Chinese security policies are threatening to push foreign businesses out of the country's IT sector by restricting the way data is stored, according to a U.S. lobbying group.
On Tuesday, the American Chamber of Commerce in China issued a report urging the country to change the policies. Increasingly, the Chinese government is enacting regulations to address national security concerns at the cost of hampering its own economy, the lobbying group warned.
China has been recently reviewing an antiterror law that could require tech companies to give up encryption keys to the authorities.
Although the U.S. has complained, China has said that it's essentially mimicking Western governments in their efforts to use the Internet and telecommunications to track terrorist activities. Following leaks that the U.S. had been secretly spying on the country, China has also been stepping up its efforts on cybersecurity.
The upcoming policies could end up encouraging Chinese businesses to buy domestic IT services over foreign ones. Existing Chinese regulations, however, are already creating roadblocks for foreign tech firms wanting to enter the market, according to the chamber.
Chinese policies have essentially demanded the creation of local data centers to meet the regulations. These laws include prohibiting banks from storing personal financial information outside the country, or allowing data to be removed from China if it contains state secrets.
In Tuesday's report, however, the chamber said China's policies were excessive and create a "redundancy" in data centers, which are costly to make and which small and medium-size companies can't afford.
Chinese regulations should instead open the market to encourage competition among security providers, the chamber said. "The Chinese government should take a more rational approach to its security issues," added James Zimmerman, chairman of the chamber, in the report.
Both the U.S. and China are negotiating a bilateral investment treaty. The chamber is urging that language be included to keep the data flow between the two countries unrestricted.
Convincing China to change its policies could entail the U.S. loosening its own restrictions against China.
On Monday, Chinese Premier Li Keqiang urged the U.S. to lift a ban on exporting high tech to the country, according to China's state media.
This comes just after the U.S. government blocked Intel from selling its chips to supercomputing centers in China. The U.S. government agencies claim the Intel chips had been involved in uses related to nuclear weapons testing.
Sign up for CIO Asia eNewsletters.