On September 28, 2023, the Cyberspace Administration of China (“CAC”) released the “Provisions on Regulating and Facilitating Cross-Border Data Flows” for public comment (the “Proposal”). The deadline for public comment on the Proposal was October 15, 2023.

The Proposal: (1) exempts certain processing activities from China’s data transfer restrictions, (2) revises the thresholds triggering a formal data transfer security assessment and (3) enables more flexibility for data transfers from China’s pilot free trade zones.

Exempt Data Processing Activities

Under the Proposal, the following processing activities would not be subject to China’s current transfer rules:

• Transfers arising from international trade, academic cooperation, transnational manufacturing, marketing and other activities that do not involve personal information or “important data”.
• Transfers necessary for performing and concluding a contract to which an individual is a concerned party, such as cross-border shopping, flight and hotel reservations, cross-border remittance and visa processing.
• Transfers necessary for HR management to comply with employee policies formulated in accordance with law.
• Transfers of data not collected within the territory of China.
• Transfers of data in emergency situations (e.g., to protect the life, health and property safety of an individual).

In addition, unless a data handler has been notified by a Chinese authority that the data it is processing constitutes “important data” or the Chinese authority otherwise publicly classifies the data as “important data”, the data handler is not required to undergo a data transfer security assessment on the basis that it processes “important data”.

Revised Volume Thresholds Triggering Data Transfer Security Assessments

The Proposal would change the volume thresholds triggering a formal data transfer security assessment. In particular, if it is estimated that personal information of less than 10,000 individuals will be transferred outside of China within one year, then a data handler would not be subject to China’s restrictions on data transfers.

Moreover, if it is estimated that personal information of more than 10,000 individuals but less than one million individuals will be transferred outside of China, the organization may rely on the standard contract issued by the CAC for the transfer and there is no need to conduct a transfer security assessment.

Flexibility for Transfers from Pilot Free Trade Zones

The Proposal would give pilot free trade zones (e.g., the Shanghai Free Trade Zone) the authority to formulate a list of data which would be subject to the transfer rules (i.e., a negative list). Data falling outside the scope of the negative list could be transferred abroad without the need to comply with the transfer rules.

Possible Impact of the Proposal on Data Transfers Outside of China

While the Proposal is still in draft form, it would, if passed, have a significant positive effect on transfers of data outside of China by international companies.

At the same time, while the Proposal would significantly revise the regulatory requirements for transferring data outside of China, certain aspects of the current transfer regime would remain unchanged. Based on the Proposal, separate consent would still need to be obtained for transfers where consent is the legal basis for the transfer. In addition, even though certain data handlers may no longer be subject to the CAC data transfer security assessment or be required to file the CAC standard contract, they would still be required to fulfil basic compliance requirements under the Personal Information Protection law of China (the “PIPL”) with respect to transfers of data outside of China. For instance, the data handler would still need to prepare a personal information security impact assessment (“PIPIA”) in relation to the transfer and maintain the report in its internal files for a period of three years. The data handler must also ensure that the recipient of the data provide an equivalent level of data protection as is required under the PIPL.

Furthermore, certain aspects of the Proposal would require further clarification from the CAC. For example, will data handlers that have previously transferred personal information of over one million individuals but only expect to transfer a limited amount of personal information in the next 12 months be expected to undergo a security assessment? Will transfers of sensitive personal information involving more than 10,000 individuals still trigger the requirement to undergo a security assessment? How should data handlers calculate the one year period referenced by the Proposal when estimating the volume of data to be transferred outside of China.

While it is not certain when exactly the Proposal may pass, it is possible that the Proposal will be finalized before November 30, 2023, which is the deadline for companies to file the CAC standard contract for transfers relying on that data transfer mechanism under the PIPL.