China’s new data laws virtually make it impossible for any international organisation to work with global data, from within mainland China. As a result, several banks, especially American and European banks have been forced to rethink their strategy in China
Morgan Stanley is relocating over 200 technology developers from mainland China to other locations, such as Hong Kong and Singapore, due to increased restrictions on accessing onshore data.
The move is a response to a new law in China that limits the transfer of sensitive information out of the country. The bank’s remaining staff in mainland China are working on establishing a separate system to comply with local regulations, which will be incompatible with its existing global platforms.
This relocation of employees is one of the most significant actions taken by a Wall Street bank in response to China’s tightening control over data and the increasing concerns about national security threats.
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Multinational companies operating in China are reassessing their operations in light of the government’s measures to control data transmission, which has become a significant point of contention in the US-China rivalry.
Morgan Stanley’s decision to relocate staff reflects the growing wariness among multinational companies of being entangled in Beijing’s crackdown on perceived threats to national security. This move comes as tensions between the West and China continue to escalate. Chinese authorities have also conducted raids and questioned foreign consulting firms.
The stricter data regime in China not only affects the technology infrastructure development of international banks in the country but also poses challenges to running their businesses. While data has been allowed to move across borders in compliance with legal requirements and approvals, the new laws implemented in 2021 have prompted global firms to focus on segregating information.
This has led to the establishment of onshore centres by many banks and asset managers to keep Chinese data within the country, adding costs and complicating the management of their Chinese operations.
The Asia Securities Industry & Financial Markets Association (ASIFMA) has highlighted that the increasingly stringent and ambiguous rules could further complicate the operations of international institutions, preventing them from fully leveraging the benefits of centralized infrastructure. The evolving regulatory landscape in China poses challenges and uncertainties for global companies seeking to navigate the complexities of data management and compliance in the country.
Morgan Stanley had established a significant technology team in Shanghai to support its operations in China and globally, taking advantage of the cost-effectiveness and local talent pool available at the time. The bank also operates technology hubs in India and other regions.
To adapt to the changing landscape, Morgan Stanley plans to develop an independent technology system that will be gradually customized to meet the specific needs of its futures, derivatives, and asset management businesses in mainland China.
Similarly, Goldman Sachs has implemented a separate system for its onshore operations and does not maintain global or regional teams in China. Over the past two years, the bank has accelerated its technology infrastructure development to comply with the new laws, imposing additional restrictions on cross-border data flows, as it transitioned from a joint venture to a wholly-owned entity.
UBS Group, too, has approximately 600 back-office employees across three locations in China, supporting its global and domestic operations. The Swiss bank has also adopted a strategy of maintaining separate servers to keep its Chinese data onshore while segregating overseas operations.
