Why Hong Kong-mainland data transfer pact is beacon of hope in darkening digital world

As global politics drift towards a more fractured world order, countries and cities are scrambling to sustain stability while erecting barriers
By tapping into Hong Kong’s global market access, the data transfer agreement can pilot China into the future with Hong Kong at the helm

Adam Au

Published: 8:15am, 24 Jul 2023

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While growing mistrust among jurisdictions threaten to choke data flows and stall progress, a new agreement between Hong Kong and mainland China now offers a glimmer of hope for greater connectivity.

The memorandum of understanding that Hong Kong and the mainland signed on June 29 enables data to flow among the Greater Bay Area cities. The impact of the agreement far outstrips its modest name, tapping into open data flows and digital exchange at a time when much of the world is pulling up drawbridges.

Beneath the fanfare lies a seismic shift with widespread implications. Hong Kong operates under the “one country, two systems” principle as a separate jurisdiction from the mainland, which means data transfers from the mainland to Hong Kong were handled as an international exchange. Now the digital gates have swung open.

For some, this pact is just window dressing. Hong Kong is well on its way to recovering from the damage of the Covid-19 pandemic – economic activity has picked up and the city’s unemployment rate is steadily falling. These indicators merit closer scrutiny, though.

It is a mistake to view today’s green shoots of recovery through rose-tinted glasses. The outlook seems bright when put up against the low base induced by the pandemic. A swift turnaround is enabled by expedient policy and public funds, but these cannot fully paper over the cracks.

A facade of normalcy has returned, but vulnerabilities still lie exposed. An economy reliant on visitors from afar will always be one shock away from trouble, lacking momentum to chart a more resilient course. The scars of the pandemic serve as a warning to diversify or be left adrift by the next crisis.

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The only viable path to remaining competitive lies in the use of data and finding ways to move it safely and effectively across borders. Much as the telegraph and railways revolutionised the flow of goods, capital and people in the 19th century, data is the invisible infrastructure that enables today’s global digital exchange.

Rather than relying on government altruism, Hong Kong’s data pact with the mainland creates sustainable private-sector opportunities. The city has tied its fortunes to China’s tech sphere. Information can travel downstream unimpeded, feeding Hong Kong’s digital innovation.

Spanning Hong Kong, Macau and nine cities in Guangdong province, the Greater Bay Area stands to gain tremendously from this agreement. Shenzhen alone is home to more than 30 unicorns, with no regional equal in scale or tech depth. Hong Kong’s tech alignment with the mainland ensures mutual benefit.

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Beneath the optimism lies economic imperatives. As global politics drift towards a more fractured world order, countries and cities are scrambling to sustain stability. For China, there are risks of slowing growth, falling exports and a retreat from global trade. Reports suggest that manufacturers are fleeing to cheaper South and Southeast Asian alternatives.

By tapping into Hong Kong’s global market access, the data transfer agreement can launch local start-ups into the global arena. Instead of being embroiled in geopolitical disputes, China can pilot a course to the future with Hong Kong at the helm. The Greater Bay Area could be China’s hedge against decoupling and a bridge to borderless digital spheres.

Critics might argue that the Hong Kong-mainland pact is hardly ahead of its time. In an increasingly connected global economy, transnational data agreements have emerged as one way to steer complex trade relationships. Even so, despite ambitious initiatives such as the Comprehensive and Progressive Trans-Pacific Partnership and the Digital Economy Partnership Agreement (DEPA), serious questions linger over whether these sweeping trade deals can deliver on their promises.

While policymakers chase new pacts, data mercantilism remains the norm. Cross-border data restrictions and localisation mandates continue to flourish, locking information within national borders. Until these asymmetries are reconciled, deals such as DEPA lack the teeth to dismantle barriers or align diverse economies.

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Geopolitical concerns have also introduced greater fragility into international treaties. The promise of open data worldwide is ideal, but the reality is much messier. In 2020, the EU-US Privacy Shield was disrupted by the European Court of Justice’s Schrems II decision.

The recently renewed data-sharing pact between the EU and US already faces challenges by privacy activists. If privacy and openness are uneasy bedfellows, what hope is there for a universal standard that champions both globally?

International diplomacy can be out of sync with the fast-changing digital world. Crafting broad, multinational agreements takes too long and risks irrelevance. By the time all parties finally hammer out a compromise, the challenges they sought to address could have changed form or drifted beyond reach. Grand pronouncements about cooperation grab headlines, but integrating data meaningfully demands more than rhetoric.

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In contrast, the Hong Kong-mainland pact taps open data flows between two willing partners. Such proximity and control allow brisk action to turn the agreement from concept to reality.

Hong Kong’s allure might have dimmed during the pandemic, but this watershed pact shows the city is poised to reprise its role as China’s gateway to the world. As trust frays worldwide, we face closed-off silos. This agreement outflanks clashing interests abroad and avoids being walled off from the wider world.

Ultimately, the future of data flows depends on forging new connections. Replicating the formula of the Hong Kong-mainland agreement might not be possible for other countries looking for a model to follow, but this China-guided partnership nevertheless shows what can happen when divides are set aside for shared horizons. As ties unravel, this deal shows the promise of building partnerships in the era of digital divides.

Adam Au is the head of legal at a Hong Kong-based healthcare group