short but comprehensive paper. It also explains the political and security aspects of data localization which it describes as ‘Balkanization’.
It pays lip service to a few benefits of data localization such as employment generation but concludes that overall it is a regressive move. Maybe. But how did a LLM student arrive at a conclusion that data localization will increase storage costs? Isn’t this quite a complex economic question? Again the footnote is revealing. It cites a study commissioned by the US Chamber of Commerce and published in 2013. This was around the same time that I visited Guizhou for the first time.
At this point I lost interest in internet research. Hasn’t data storage technology changed in the last five years? Haven’t costs reduced dramatically? Won’t implementing data localization in India attract foreign investment, create jobs, create demand for electricity and spur growth in our debt ridden power sector? These are complex questions and I am no expert on data storage or cyber security.
Most Western internet companies have far more users in English-speaking India than in China. This makes India a far more precious market for them in the long term. A legal requirement to store data of Indians within India will require them to make more investments in India. They will grudgingly comply just as they did in China. Interestingly the Indian Supreme Court issued notices to Google, Facebook and Twitter in a case relating to data privacy standards of WhatsApp in September 2017 when it found out that their Indian subsidiaries have little control over the data of Indians which are stored overseas thus making it extremely difficult for Indian regulators to obtain access or regulate storage of personal data of Indian users. So there is a real problem here.
Here is my point. The India-China discourse is littered with statements to the effect that since India is a democracy we cannot afford to swiftly implement many measures that China embraces with little reluctance. I am only talking about measures that impact the economy not political ones. The ‘cost of democracy’ is cited as an excuse for all ills that plague India especially in conversations that involve China. Well, indeed we should be proud of being a democracy but should we settle for ill-informed decision making?
Suppose an Indian committee of experts had visited Guizhou and met with the local government they might have been able to learn more about the economic rationale that sparked the creation of a data storage hub in Guiyang. A decent amount current data, future projections, pros and cons of data localization, etc. might have been shared. After all, China is a planned economy so a governmental budget of several hundreds of million dollars to create a new industry ecosystem doesn’t get sanctioned without a fair amount of paperwork. There are many states in India which are more backward than Guizhou. If creating a data storage hub is helping to transform Guizhou’s economy then I am certain some good might come out of it in India too.
Again, I reiterate that I am no expert on data localization and maybe India should not adopt it. I only want to illustrate that there are plenty of opportunities for India and China to co-operate that are simply not taken up due to what appears to be our inability to be a keen learner in this relationship. Do you agree?
Santosh Pai is a partner and founder of the China practice at Link Legal, an Indian law firm. He has been advising Chinese companies in India since 2010. Apart from law qualifications in India and the UK, he also holds a Master’s degree in Chinese law from Tsinghua University and has undertaken an MBA program in Peking University. He has lived in China for five years and traveled to more than 40 cities. He teaches a course on Legal Aspects of India-China business at IIM, Shillong. He writes and speaks frequently on a variety of India-China topics, and has been quoted by several leading publications. He can be reached at firstname.lastname@example.org