China: Latest Trends In Cloud Computing In China

Last Updated: 11 June 2012
Article by Jingzhou Tao and Gregory Louvel

Cloud computing continues to be an area of significant interest and investment for many companies. Current forecasts predict IT and cloud computing spending to total $112 billion in 2012, a 15% increase over 2011. Some companies view cloud computing as a potential bridge to bringing well-established business practices into emerging markets with huge opportunities for expansion. Given the size of the current and future market in China, companies are now evaluating whether and how to engage in "cloud" businesses in China. In this DechertOnPoint, we discuss a number of key issues that need to be considered in making thoughtful business decisions about cloud computing in China.

Have Your Servers Located in China: How Censorship and the Great Firewall Affects Service

Censorship is and will likely remain a major stumbling block for the development of internet services in China, including cloud computing. For example, Google Docs, a well-known cloud-based program, is from time to time totally inaccessible in China. Technically, cloud services supported by servers outside China can (and do) work in China, but the risk of being blacklisted can create major continuity issues for the business. Censorship is based on a complex interpretation of a variety of laws that can lead to unpredictable blocking and potential service interruptions. One of these screening processes is known as the Great Firewall (GFW). Apart from implementing censorship, this process also impacts the speed of the cloud due to the additional layer of data analysis by Chinese authorities. There are also a number of problems with basic internet infrastructure: cloud computing only functions as a useful commodity when used with a high-speed broadband connection. However, China's average rate of data transfer is just 1463 kbps. In contrast, the average internet connection speed in OECD countries is about five times faster (source: Akamai – State of the Internet report Q4 2011).

Be China Law Savvy While Structuring Your Business in China: Finding Your Way In the Chinese Regulation Jungle

Currently, the only major players in Chinese cloud computing services are foreign companies that have paired up with Chinese domestic companies. The Japanese company NEC has set up a joint venture with Chinese company Neusoft and IBM is working with Chinese company Range Technology. Neusoft and IBM are developing a huge 6.2 million square foot 'computer city' that will be primarily for cloud computing and office space. Notably, there are very few domestic companies providing cloud computing services. This may be the product of uncertainty in the market.

That uncertainty may, in part, be a product of the complexity of Chinese law in the area commonly referred to value-added telecom services (VAS). To operate SaaS business, a company needs an Internet Content Provider (ICP) license. Operating an IaaS business requires an Internet Service Provider (ISP) license or a much more difficult to obtain basic telecom services license. There are foreign ownership restrictions for basic telecoms license and stringent licensing requirement for VAS licenses. Most entrants to the VAS market elect to do so by entering into a partnership with a domestic Chinese licensee, with varying degrees of operational control of the business. We often observe that such arrangements, even if valid, often trigger uncertainties which the foreign investor should do its best to manage by way of various co-operation agreements.

Monitoring Privacy: Coping with China's Data Protection Framework

Even though a draft law has been in discussions for over a decade now, there is for the time being no dedicated data protection law in China. Foreign companies must instead deal — again — with a collection of various regulations even if China's Tort Law recognizes the right to privacy as a stand-alone legal principle. In particular, cloud computing companies need to be aware of a provision of the Tort Law which states that if an ISP knows a user's privacy rights are being infringed by content posted on its website, or is warned of such infringement by an injured party but fails to take appropriate measures (i.e., removing the content, disconnection, etc.), it is jointly and severally liable with the party that posted such content. In addition, if the injured party requests registered information about the party that posted the infringing content and the ISP refuses to divulge such information, the ISP itself becomes liable for the infringement. Similarly, the Labor Law contains broadly worded provisions that require employee information be treated confidentially. If employee information is placed on the cloud, the strength of the conditional access system will be relevant to assessing whether the employer has complied with these requirements.

More specifically, to deal with issues arising in the banking sector, in 2011 the People's Bank of China (PBOC) issued the Notice to Urge Banking Institutions to Protect Personal Financial Information (the Notice). Chinese banking institutions (including foreign invested commercial banks) (the Banks) are required to observe the provisions of the Notice when collecting, processing and storing personal financial information (PFI) during the course of their business and while accessing the PBOC's credit reference system, payment system or other systems.

The Notice, among other things, prohibits Banks from storing, processing or analyzing outside China any PFI which has been collected in China, or providing PFI collected in China to an offshore entity. Banks outsourcing their data outside of China need to pay special attention to this requirement, especially as the Notice defines PFI very broadly.

PFI includes:

  • personal identity information
  • personal property information
  • personal account information
  • personal credit information
  • personal financial transaction information
  • derivative information; and
  • other personal information acquired or stored in the process of developing business relationships with individuals.

Banks hiring outsourcing service providers to deal with their data are advised to examine and evaluate such providers' ability to protect PFI. Any service agreement entered into between the service provider and the Bank must impose obligations on the service provider to protect the confidentiality of the PFI and to destroy the PFI upon termination of the service contract.

Violation of the Notice requirements authorize the PBOC to order the relevant Bank to rectify its non-compliance and require the Bank to punish its responsible officers and any non-permitted disclosure constitutes a crime.

To address these legal requirements, Banks should consider:

  • providing adequate training to their employees about the importance of PFI security and confidentiality;
  • tracking and restricting access to PFI, including appointing a PFI compliance officer to respond quickly to data security breaches and audit internal procedures; and
  • reviewing PFI related practices and documents and outsourcing service contracts to ensure compliance.

Make Sure You Don't Deal With State Secrets

Another significant issue that needs to be considered by cloud computing companies is the protection of State secrets. The gathering of information in an on-line database might be deemed to violate Chinese State secrets regulations. The Chinese State secrets legal framework was revised in 2010 by two important pieces of regulation, the Law of the People's Republic of China on Guarding State Secrets and the Interim Provisions on the Protection of Trade Secrets of Central Enterprises (together, the State Secrets Laws).

Chinese authorities are usually extremely concerned by the types of data transferred on the internet and the potential threats such transfers may cause to State security.

Thus, the production, reproduction, access, dissemination and transfer out of China of data that may disclose state secrets are strictly forbidden by the State Secrets Laws.

One challenge foreign companies may encounter in China is that Chinese authorities have broad discretion to determine the scope of State secrets. As such, information related to the business operations of certain state-owned enterprises may be classified as State secrets. Therefore, disclosure of information from a database containing such information may violate the provisions of the State Secret Laws. Consequences of such potential breaches must be studied carefully, as criminal punishments are attached to such violations, and individuals employed by foreign companies in China have been known to be imprisoned as a result.

Additionally, the State Secrets Laws also require an ISP to cooperate with the authorities in case of investigation, by immediately ceasing transmission of information involving State secrets, maintaining records of the information transmitted, reporting them to the authorities, and deleting such information when requested. As previously discussed, as the definition of State secrets is uncertain and may vary from time to time, ISPs may face an additional burden when requested to serve as a de facto agent of the Chinese government.

In summary, all foreign corporations dealing with cloud computing in China must assess the impact on themselves (and their staff) of the latest Chinese regulations in this respect and particularly pay special attention to regulations on state secrets and data privacy. Doing so in advance may help take advantage of the benefits of cloud computing while mitigating potential risks.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions