Oct 11, 2023 - World

China data brokers find opportunity amid growing restrictions

Illustration of an open door with binary code spilling out.

Illustration: Shoshana Gordon/Axios

A growing web of U.S. restrictions on trade and investment in China — combined with China's own tightening rules — is fueling a market for China-related data.

Why it matters: U.S. businesses and lawmakers need accurate data about Chinese companies and the country's economy to make decisions, ensure compliance and formulate policies, but Beijing is increasingly limiting access to that information.

What's happening: Open-source intelligence companies are seeing a business opportunity amid rising demand for China-related business and economic data.

  • "Private-sector actors are increasingly relying upon a range of commercially available data to comply with sanctions and other legal obligations, such as anti-money laundering, anti-corruption and forced labor," Alex Zerden, founder of Capitol Peak Strategies and a former U.S. Treasury official, told Axios.

Driving the news: Last week, the U.S. Commerce Department added 42 more Chinese companies to an export control list for their support of Russia's military, a move that China's Foreign Ministry called "economic coercion and unilateral bullying," Reuters reports.

  • In October 2022, the administration blocked U.S. exports of advanced computing chips and components to China.
  • In order to comply with trade restrictions, U.S. companies need access to corporate ownership structure and procurement information for the Chinese companies they work with.

What they're saying: "There's no question that better insight into China is front and center in policymakers' minds," said Martijn Rasser, who manages U.S. operations at Datenna, a Dutch open-source intelligence company that opened a U.S. subsidiary this year amid rising government demand.

  • Datenna focuses on U.S. government clients and provides "information that helps people better understand who they are doing business with, what their role is in China's economy, and how those companies and people within those companies interact with each other," Rasser said.
  • "We're in the middle of a strategic competition with China. You have to understand what your competitor is doing. The better insight you have, the better the odds are that you pursue policies that will ensure that you can effectively compete for the long term."

The intrigue: This year, Chinese authorities restricted overseas access to many kinds of data, including business databases like Qichacha, financial database Wind Information, and journal article database CNKI, as well as an ever-expanding set of economic information including youth unemployment statistics.

  • There have long been doubts about the accuracy of Chinese government-provided statistics about economic growth, and those concerns have only intensified this year as the Chinese economy has sputtered and the Chinese government has put pressure on economists to avoid making negative comments about the economy.
  • Authorities have also cracked down on foreign auditors and due diligence firms operating in China, and the country's recently expanded anti-espionage law now applies a national security lens to many kinds of data sharing.
  • The data restrictions have come in part as a comprehensive data regulation regime the Chinese government has constructed over the past few years. They are also a direct response to the publication of reports by U.S. think tanks on topics the Chinese Communist Party views as sensitive, such as the use of civilian technology for military purposes.

Between the lines: "At the heart of it is a national security concern in [the CCP's] eyes," Liza Tobin, senior director of research and analysis for economy at the Special Competitive Studies Project and former China director at the National Security Council under the Trump and Biden administrations, told Axios.

  • "If it's data about the Chinese government, if it's about things going on in China that could put China in a negative light, they don't want that out there," she said.
  • National security is reaching "into all domains of life in China."

What to watch: Biden's executive order on outbound investment screening, though limited in scope, will place unprecedented requirements on U.S. companies to perform greater due diligence on their partners in China and to submit data back to the U.S. government about certain investments there.

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