Deal over dim sum: China caves to EU on data to keep investors sweet

BRUSSELS — When EU digital chief Věra Jourová sat down in Beijing with a senior Chinese official in September, her complaint list was as long as the 11-course dinner her host had prepared.

Sore points included Beijing’s disinformation campaigns, electoral interference, state control over Artificial Intelligence development, and ties with Russia.

Predictably, Jourová didn’t get many straight answers from her counterpart, Vice Premier Zhang Guoqing. It’s a nail-biting time to be a politician in China, as major figures such as Qin Gang and Li Shangfu have recently been purged as foreign and defense ministers, and no one wants to be accused of making big concessions to the West.

Then, in a sudden surprise initiative, Zhang said he was ready to offer a goodie to European businesses facing an increasingly hostile political environment in President Xi Jinping’s China. He explained Beijing was willing to move on data flows — a sphere where China has been trying to curb the ability of foreign companies to export data generated within the country. All that data is a goldmine for European business, but China guards it zealously.

A deal on data flows was a big call from Zhang, but can be explained by China’s growing fears about its precarious economy. While security is front-and-center to Chinese policymakers, they also know they have to offer some big carrots to keep foreign investors onside.

“You could feel that something clicked on the spot,” said an EU official with knowledge of the discussion, recalling the heated debates on data over Chinese delicacies like beef in lotus leaves and dim sum.

Although the dinner happened in September, three officials with knowledge of China’s switching tack have only now explained how the change of heart in Beijing came about.

“The vice-premier told her he understood the proposal makes sense, and asked the relevant authorities to take the matter forward,” the first official said. Zhang immediately turned to his junior colleagues from the Cyberspace Administration of China and the Ministry of Industry and Information Technology. “You had a feeling that that was the moment the big guy gave the go-ahead.”

According to another official, when Trade Commissioner Valdis Dombrovskis visited Beijing shortly after Jourová, he received the final confirmation of the changes to the data laws from his counterpart, Vice Premier He Lifeng, an influential economic aide to President Xi Jinping.

Shortly afterward, China agreed to reverse the burden of proof under the relevant laws, allowing most data stored in China to be transferred out of the country unless expressly excluded by the authorities. EU officials, though, cautioned that they’ll still wait to see how Chinese authorities at all levels implement the new provision.

Special gift to Europe

Even though U.S., Japanese and other companies had also been pushing for this kind of measure from Beijing on data, China offered the diplomatic win to the EU.

The European Union Chamber of Commerce, among the first to be notified when Beijing made the legal revision, sent Jourová a congratulatory letter, seen by POLITICO.

“Make no mistake, China is merely fixing a problem of its own making,” the second official noted. “It’s not an act of benevolence. It’s an act of self-correction.”

Still, that self-correction is far from a given under a nationalistic government facing stiff competition from the U.S.

Increasingly, China’s uncompromising ideological focus is forcing many companies to adjust their business strategies, including by taking their new investments out of China. Indeed, the EU and the rest of the G7 rich democracies are calling on their companies to “de-risk,” as Russia’s war against Ukraine prompts concerns about a possible Chinese invasion of Taiwan.

According to a report issued Wednesday by Penta, a business research group, one in five EU policymakers considers China to be the most pressing issue facing the bloc — while only 16 percent of people say they’re open to working with companies from China, bottom of the list.

It’s against this backdrop that Beijing wants — and needs — to throw some bones to the EU.

“For sure there’s a lot of self-interest for China [to give EU the data deal], where there’s a sharp drop of foreign direct investment which China desperately needs,” the first official said.

Over the past three months, Beijing has welcomed a long line of EU officials in a thaw from the 2021 low point where China’s sanctions on EU politicians and intellectuals were followed by an indefinite freeze of a massive EU-China trade deal, which remains unratified.

Commission President Ursula von der Leyen and her European Council counterpart Charles Michel are expected to attend an EU-China Summit in December and meet Chinese President Xi Jinping.

EU officials should use China’s underperforming economy — most specifically in the real estate sector — as leverage, according to Luisa Santos, deputy director of BusinessEurope, a Brussels-based lobby group, who is currently visiting China.

Speaking before her trip, Santos described the Chinese economy as “not in a great situation,” adding that EU officials should seize this opportunity to convince Beijing to open up further.

“China needs to recognize that what is happening in our bilateral relationship is something that is not sustainable,” she said.