In an era where facial recognition technology is increasingly embedded in daily life, from unlocking smartphones to streamlining payments, China has introduced robust regulations to ensure its responsible use. On March 21, 2025, the Cyberspace Administration of China (CAC) and the Ministry of Public Security (MPS) released the Security Management Measures for the Application of Facial Recognition Technology, effective from June 1, 2025. These measures, supplemented by a clarifying notice from the CAC on March 30, 2025, mandate registration for companies processing facial data of over 100,000 individuals and provide a clear framework for compliance. For British businesses operating in or entering the Chinese market, understanding and adhering to these rules is essential to safeguard operations and protect personal data.

The New Regulatory Landscape

China’s facial recognition regulations are part of a broader effort to strengthen data protection under the Personal Information Protection Law (PIPL), enacted in 2021. The Security Management Measures aim to balance innovation with the protection of individual privacy, addressing concerns about the misuse of sensitive biometric data. The rules apply to any organisation, domestic or foreign, processing facial recognition data in China, with a particular focus on those handling large datasets. According to the CAC, companies storing facial data of more than 100,000 individuals must register with their provincial-level cyberspace administration within 30 working days of reaching this threshold.

Recognising the compliance burden, the CAC introduced a grace period for companies that hit this threshold before June 1, 2025, allowing them until July 14, 2025, to complete registration. This transitional measure reflects China’s pragmatic approach to implementation, ensuring businesses have time to adapt without immediate disruption. Additionally, the CAC issued detailed ‘Instructions for Filling in the Facial Recognition Technology Application Filing System (First Edition)’, accessible via the Personal Information Protection Business System or the National Cyberspace Administration Government Affairs Hall on the CAC’s website. These guidelines outline the registration process, required documentation, and compliance expectations, making it easier for companies to navigate the system.

Why Compliance Matters

Facial recognition technology is widely used in China across sectors like retail, finance and security, but its rapid adoption has raised concerns about privacy and data security. China’s facial recognition market is projected to reach £7.2 billion by 2027, driven by applications in smart cities and public safety. However, high-profile cases, such as the 2021 fine imposed on a Hangzhou zoo for collecting facial data without consent, underscore the risks of non-compliance. The zoo was ordered to delete the data and issue a public apology, highlighting China’s growing emphasis on enforcement.

For British businesses, compliance is not just about avoiding penalties; it’s about building trust in a market where data protection is increasingly scrutinised. Robust cybersecurity measures, including compliance with data laws, are critical for protecting investments in China. Failure to register or properly handle facial data could result in fines, operational restrictions, or reputational damage, particularly for companies in sectors like technology, retail, or hospitality that rely on facial recognition for customer engagement.

How to Register: A Step-by-Step Guide

The registration process is designed to be straightforward, with all steps completed online via the Personal Information Protection Business System. Companies must first create an account on the platform before uploading the required documents, which include:

• A Basic Information Form of Personal Information Processor, detailing the company’s operations and data processing activities.
• A Facial Recognition Technology Application Record Form, outlining the scope and purpose of facial data use.
• A Personal Information Protection Impact Assessment (PIPIA), assessing the legality, necessity, and risks of data processing.
• Scanned copies of the Unified Social Credit Code Certificate, legal representative’s ID, agent’s ID, Power of Attorney, and Letter of Commitment, all stamped with the company’s official seal.

The CAC reviews submissions within 15 working days, updating the application status to “Filing Completed,” “Returned for Improvement,” or “Review Failed.” If supplementary materials are required, companies have 10 working days to provide them, or the process is terminated. The CBBC advises seeking professional support, such as from its Information Systems team, to ensure compliance with China’s data laws and to localise global systems effectively.

Conducting a Personal Information Protection Impact Assessment (PIPIA)

A cornerstone of the new regulations is the requirement to conduct a PIPIA, as mandated by the PIPL. This assessment evaluates the legality, legitimacy, and necessity of facial data processing, alongside the potential impact on individual rights and the effectiveness of protective measures. The Filing Instructions provide a tailored template for facial recognition, requiring companies to disclose technical specifications, data collection and storage methods, standard operating procedures, and the ethical basis for data use. For example, companies must clarify whether facial data is used for automated decision-making, such as targeted advertising, and detail the infrastructure and technology providers involved.

The PIPIA process encourages transparency and accountability, aligning with international best practices. The PIPIA requirement has driven companies to adopt more robust data governance frameworks, enhancing trust among consumers and regulators alike.

Easing the Transition

The CAC’s notice reflects a pragmatic approach to regulation, balancing enforcement with flexibility. The grace period for pre-June 2025 data processors and the detailed Filing Instructions demonstrate China’s commitment to supporting businesses during this transition. For British companies, this is an opportunity to align with China’s evolving data protection regime while leveraging tools like the CBBC’s Business Guides, which offer insights into regulatory compliance and market navigation.

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China’s semiconductor sector has emerged as a cornerstone of its technological ambition, propelled by significant government investment and a strategic push for self-sufficiency. In 2024, the industry was valued at £134.2 billion, with projections indicating a compound annual growth rate (CAGR) of 7.8% from 2025 to 2034, potentially reaching £283.7 billion by 2034. This growth reflects China’s determination to reduce reliance on foreign chips, which accounted for 83% of its £185.5 billion chip consumption in 2020, and to establish itself as a global leader in semiconductor innovation. The sector’s rapid development, driven by advancements in artificial intelligence (AI), 5G, and electric vehicles (EVs), positions China at the forefront of the global tech race, though geopolitical tensions and technological gaps present significant challenges.

China’s semiconductor industry began in earnest during the 1980s, with early efforts like Project 908 and Project 909 aimed at building domestic capabilities. These initiatives, including partnerships with foreign firms like NEC, faced setbacks due to outdated technologies and global market downturns. A pivotal shift occurred in 2014 with the National Integrated Circuit (IC) Industry Investment Fund, or “Big Fund,” which injected £17.6 billion initially, followed by £23.3 billion in 2019 and £36.8 billion in 2023. The “Made in China 2025” strategy set ambitious targets of 40% self-sufficiency by 2020 and 70% by 2025, though the actual figure reached only 30% by 2025, underscoring the complexity of achieving technological autonomy. Despite this, China’s 53.7% share of global chip consumption in 2020 highlights its position as the world’s largest semiconductor market.

Key players dominate China’s semiconductor landscape. Semiconductor Manufacturing International Corporation (SMIC), the country’s largest foundry, reported £9.77 billion in revenue in Q1 2024, a 19.7% year-on-year increase, making it the world’s second-largest pure-play foundry behind Taiwan’s TSMC. SMIC’s production of 7-nanometer chips, such as the Kirin 9000S for Huawei’s Mate 60 Pro, demonstrates its ability to innovate despite U.S. export controls. “SMIC is at most only a few years behind Intel and Samsung,” noted industry analyst Dylan Patel, highlighting its progress in advanced node manufacturing. Hua Hong Semiconductor, the second-largest Chinese chipmaker, holds a 2.6% global market share, focusing on mature node chips. HiSilicon, a Huawei subsidiary, designs advanced chips like the Kirin series, while Yangtze Memory Technologies Corporation (YMTC) has achieved a 5% global market share in NAND flash memory, with plans to surpass 10% by 2027. Other notable firms include Hygon Information Technology, producing x86-based CPUs, and Loongson Technology, developing MIPS-compatible microprocessors for domestic applications.

Opportunities for partnerships are abundant, particularly in mature node manufacturing and emerging technologies. China’s dominance in EVs, with 35 million vehicles projected for 2025, drives demand for power management and sensor chips, creating openings for collaboration with foreign firms. For instance, joint ventures like Vanguard International Semiconductor’s partnership with NXP to form VisionPower Semiconductor Manufacturing Company in Singapore highlight the potential for cross-border cooperation. The rise of 5G, with China projected to have 430 million users by 2025, further fuels demand for advanced chips, offering opportunities for firms specialising in AI and IoT applications. China’s focus on RISC-V architecture, supported by companies like Alibaba’s T-Head, presents a pathway for partnerships in open-source chip design, reducing reliance on Western intellectual property like Arm.

However, the sector faces significant risks. U.S.-led export controls, tightened in October 2023, restrict access to advanced lithography equipment, particularly extreme ultraviolet (EUV) machines critical for sub-5nm chips. ASML, a Dutch firm with a monopoly on EUV technology, remains a chokepoint, as noted by the Federal Reserve: “A single Dutch company, ASML, has 100% market share for the most advanced lithography machines.” China’s Shanghai Micro Electronics Equipment (SMEE) has developed a 28nm lithography machine, but closing the gap to 5nm or below remains a challenge. Geopolitical tensions, including U.S. tariffs and sanctions on firms like Huawei, exacerbate supply chain vulnerabilities. “U.S. trade restrictions on China can hamper its global position as a manufacturing hub,” warned Fortune Business Insights. Overcapacity in legacy chips, driven by aggressive subsidies, risks price wars that could destabilise global markets. Additionally, a talent shortage and high capital costs (SMIC’s 2023 budget rose 18% to £5.82 billion) pose internal challenges.

Growth projections remain optimistic despite these hurdles. The global semiconductor market is expected to grow at a 15% CAGR from 2025 to 2030, reaching £777.7 billion by 2030, with China’s share projected to increase significantly. The memory segment, led by firms like YMTC, is anticipated to surge by 24% in 2025, driven by high-bandwidth memory (HBM) for AI applications. China’s focus on mature nodes (28nm and above), which account for 40% of the global market by 2030, aligns with its strengths in automotive and industrial applications. “Chinese foundry players are performing well in 2024, with a high utilisation rate of around 87% expected in 2025, thanks to the ‘Design by China + Manufacturing in China’ policy,” stated a Wikipedia analysis. Investments in 110 new fab projects since 2014, totalling £151.9 billion, underscore China’s commitment to expanding capacity, with 40 fabs operational and 38 under construction.

The integration of AI and 5G technologies is a key driver of growth. China’s leadership in 5G, with over one million base stations and 80% year-on-year growth in 5G smartphone shipments in 2021, creates a robust domestic market for semiconductors. The automotive sector, particularly EVs and autonomous driving, demands sophisticated chips for battery management and sensors, further boosting demand. “The semiconductor supply chain, spanning design, manufacturing, testing, and advanced packaging, will create a new wave of growth opportunities,” said Galen Zeng, Senior Research Manager at IDC Asia/Pacific. However, the industry’s reliance on government subsidies, estimated at £116.3 billion over the past decade, raises concerns about sustainability and market distortions, as noted by the Semiconductor Industry Association.

China’s semiconductor sector stands at a crossroads, balancing remarkable progress with formidable challenges. Breakthroughs like SMIC’s 7nm chips and YMTC’s 200+ layer NAND flash demonstrate innovation, yet the lack of EUV technology and geopolitical headwinds limit cutting-edge advancements. “It is entirely possible that five or ten years from now there is a far more developed indigenous ecosystem for Chinese chip equipment suppliers,” suggested Feldgoise in a CKGSB Knowledge article, pointing to long-term potential. As China continues to invest heavily and foster partnerships, its semiconductor industry is poised to reshape global supply chains, offering both opportunities and risks for international stakeholders.

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For British businesses eyeing opportunities in this vibrant sector, understanding its scale, key players, and strategic undercurrents is not just useful, it’s essential. From the sprawling factories of Shenzhen to the R&D labs of Beijing, this industry is a complex tapestry of ambition, policy, and relentless growth. Here, we unpack the intricacies of China’s technology and electronics industry, spotlighting opportunities, challenges, and the forces shaping its future, with an eye on what this means for UK firms.

China’s technology and electronics industry: A sector of unrivalled scale

The sheer magnitude of China’s technology and electronics industry is staggering. In 2024, the sector’s revenue surpassed £2.7 trillion, cementing its position as the world’s largest. It accounts for roughly 70% of global smartphone production, 60% of laptops, and an ever-growing share of high-tech components like semiconductors and electric vehicle (EV) systems. Exports drive a significant portion of this, but the domestic market is equally voracious, demanding everything from AI-powered devices to IoT-enabled appliances. This dual engine of production and consumption makes China not just a manufacturing hub but a crucible for technological trends that ripple globally.

At the heart of this ecosystem are titans like Huawei, Xiaomi, Oppo, and Lenovo, which dominate consumer electronics with sleek smartphones, laptops, and wearables. In semiconductors, the Semiconductor Manufacturing International Corporation (SMIC) leads the charge, while tech giants Tencent and Alibaba push boundaries in software, cloud computing, and AI. These companies don’t just compete, they set the pace. Shenzhen is the epicentre, home to global supply chain giants like Foxconn and innovators like DJI, the world’s leading drone manufacturer. Meanwhile, Beijing and Shanghai anchor R&D, excelling in AI, quantum computing, and 5G infrastructure. The Greater Bay Area (GBA), linking Guangdong, Hong Kong, and Macau, has emerged as a unified innovation corridor, amplifying cross-border collaboration and investment.

Special economic zones and regional hubs

China’s tech prowess owes much to its strategic geography. Special Economic Zones (SEZs) like Shenzhen, Zhuhai, and Xiamen, established decades ago, were designed to attract foreign capital and foster technological advancement. Shenzhen, in particular, has transformed from a fishing village into a global tech metropolis, hosting thousands of factories and startups. The GBA initiative has supercharged this, creating a seamless innovation ecosystem that integrates nine mainland cities with Hong Kong and Macau. This region alone generates over £1.2 trillion in GDP, much of it tied to tech and electronics. Beyond the south, Beijing’s Zhongguancun district thrives as an R&D hub, while Shanghai’s Pudong area draws multinationals and startups alike. These clusters aren’t just geographic—they’re policy-driven engines of growth, offering tax incentives, streamlined regulations, and access to vast talent pools.

Growth sectors fueling China’s technology and electronics industry

China’s tech and electronics industry doesn’t operate in isolation; it’s propelled by adjacent sectors that amplify its reach. The renewable energy boom, particularly in solar panels and battery storage, aligns with China’s carbon neutrality goals and powers the electronics supply chain. The electric vehicle market, led by BYD and Nio, is a major driver, demanding advanced electronics for power management, autonomous driving sensors, and infotainment systems. Artificial intelligence is another cornerstone, with China investing heavily to lead in AI adoption by 2030. The rollout of 5G infrastructure, spearheaded by Huawei and ZTE, is transforming connectivity, enabling smart cities and IoT ecosystems. These industries don’t just support tech, they’re symbiotic, creating demand for cutting-edge components and software that keep China’s factories humming.

Government policies and strategic ambition

The Chinese government has made technology and electronics a linchpin of its economic vision, embedding them in successive Five-Year Plans. The 14th Five-Year Plan (2021–2025) places a laser focus on self-reliance, particularly in semiconductors, spurred by global supply chain disruptions and US trade restrictions. The “Big Fund,” a multi-billion-pound initiative, channels investment into domestic chip production, aiming to reduce reliance on foreign suppliers. The “Made in China 2025” strategy, though less publicised now, continues to drive upgrades in smart manufacturing, robotics, and high-tech self-sufficiency. These policies aren’t mere rhetoric—they’re backed by vast subsidies, state-led R&D, and incentives for private firms, creating a formidable ecosystem that’s both competitive and insular.

The shadow of US trade tariffs

US trade tariffs, particularly those intensified under recent administrations, cast a long shadow over China’s tech and electronics industry. In 2024, tariffs on Chinese semiconductors, EVs, and critical components like lithium-ion batteries reached punitive levels, with rates as high as 50% on some goods. These measures, aimed at curbing China’s dominance and protecting US interests, have disrupted supply chains and raised costs. For Chinese firms, the impact is twofold: restricted access to advanced US chips and technology, and pressure to accelerate domestic alternatives, a process that’s costly and technically daunting. SMIC, for instance, has made strides in 7nm chip production but lags behind global leaders like TSMC and Samsung.

For US companies, the tariffs create a double-edged sword. While they shield domestic industries, they inflate costs for American firms reliant on Chinese manufacturing, from Apple to Tesla. UK businesses, meanwhile, face a more nuanced landscape. Unaffected by US tariffs, British firms can position themselves as neutral partners, offering high-quality components, software, or R&D expertise to Chinese companies seeking alternatives to US suppliers. However, navigating this terrain requires caution—geopolitical tensions could spill over, and UK firms must comply with export controls to avoid regulatory pitfalls. The tariffs underscore a broader reality: China’s push for self-reliance will reshape global supply chains, forcing both US and UK companies to adapt.

Challenges and future threats

Beyond tariffs, China’s tech and electronics industry faces significant hurdles. Geopolitical tensions, particularly with the US and its allies, have tightened export controls on advanced chips and equipment, slowing China’s progress in high-end semiconductor manufacturing. Intellectual property disputes remain a sticking point, with foreign firms wary of technology transfer risks. Domestic challenges include rising labour costs, which erode China’s cost advantage, and competition from Southeast Asia, where countries like Vietnam and Malaysia are luring manufacturers with lower wages and fewer trade barriers. Regulatory crackdowns on tech giants, seen in recent years, have also spooked investors, creating uncertainty about the sector’s governance. Looking ahead, these pressures could force China to pivot from volume-driven manufacturing to high-value innovation, a transition that’s far from guaranteed.

Opportunities for British businesses

For British businesses, China’s tech and electronics industry is a land of opportunity, ripe with potential for collaboration and growth. The UK’s strengths in fintech, AI, and green technology dovetail neatly with China’s priorities, opening doors for joint ventures and R&D partnerships. British firms specialising in high-quality components—think sensors for EVs or energy-efficient chips—can tap into China’s voracious demand. The shift towards sustainable tech, driven by China’s net-zero ambitions, creates a niche for UK companies offering circular economy solutions or low-carbon electronics. For example, a British startup developing AI-driven energy management systems could find eager partners in China’s smart city projects.

Navigating this market requires finesse. Building local partnerships, understanding regulatory nuances, and leveraging SEZ incentives are critical. The rewards, however, are substantial. By marrying China’s manufacturing might with Britain’s design and innovation expertise, UK firms can carve out a foothold in a market that’s not just lucrative but pivotal to global tech trends. The China Britain Business Council (CBBC) can be a vital ally here, offering insights and networks to bridge the gap.

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As the NHS embraces social prescribing and China advances the “Healthy China 2030” strategy, the panel examined innovations in preventative care, digital health, and patient-centred approaches, with perspectives from both the private sector and academia.

Elinor Greenhouse, Senior Adviser of Tech and Innovation at CBBC, led the discussion by highlighting the trend towards optimising health rather than simply treating disease. This shift is crucial as populations age and healthcare systems globally face increasing strain.

Sharon Heng, Consultant Ophthalmic Surgeon at Moorfields Private Eye Hospital, reinforced the idea that preventative healthcare encompasses a broad spectrum, forming an integral part of public health. She underscored the importance of screening in identifying potential health issues before they escalate, ensuring that individuals are more actively involved in managing their own well-being.

Gavin Xiaoming Gao, CEO of Penlon Limited, a medical device company, noted a key difference in how preventative healthcare is approached in the UK and China. He explained that while the UK has a well-established preventive care system, in China, it is still a developing concept but a hot topic of discussion. With an increasing emphasis on early intervention, China is rapidly advancing its preventative healthcare initiatives.

Sarah Nolan, Head of Global Programmes at the UK’s National Innovation Centre for Ageing (NICA), brought attention to the merging of medicine with nutrition. She highlighted how, in China, food plays a significant role in health, with specific dietary elements known for their precise medical benefits. This intersection between diet and medicine is a critical component of preventative care that is gaining traction globally.

Vladimir Tsaganov, Head of AI Products and Solutions at Alibaba Cloud International, discussed the role of artificial intelligence (AI) in transforming healthcare. He described AI applications such as population health analysis, medical image processing, and telemedicine. AI has significantly enhanced CT scan analysis and medical imaging, making diagnosis and treatment more efficient and accessible.

Heng elaborated on the role of AI in ophthalmology, explaining how it enhances the efficiency of eye scans and check-ups. While the private sector is beginning to integrate AI into healthcare services, she noted that its impact is currently more pronounced in public health systems.

Nolan emphasised the importance of involving consumers in product design, particularly in health-related services. By integrating consumer feedback from the outset, companies can reduce risk and ensure that their innovations align with real-world needs. She pointed out that older adults — those over 60 — hold the majority of global wealth, making their engagement in health innovation crucial. NICA’s sister organisation, VOICE, aids in identifying market gaps and helping businesses develop solutions that meet consumer demands. Initiatives such as the UK-China Accelerator have been instrumental in fostering collaboration and innovation in this field.

Heng provided an example of a successful initiative in China, citing diabetic retinal screening services as a model for effective preventative care. By leveraging digital healthcare solutions, medical providers in China are making substantial progress in service improvement. She highlighted how digital models of healthcare not only reduce costs but also enable providers to see more patients, improving accessibility and efficiency.

Nolan pointed to innovative solutions emerging from the UK-China Accelerator programme, such as exoskeleton technology, which has the potential to revolutionise rehabilitation and mobility assistance. These advancements exemplify the benefits of international collaboration in driving forward healthcare innovation.

Tsaganov also underscored the cost-effectiveness of cloud technology in healthcare, which facilitates seamless collaboration between China and the UK. He noted that AI’s scalability allows it to be applied to broader population health strategies, enabling healthcare advancements to reach a wider audience.

Gao discussed inward-bound investment opportunities, highlighting the complementary strengths of the UK and China. While UK companies excel in research, development, and advanced technology, China offers cost-effective labour and a robust supply chain. Each country brings unique advantages to the table, and fostering collaboration between them presents a win-win scenario.

Tsaganov spoke about the broader potential of international collaboration in healthcare. He stressed the need for a unified international platform to maximise the benefits of AI-driven medical innovation. China’s ability to scale healthcare technology efficiently could provide valuable lessons for the UK’s National Health Service (NHS), particularly in expanding access to medical care.

Heng touched on the role of education in promoting health awareness and preventative medicine. She pointed out that AI can also expose inequalities in healthcare access, as those without internet connectivity may face barriers to benefiting from digital health advancements. Addressing these disparities is an ongoing challenge that must be tackled alongside technological progress.

Looking to the future, the panel explored how AI and digital healthcare are set to evolve. Tsaganov predicted that data collection will enable highly personalised care, potentially integrating robotics to assist in patient care. Gao identified mental health as an area requiring urgent attention, particularly in developing tailored AI-driven solutions. Heng suggested that biomarkers could be leveraged to detect and treat illnesses at much earlier stages, significantly improving patient outcomes. Nolan reinforced the importance of personalisation in healthcare, particularly in response to rapidly ageing populations. She advocated for passive AI monitoring and underscored the significance of social connection and activity in promoting long-term health. She cited the growing trend of older adults engaging in gaming and leisure activities in China as an example of how technology can support well-being beyond traditional medical interventions.

The discussion concluded with a consensus on the immense potential for UK-China collaboration in digital healthcare. By leveraging each country’s strengths, fostering innovation, and prioritising preventative care, both nations can pave the way for a healthier future.

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Andrew Collier’s China’s Technology War: Why Beijing Took Down its Tech Giants (Palgrave Macmillan, 2022) discusses the political and economic context of China’s tech “crackdown”. Collier was previously the President of the Bank of China International USA, BOC’s US investment arm, and is currently an analyst with Global Source Partners. Paul French caught up with Collier for a closer look at the roots of the tech war, Beijing’s reasons for the restrictions, and where the battle lines are drawn as 2022 ends.

We often see the phrase “China’s tech war” in newspapers, but perhaps we could start with how the restrictions on the growth of China’s technology sector and its major players came about and why?

The Chinese argue that the tech crackdown was just “regulatory catchup” by central government ministries worried about excessive market power. However, the start of the new policies occurred just days after Jack Ma gave a speech in Shanghai accusing the government of being out of touch and inept. There has been a real concern that wealthy companies with widespread popular appeal could pose a threat to the dominance of the Communist Party. Note how the other well-capitalised sector of the economy – real estate developers – have also been taken down. In both cases, there is a regulatory argument, but the implementation has been chaotic, and jobs have been lost at a time when China’s economy is facing headwinds.

The restrictions on Chinese technology companies are often linked to the Party’s ‘common prosperity’ slogan. How does common prosperity impact tech?

The common prosperity slogan has been around for decades, but Xi Jinping has made it a central plank of his policies. In essence, it is a call to more equitably distribute income and withdraw from pell-mell economic growth. It also harkens back to the more hardcore days of Maoism when cultural signifiers were important, and ideology ruled. However, laudable as it might appear, attacking large corporations for excess profits and market dominance cannot alone achieve more equality. China needs to engage in a fundamental restructuring of its tax base and excessive reliance on infrastructure investment. China’s consumption is 30% of GDP compared with 70% in the US. Giving consumers more power over the purse would require the partial dismantling of the state sector, which Xi Jinping appears reluctant to do. I view common prosperity as a populist slogan but no more.

Could you outline the major areas of heightened regulation affecting tech? The focus on data, financial risk, antitrust and Ant Financial offering loans for smaller banks seems to have created what you term ‘an uneven regulatory environment’. How disruptive is this for the sector right now?

The tech crackdown affected most sectors of what is termed the “platform economy.” Online education, transport (like Didi) and financial intermediation have all become targets of the crackdown. I would argue that the key issue for the Chinese leadership is size: how to allow the platform economy to grow – but not too much.  Ant Financial became a very successful lender of consumer funds to small businesses across China. The central bank accused Ant of engaging in risky practices, but the IMF published a paper showing that Ant had a bad loan rate about one-third the size of many of the country’s brick-and-mortar banks. The real risk was that Ant was getting too large and was starting to siphon credit from the state banks, which are the source of cheap credit for China’s giant state firms.

In your book, you say, ‘the technology crackdown, and related policies like common prosperity, do not help the economy move forward, but instead put roadblocks in its place.’ Does this mean that the once rapidly growing “platform economy” is now left in the doldrums in China for the foreseeable future?

China is in desperate need of a new growth engine to replace its historical reliance on cheap labour from women and rural-to-urban migration, along with the excess use of debt for growth. The platform economy provided millions of jobs in food delivery, online taxis and education, among other industries. Many of those jobs are gone. There’s no doubt that some of these jobs were badly paid and provided few worker benefits, but careful regulation could have resolved these problems. Instead, Xi Jinping has turned to a huge push to “hard tech,” such as semiconductors. There is some logic to this policy given the rising US sanctions on technology exports. But many of these state semiconductor and other hard tech funds are squandering capital and leading to excessive competition between provinces. Given its high corporate debt, China can ill afford to waste funds for meagre benefits

In one of the final chapters of your book, you ask ‘How long will the policies regarding China’s technology sector continue?’ Right now, at the end of 2022, where do you see the state of play?

The tone in Beijing is shifting as Xi Jinping extends his term as head of the Party and it appears the government has won its war against the tech giants. We aren’t seeing major support for the platform economy but a modest relaxation of strict controls. However, the same concerns about the power of private capital will make the sector more cautious about investments and slow down the rate of growth. I don’t see a massive turn back unless the semiconductor funds go broke or the employment situation becomes more dire, which is quite possible.

A strategist at a significant Chinese investment bank argued this December that policymakers in Beijing are now trying to relax the leash they put on the tech sector. The analyst pointed to new video game licenses being issued and the fining of Ant Group being a sign they want the case closed and to move on. What do you think of this analysis going into 2023?

China is concentrating its firepower on the semiconductor industry. The country rightly sees the loss of semiconductors from the West as a substantial blow to China’s tech ambitions, especially for large companies like Huawei. The leadership views the platform economy as less important for China’s future (despite the advantages to consumers, which it claims to support), because services are aimed at consumers while semiconductors support infrastructure and exports. Any relaxation will be modest at best, particularly since the threat remains of a domestically popular tech entrepreneur challenging the Party’s dominance.

If you are a British company invested in China’s tech industry, or thinking to get involved, call +44 (0)20 7802 2000 or email enquiries@cbbc.org now to find out how CBBC’s market research and analysis services could help.

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“Mr Science” has made many cameo appearances in the Party’s presentation of the birth of modern China. Now he is set to get his own show. First recruited by the May Fourth movement students of the early 20th century, “Mr Science” has inspired generations of Chinese scientists to push the boundaries in the pursuit of national greatness. Progress personified, President Xi appears keen to resuscitate him — science and technology has become one of his foremost ‘national projects.’ And President Xi is willing to spend. Forget the multibillion-dollar budget of the Marvel Cinematic Universe, the Chinese Communist Party is about to unleash a super-charged legislative agenda intended to see “Mr Science” turn the stuff of dreams into China’s every day. 

Enter the Science and Technological Progress Law (SPTL). The government hopes that its impact on society will be the same: to inspire China to look to infinity and beyond (to quote Buzz Lightyear). At 117 articles long, it is a treatise on adopting a top-down approach to fostering individual innovation. Concerningly for British businesses, the SPTL also contains several clauses that could see foreign firms excluded from public procurement programmes or their innovations commandeered by the Chinese Communist Party.

What is the Science and Technological Progress Law?

China’s leadership has long distinguished itself through its technocratic tendencies, while Western cabinets continue to more commonly consist of classicists rather than chemists. That alone goes a long way to explaining why the country is a leader in both the pursuit of a digital currency and the rollout of 5G technologies, and also now ranks first in terms of the number of filed patents. Take President Xi, for example – he is a chemical engineer and a scholar of Marxist theory by formal training, well versed in the affairs of the Soviet Union, whose government came to typify technocracy. He is far from alone in the top tiers of the Party in that regard. Now his government wants to “promote science and technology as the primary productive force… to support and lead economic and social development and build a modern socialist country in an all-around way.”

The SPTL is not a new law; the Standing Committee of the National People’s Congress has passed revisions to legislation that came into force in 1993 before being revised once prior in 2007. That’s a point for the pedants, though, as CBBC has already heard from members that these changes have turned what used to be a benign piece of legislation that went largely unnoticed – given that the previous version existed as a piece of legislative advocacy rather than enforceable law — into a new non-market access barrier. Indeed, some provinces have reportedly interpreted the STPL as a new requirement to take a ‘China first’ approach to R&D funding and government procurement.

Highlights

The first thing to note is that the Chinese government has designed these amendments to emphasise the state’s role in innovation. President Xi’s approval of certain aspects of the Soviet Union’s approach to governance is well documented (as are his views on why it collapsed) – that the Party should be the determiner of technological progress, and that regulation falls firmly on the list of things to emulate. While the 2007 amendments emphasised more corporate engagement, this time around, lawmakers are putting in place a legal framework to boost state spending on “frontier technologies” such as artificial intelligence and semiconductors.

To that end, the NPC has written in Article 32 to the STPL: “For projects funded by the PRC government, the PRC government could use the resulting achievements with no compensation to the owner.” 

PRC legal pundits writing on the STPL have jumped on Article 32, chiefly because the “no compensation” clause can be triggered in the interests of “national security, national interest, and major social public unrest.” Everything under the sun can be linked to national security in China, from soil samples to basic chemicals that a quick Google search reveals can be bought on Amazon in the UK, and the prevalence with which officials will cite national security in China is only growing. As a result, going forward, British companies collaborating with Chinese partners on R&D may have to be careful about whether the project in question is PRC-funded, should they not wish their output to be used by the government for free.

After decades of entrepreneurs developing technologies and systems that seriously tested the state regulator’s ability to keep up, the STPL is about ensuring that the Communist Party of China is the one calling the shots in the country’s technological development

The revisions to the STPL also include a number of policies to encourage scientific research: 

• Article 41: Tax incentives – any R&D expenses incurred can be deducted from the tax bill
• Article 46: SOEs should up their game when it comes to R&D by pursuing more projects and by developing incentive systems and better ways of assessing their innovative capability
• Article 86: The state will increase the overall level of investment in science and technology
• Article 91: Preference to use products developed domestically in government procurement settings
• Article 92: Encourages IP lending (which is when a borrower receives funds secured on the value of their intellectual property) 

The remaining 101 Articles of the STPL offer little to write home about, predominantly stressing the need to carry various ‘spirits’ into Chinese R&D.

Causes for concern

Nevertheless, there remains plenty for companies to be concerned about. Article 42 is particularly eye catching, for it reads: “The state encourages enterprises to digest, absorb, re-innovate imported technologies.” This might be interpreted as a tacit endorsement of a return to the days when Chinese companies — particularly state-owned enterprises — were incentivised to pursue deals with foreign parties where the overseas firms would find themselves under pressure to transfer their technology in order to get the deal over the line. Then again, the STPL also includes several clauses on the need to continue improving China’s IP regime, so foreign firms will have to wait and see how Article 42 is applied in practice. 

Then there is Article 91, which seems to have PRC lawyers scratching their heads as to whether it is in accordance with World Trade Organisation rules and China’s obligations as a member: 

“Products that represent scientific and technological innovations produced by natural persons, legal persons, and unincorporated persons in China shall be purchased through government procurement under the condition that the indicators of function and quality can meet the needs of government procurement; if they are put on the market for the first time, government procurement shall take the lead in purchasing, and shall not be restricted on the grounds of commercial performance” 

With no further implementation guidance available at the time of writing, the best guess is that if the byproducts of R&D activities come into being within China — be it as the IP of a Chinese company or a foreign-invested entity — the Chinese government has an interest. Similar in intent to Article 32, this clause provides the government with unfettered access to the innovations that, particularly in the case of SOEs, one assumes the state will begin funding even more proactively than it does now. Expect further market distortions in China’s technology sectors if this is the case — how local governments interpret any subsequent guidance handed down in accompaniment to the STPL will be critical to whether Article 91 has a significant impact on industrial markets or not.

The CBBC view 

China’s scientists are to be put on a pedestal. While the Science and Technological Progress Law contains some worrying clauses for foreign businesses in China’s industrial markets, they are not the intended recipient. This legislation is about giving the government a legal basis to go big on tech. It is also about ensuring that the Communist Party of China is the one calling the shots in the country’s technological development, after decades of entrepreneurs developing technologies and systems that seriously tested the state regulator’s ability to keep up.

There are also the Party’s aspirations that further investment into the R&D activities of SOEs and universities will create more jobs, which it undoubtedly will — particularly for the hundreds of thousands of STEM graduates that leave university each year to enter an astoundingly competitive labour market. But China’s issues with relying on the SOEs to be the main source of the country’s ability to be innovative are well documented.

Science is being brought to the fore; the Party hopes to engineer the country’s achievements in science and technology into a source of national pride. Although China might have jumped the gun in its race to achieve technological supremacy, is the country ready to go it alone, as this legislation strongly suggests? Only time will tell.

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The People’s Bank of China (PBOC) recently released its Fintech Development Plan for 2022-2025, which seeks to further develop China’s fintech sector and drive the digital transformation of finance in the country over the next four years. The new plan emphasises ‘building momentum’ on the basis of  ‘accumulation’ to boost the sector’s progress by 2025. The new fintech development plan is based on China’s 14th Five Year Plan, a roadmap for China’s social and economic development in the period between 2021 and 2025.

The term fintech includes a variety of technology-enabled financial activities, such as mobile payments, digital banking and online insurance. Moreover, fintech also includes the development and use of cryptocurrency, although this aspect of fintech is banned in China.

This article reviews the development of fintech in China, outlines the country’s strategies and main tasks for the fintech sector in 2022-2025, and takes a closer look at the key points of the new fintech development plan.

The history of fintech in China

In China, the development of fintech can be divided into three stages:

• Finance computerising stage (1993—2004): The PBOC and other financial institutions began to digitise their back offices and services. Typical applications include ATM, POS, bank’s core transaction system, credit system, clearing system, etc.
• Internet finance stage (2004—2016): Financial institutions or Internet companies started to build online platforms, gather users, and use mobile internet technology to transform traditional financial services. The asset end, transaction end, payment end, and capital end of finance are connected by technology into the same network. During this stage, some fintech elements such as online securities account opening, online banking systems, P2P lending, and mobile payments were expanded rapidly.
• Fintech stage (2016—present): Unlike the Internet finance stage, fintech is broader in scope. In addition to Internet technology, more emerging technologies, such as big data, cloud computing, artificial intelligence and blockchain are merged into the field of financial business to change or create new financial products or services, lower transaction costs, and improve operational efficiency. Representative applications include big data credit investigation, intelligent investment, and supply chain finance.

Today, fintech is a major part of public life in China. According to the Ernst & Young Fintech Adoption Index, the adoption rate of consumer fintech in China reached 87% in 2019, meaning that 87% of China’s digitally active population use at least one fintech service in their daily life. For anyone who has spent time in China and experienced the ubiquity of WeChat/Alipay, this will come as no surprise. The adoption rate is expected to grow as fintech becomes more accessible to rural populations.

What are the goals of the Fintech Development Plan?

China wants to have a ‘digitalised, intelligent, green and fair’ fintech sector that can give strong support to the implementation of strategies such as innovation-driven development, digital economy, rural revitalisation and carbon peak and carbon neutrality.

As with all Chinese government plans, it is worth reading beyond the jargon to find out what the plan actually means.

Enhancing regulatory supervision

After a long period of being hands-off in their regulatory approach, the Chinese government is now paying close attention to the balance between fintech innovation and regulation. It still wants the fintech market to grow but in a regulated way instead of unchecked expansion.

In 2020, China started to scrutinise the internet finance industry, suspending Ant Group’s US$37 billion IPO. In 2021, China launched a broader anti-monopoly campaign against tech giants and intensified supervision of data collection as well as privacy protection in the fintech domain. The country’s leading fintech players, including Ant Group, Tencent and Didi, were all hit by fines and increased regulatory scrutiny.

Privacy and data protection

Privacy and data protection – which dominated China’s regulatory landscape in 2021 – is also highlighted in the Fintech Development Plan for 2022-2025. The plan indicates that China will make a series of supporting regulations and policies to implement relevant provisions of the Cybersecurity Law, the Data Security Law (DSL) and the Personal Information Protection Law (PIPL) in the fintech area.

Low carbon and green fintech

In September 2020, President Xi Jinping pledged that China would hit its carbon emission peak before 2030 and become carbon neutral before 2060. To achieve this goal, no industry can just stand by, including the fintech sector.

In addition to the integration of fintech and green financing, the plan proposes to build green data centres and systems based on advanced technologies, putting forward clear goals for the power usage effectiveness (PUE) values of data centres. PUE is the ratio of the total amount of power used by a data centre to the amount of power delivered to computing equipment. It describes how efficiently a data centre uses energy — an ideal PUE is 1.0. The plan aims for PUEs of 1.3-1.5; the PUE values of most data centres in China are currently above 2.2.

Fair and inclusive

One of the main challenges faced by China’s fintech sector is unbalanced growth among different regions and groups. The Fintech Development Plan for 2022-2025 tries to address this issue by making the fintech sector fairer and more inclusive.

In the field of rural finance, with the help of technologies such as the Internet of Things, satellite remote sensing and electronic enclosures, the plan aims to achieve automatic data collection and improve traceability for agriculture, while also increasing the penetration rate of fintech in rural areas.

For special groups, including older adults, those with disabilities and minority groups, the plan proposes the application of accessible financial products and services, such as large-character versions, voice versions and minority language translations.

Despite the ongoing crackdown on tech giants and greater regulatory scrutiny of the fintech sector, the Fintech Development Plan 2025 indicates that fintech is a prioritised area for development in China. Through the second iteration of the Fintech Development Plan, China wants to build momentum to achieve significant improvement in the sector’s core competitiveness by 2025. To translate this into plain language, the fintech domain is still encouraged in China and supported by the government, but China wants the sector to develop in a regulated, more balanced, and high-quality way.

A version of this article was first published by China Briefing, which is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world. 

The post What’s in China’s Fintech Development Plan for 2022-2025 appeared first on Focus - China Britain Business Council.

As China endeavours to shift from a low-end mass manufacturer to a high-end producer, the government has doubled down on encouraging targeted investments in R&D and technological innovation. The ongoing technology confrontation with the US is another factor at play, impacting a wide range of segments from access to chips and other key input technologies and products. This has resulted in increased government support for the technology sector as a strategic one and for which government support has increased.

This article summarises the major tax incentives to encourage technology innovation currently available in China and how they can help UK businesses.

High and new technology enterprises (HNTEs)

HNTE treatment, which reduces a qualified taxpayer’s applicable corporate income tax (CIT) rate from the standard 25% to 15%, is one of the core tax incentives encouraging innovation in China.

In addition to the lower CIT rate, starting from 1 January 2018 for qualified HTNEs, losses that occur five years prior to the year in which they become qualified and have not been made up can be carried forward to subsequent years to be made up. The maximum carry-forward period has also been increased to 10 years (usually only five years).

To qualify for HNTE status, a company must meet a range of criteria, including owning the intellectual property rights for the core technology of its main product or service, and having more than 10% of its total staff engaging in R&D.

Starting in 2021, certain companies in Beijing can qualify for HTNE status with lower qualifications or via simplified procedures. To be eligible, a company must be a production and research enterprise engaging in integrated circuits, artificial intelligence, biopharmaceuticals, or key materials, with a reported annual revenue of over RMB 20 million; be registered in Beijing and be in operation for over a year; and spend at least 50% of total R&D expenses within China.

Qualified companies are required to provide far fewer materials than usual to apply for HNTE status, which can be submitted online. The National HNTE Leading Team Office will approve the application soon after the it has undergone expert assessment and review by the HNTE accreditation authority. The public comment procedure is also exempted, meaning overall turnaround time is much shorter.

Technology-based small and medium-sized enterprises (TSMEs)

TSMEs fall under the scope of SMEs that conduct technology-based activities and have scientific and technological personnel who are involved in R&D activities and obtain IP for creating high-tech products or services.

Unlike HNTEs, TSME status has special requirements on an enterprise’s number of total employees (no more than 500), annual sales revenue, and total assets (no more than RMB 200 million). On the other hand, while becoming an HNTE requires that the core technology of a company’s key products or services is specially encouraged by the state and the ratio of income from high-tech related operations against total income is not lower than 60% in the current period, TSMEs have no such requirements. In general, it is easier to apply for TSME status for smaller businesses.

Advanced technology service enterprises (ATSEs)

ATSE status is another core innovation tax policy to encourage the provision of information technology outsourcing (ITO), business process outsourcing (BPO), or knowledge process outsourcing (KPO) services to overseas entities. To be qualified as an ATSE, an enterprise must fulfil a range of requirements, including more than 50% of its staff holding a college degree or above.

Originally launched in the Suzhou Industrial Park in 2016, the ATSE incentive was rolled out nationwide in 2017, reducing the corporate income tax rate for a qualified ATSE from the standard 25% to 15%, similar to HNTEs.

In addition, ATSEs are subject to zero VAT for the provision of certain offshore services, which means they can be exempted where a simple tax computation method is applicable, or they can use the tax exemption, credit, and refund method where a VAT general tax computation method is applicable.

Summary

Beyond the major innovation tax policies introduced above, there are other preferential policies designed to encourage the development of the tech sector, such as the tax incentives for the integrated circuit and software sector and faster refund of VAT incremental credit balance for advanced manufacturing taxpayers.

Businesses in China may find documentation requirements and application procedures tough going if they are not familiar with the established tax system and eligibility criteria for accessing supportive measures. It is recommended that potentially qualified enterprises carefully study the application requirements for each incentive and choose one or more best suited to their own situation. For example, ATSE status is more suitable for an enterprise that doesn’t own the local IP rights of the key technologies of its core products or services, since HNTE status has local IP requirements.

A version of this article was first published by China Briefing, which is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world. Readers may write to info@dezshira.com for more support.

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There are three major components to Singles’ Day (falling on 11 November and also known as 11.11 or Double 11) that brands need to take into consideration: the pre-warm-up, the warm-up and the day itself.

The pre-warm-up period involves trying to build brand awareness, increasing sales within your store and negotiating with the platforms for resources that can be provided to support traffic. Often brands will use social media campaigns to create noise and hype, as well as using live streaming to ramp up sales. This takes place from early September until the first day of pre-sales.

Pre-sales start on 20 October, and the first day usually brings strong sales and headlines from the larger live streamers. During this period, consumers will pay deposits for products that they will later check out if they still feel the same way towards the end of the pre-sale period. Most traffic is produced on the first and last days of the pre-sales period. Brands usually spend most of their time driving as much traffic as possible through in-app display marketing on platforms like Taobao and JD.com. Social media, although still useful in this period, loses its effect as KOLs cannot provide attractive enough VIP discounts since most products are already relatively discounted.

During the 11.11 warm-up period, platforms such as Xiaohongshu should first be used to build up hype and noise (depending on the brand category). Another important note regarding Xiaohongshu is that a lot of the content does not necessarily trend for weeks after it is posted, so it gives more time for that content to grow.

Later, nearer to the day itself, WeChat and Douyin can be used to amplify noise and drive sales as more direct-to-sale platforms. Finally, once the brand enters into the discount stage and sales have started to reach their peak, live streaming can then be turned on. It is crucial to book live steamers far in advance as once the festival nears, many streamers become overpriced. It is suggested that brands focus on non-celebrity streamers (sometimes known as micro-influencers or key opinion creators) who can provide a better ROI. It is important to note that although the top five streamers in any category generally provide the best ROI, live streaming is always a risk and the ROI of streams from the same person can change tremendously.

Finally, the big day, 11 November, arrives. The majority of sales take place on this day and traffic is at its highest by far. All brands listed on e-commerce platforms will see some form of an increase in sales regardless of their discounts as traffic on platforms skyrockets. Most shoppers will log on during the early hours of the morning in order to get the very best deals on offer and many of the larger stores will see stock sell out of their best value items before midday.

In order to have an effective Singles’ Day, brands need to ensure that they take part in all three stages of the journey.

In order to have an effective Singles’ Day, brands need to ensure that they take part in all three stages of the journey. What is clear for many newer brands in the market is that jumping online in time for Singles’ Day will not achieve sales targets, and if they miss out on previous stages or have not built sufficient sales, they may find that they have a disappointing event overall.

Another prerequisite is pricing and profitability. Singles’ Day does not simply function as a time for brands to cash in on the hard work of building brand recognition and loyalty; rather, it is a time to once again invest in increasing the profile of your store, lift sales, welcome first-time consumers, and then prepare for the year ahead. Discounting, live streaming commissions and other costs mean that volume, rather than profitability, is the main goal.

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