Strengthening the Protection of Overseas Digital Assets for Companies Expanding Internationally

Summary of Key Points

In the digital age, the digital assets accumulated by Chinese companies when expanding overseas—such as data, algorithms, platforms, cloud services, and infrastructure—have become important business assets. However, these assets also expose companies to increasingly stringent and varied regulatory risks in different regions around the world (for example, security reviews in the United States, compliance requirements in the European Union, and policy changes in emerging markets). To address these risks, companies need to proactively enhance their compliance capabilities by integrating compliance into all aspects of their business operations. Additionally, they must rely on a comprehensive set of professional services, including institutions familiar with local regulations, standardized compliance tools, and skilled professionals, to achieve safe and high-quality overseas development.

Detailed Explanation

1. What exactly are overseas digital assets? It’s more than just data

Many people think that digital assets are merely data, but in reality, they encompass a much broader range of valuable digital resources formed during business operations abroad:

• Revenue-generating assets: For instance, user data and advertising networks of platforms like TikTok, or transaction data from e-commerce platforms like Temu.
• Business-supporting assets: These include cloud service infrastructure established in Southeast Asia, participation in smart city projects in the Middle East, and local operating licenses required for market entry.

While these assets are intangible, potential losses can be significant; for example, if TikTok is banned in the United States, its user base and advertising revenue would be lost, or if a smart city project in the Middle East is halted due to policy changes, previous investments could be unrecoverable.

2. Regulatory risks vary significantly by region

The distribution of Chinese companies’ digital assets across different regions results in unique regulatory challenges:

• United States: High-value assets but with significant risks. Platforms like TikTok and Temu have large user bases here, but they are vulnerable to political scrutiny; for example, allegations of data security issues could lead to bans, forced divestitures, or market exits.
• European Union (EU): The EU’s General Data Protection Regulation (GDPR) imposes strict requirements. Chinese companies transferring EU users’ data to China must sign more stringent contracts and comply with various rules regarding platform responsibilities and consumer protection.
• Southeast Asia: Rapid growth but with potential risks. Mobile internet penetration is high in this region, making it a fast-growing market for digital assets (e-commerce platforms and cloud services). However, emerging market regulations can change quickly, requiring constant monitoring.
• Middle East and Latin America: Building infrastructure (such as communication systems and smart cities) involves long cycles and substantial investments. Changes in local public procurement policies or security concerns could undermine these efforts.

3. Global regulators are focusing on digital assets

Regulators worldwide are paying close attention to digital assets for two main reasons: their rapid cross-border flow and their impact on national security. For example:

• The U.S. uses the Cloud Act to require foreign companies to share data and includes Chinese digital platforms and communication equipment in its national security reviews.
• The EU’s GDPR regulates data transfers, requiring transparency of algorithms (e.g., explaining how recommendation systems work).
• Emerging markets: Regulations vary significantly across countries, making it difficult for companies to use a one-size-fits-all approach.

These regulatory challenges have risen beyond the scope of typical business risks and have become critical determinants of compliance success or failure.

4. What should companies do? Proactive compliance and traceability are essential

Companies must take proactive steps to manage these risks:

• Data management tailored to local regulations: They need to determine which data must be stored locally and which can be legally transferred back to China to avoid audits.
• Compliance from the product development stage: When developing new apps, principles such as minimal data collection and privacy protection should be fundamental, rather than being implemented later in the process.
• Traceability of sensitive processes: For activities like algorithmic recommendations and ad distribution, clear records must be kept to provide evidence in case of regulatory inquiries.

5. Professional services are indispensable

The complexity of global regulations makes it impossible for companies to handle them on their own; professional support is essential:

• Consult with institutions familiar with local regulations: These organizations should understand both Chinese business models and the regulatory requirements of Europe, the U.S., and emerging markets, helping to translate abstract rules into actionable plans.
• Use standardized compliance tools: Different companies have different needs—platform providers need services for data transfer and algorithm transparency; e-commerce firms require tax and security compliance; infrastructure companies need cybersecurity and public procurement support. Standardized tools can help reduce costs.
• Train skilled professionals: Employees should possess a combination of legal and technical knowledge (e.g., understanding GDPR not only requires contract signing but also data classification and encryption) and be adept at crisis communication.
• Establish risk warning systems: Industry associations or government departments can monitor regulatory changes in key countries and notify companies in advance, allowing them to prepare accordingly.

In summary, in the digital age, compliance is no longer an optional requirement but a necessity for companies expanding overseas. They must identify their digital assets and associated risks, proactively implement compliance measures, and leverage professional services to establish a solid foothold in global markets.