China Releases Draft Regulations on Network Data Security Management

On November 14, 2021, the Cyberspace Administration of China (“CAC”) released for public comment its draft Regulations on Network Data Security Management (the “Draft Regulations”). The Draft Regulations are intended to implement portions of three existing laws – the Cybersecurity Law (“CSL”), the Data Security Law (“DSL”) and the Personal Information Protection Law (“PIPL”) (together, the “Three Laws”) – by providing guidance on certain provisions and establishing specific requirements for implementing certain principles contemplated in the Three Laws. In addition, the Draft Regulations add new requirements related to data processing activities. Once effective, the Draft Regulations will impose even greater compliance obligations on companies than the PIPL.

The Draft Regulations consist of 75 articles and nine chapters. In this blog post, we discuss several of the key areas addressed by the Draft Regulations.

Scope of Jurisdiction

The exterritorial scope under the Draft Regulations is much broader than that under the Three Laws. The Draft Regulations will apply to the following two scenarios:

  1. If the network data processing activity occurs in China; and
  2. If the network data processing activity occurs outside of China but relates to individuals and organizations in China, if the purpose of the processing is to:
    • offer goods or services in China;
    • monitor and evaluate the activities of individuals and organizations in China;
    • process “important data” located in China; or
    • comply with any conditions under other Chinese law and regulation.

Data Handler and Entrusted Party

The definition of “data handler” under the Draft Regulations is similar to that of “data controller” in other privacy laws, such as the EU General Data Protection Regulation (“GDPR”). While the GDPR distinguishes between a data controller, who determines the means and purposes of processing personal data, and a data processor, who processes personal data on behalf of the controller, the Draft Regulations do not formally define the concept of a data processor. Under the Draft Regulations, when a data handler entrusts a third party to process personal information on behalf of the data handler, this third party will be referred to as the “entrusted party” or the “contracting party.”

Data Classification and the Multi-Level Protection Scheme

Under the Draft Regulations, data is categorized as (1) general data, (2) important data or (3) core data, depending on the data’s impact and degree of importance to national security and public interests. Consistent with the CSL and DSL, the Draft Regulations will require these categories of data to be protected based on China’s Multi-Level Protection Scheme (“MLPS”), which mandates data security standards for different classifications of data. For example, data handlers will be required to implement security measures (e.g., data back-ups, encryption, access controls) and strengthen protections around their data processing systems, transmission networks and storage environments, based on the MLPS.

Data Breach

Unlike the Three Laws, the Draft Regulations specify precise timelines in which data handlers must notify affected individuals and regulators in the event of a data breach. Specifically, the Draft Regulations will require data handlers to notify affected individuals of a data breach – including the potential risks and damages associated with the breach and the remedial measures taken by the data handler – within three business days of the breach. If the data handler is unable to notify affected individuals directly, it may publish public notice of the breach. The Draft Regulations also will require the data handler to report a data breach to the Public Security Bureau if the breach involves a suspected crime.

If a data breach involves “important data” of more than 100,000 individuals, the data handler will be required to also notify the CAC or the competent authority in charge:

  • within eight hours after the data breach. This notification must include the (1) number of affected parties, (2) type of breach, (3) potential impact of the breach and (4) enacted or proposed remedial measures; and
  • within five business days after completing an investigation into the breach. With this notification, the data handler must provide an investigation report that includes, g., the (1) cause of the breach, (2) any harm caused by the breach and (3) measures that the data handler may take to protect against future breaches.

Records Retention When Transferring Data to Third Parties

Though the PIPL was silent on this topic, the Draft Regulations will require data handlers to maintain records of individuals’ consent and logs of personal data transfers. In addition, records or logs regarding sharing, trading or selling of “important data” must be maintained at least five years.

Cybersecurity Review

The Draft Regulations clarify the conditions that trigger a cybersecurity review required by the CSL.  Under the Draft Regulations, a cybersecurity review will be required:

  • before an online platform that collects and holds a large amount of data related to national security, economic development and public interests undergoes a merger, restructuring or dissolution that affects or potentially affects national security;
  • before a data handler that processes over one million individuals’ personal data is publicly listed in another country;
  • if the public listing of a data handler in Hong Kong affects or potentially affects national security (though how this is to be assessed is unclear under the Draft Regulations); and
  • for other matters that affect or potentially affect national security.

Separately, if an online platform establishes a headquarters, operation center or research center outside of China, the platform (i.e., the data handler) will be required to report to the CAC or competent authority in charge.

Complaint Reporting

Expanding on the complaint channels required under the PIPL, the Draft Regulations also will require data handlers to publicly disclose on an annual basis (1) the number of complaints it receives; (2) the circumstances of the complaints; and (3) the data handler’s average response time when handling a complaint.