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Hong Kong warned over economic costs of tightening data rules

A Washington-based think-tank has warned that Hong Kong could lose 5.7 per cent of its potential trade volume in five years if the city falls into line with Beijing’s desire for stricter control of international data flows, as the city mulls changes to its data laws.

Currently, Hong Kong does not have any restrictions on cross-border data transfers but Beijing’s drive for more control over cybersecurity threatens this openness, the Information Technology and Innovation Foundation (ITIF) said in a report published on Monday.

If Hong Kong puts in place data localisation policies, it will see import prices increase 1.5 per cent in five years, while trade volume and imports may decline about 5.7 per cent and 6.8 per cent respectively, according to the ITIF.

“Data localisation is a mistake for all countries, but it’s especially costly for smaller economies like Hong Kong because it deters foreign investment,” wrote Nigel Cory, an associate director of the ITIF and one of the authors of the report.

Hong Kong’s data protection law, the Personal Data (Privacy) Ordinance, was a pioneereeing piece of legislation when it went effect in 1996, but it is increasingly considered outdated as countries around the world put in place more comprehensive data regimes.

The Hong Kong law does not require user consent for the collection and processing of personal data, and there are no obligations for reporting data breaches. An amendment that is designed to add scrutiny of cross-border data flows between Hong Kong and other jurisdictions has yet to take effect.

Last year, China passed the Data Security Law and the Personal Information Protection Law, which along with a growing web of data regulations, aim to keep what Beijing deems as important and sensitive data exclusively within the mainland.

The more liberal data regime in Hong Kong means that data transfers between the mainland and the city could potentially come under scrutiny, which could raise concerns about Hong Kong’s status as a business and data hub, some experts previously told the Post.

As both Beijing and the Hong Kong government push for closer integration amid plans such as the Greater Bay Area – an economic zone in southern China consisting of Hong Kong, Macau and the mainland province of Guangdong – one solution would be for Hong Kong to upgrade its data laws with more protection measures, experts have told the Post.

Hong Kong is also talking to the central government about possible plans to make it easier for data to be transferred from the mainland to the city, including a potential mechanism that bans data coming from the mainland from leaving the city.

However, the ITIF warns that such localisation efforts may “send another troubling signal to global businesses”.

“The central challenge for Hong Kong is how to balance efforts to maintain its position as a digital-savvy tech hub with mainland China’s growing efforts to exert a greater degree of control over the region’s digital life and economy with vague and restrictive cybersecurity and national security laws,” the ITIF wrote. South China Morning Post

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