Nationalisation is coming to China's data centres

ANYONE in China who creates, collects, stores, processes or sells data should consider themselves on notice: Nationalisation is coming.

Ant Group Co is about to have its credit-scoring business taken over by stated-backed firms, Reuters reported on Wednesday. It's safe to say that the Alibaba Group Holding Ltd affiliate itself doesn't have much say in the matter. Under the restructuring, according to Reuters, Ant will become a minority holder in a joint venture that will own the fintech company's repository of data on more than one billion users.

As yet, there's no suggestion that Ant will lose control over its suite of products, including lending and payments. This is purely about the data.

That said, Ant has been copping it from all sides over the past year: from its aborted listing in November to concerns over a probe of top political leaders in its home city of Hangzhou last month. These controversies - which include regulatory scrutiny of its broad reach within the financial industry - could explain various concessions it has made, including taking only a 50 per cent stake in a new consumer finance business that won approval in June.

However, it would be a mistake to believe that Ant being forced to forfeit control over its data trove, and its related credit-scoring business, was targeted solely at the company and its past troubles.

In reality, Ant is not alone. Other major collectors and users of data have faced fresh injections of Beijing control to various degrees.

ByteDance Ltd is best known internationally for its TikTok short video service. Yet most of its revenue comes from China, with a vast product offering that extends into news aggregation, augmented reality, translation and analytics. Such services mean it stores reams of data.

Beijing is watching

Beijing is aware, and quietly installed a director onto the board of ByteDance's local subsidiary, Beijing ByteDance, earlier this year. In the process the unit also sold 1 per cent of its shares to entities that include China's Internet regulator, Bloomberg News reported in August. That tiny stake pales in comparison to the massive concession Ant made, but having a government official placed on your board is a clear signal that Beijing is watching.

Meanwhile, Didi Global Inc, the nation's leading ride-hailing provider, looks set to face a similar predicament. The company may hand over control of its data to a third party, one that is likely to be state-owned, Bloomberg News wrote. That possible move is being billed as Didi's attempt to appease Beijing after its decision to go ahead with a US IPO despite pushback from the Cyberspace Administration of China.

The desire to make amends for perceived transgressions only partially explains Chinese companies' apparent willingness to cede control over their data. In reality, they're about as amenable as a recalcitrant child agreeing to be grounded. We should instead look at previous wrongdoings as mere regulatory leverage. The past two decades of free-wheeling Chinese industrial development can surely turn up more infractions should the government have the need.

Instead the transference of data into state hands is part of President Xi Jinping's broader neo-Cultural Revolution that will give him more control over content, culture, capital and commerce. For its part, the government has explained its crackdowns as being part of efforts to protect consumers and create "common prosperity" - meaning a more equitable distribution of wealth.

In August, the government approved a broad privacy law that's somewhat modelled on Europe's General Data Protection Regulation. Beyond restricting the data that organisations can collate, the new rules open the door for the government to have deep access to whatever information is held by any entity in the country.

But having data delivered upon request isn't so helpful. The very definition of data is open to interpretation, while knowing what is collated and available is as important as being able to access it. Beijing doesn't want to drink from a fire hose of data when instead it can elect to have a fridge full of bottled water within arm's reach.

To get there, though, we may see more and more data repositories, like Ant and its credit-scoring service, fall under direct or indirect government control, including the real-time processing and analysis that comes with it. Beijing's message to companies is clear: Your data belongs to us. Right now that edict is merely figurative. Before long, it could be literal. BLOOMBERG