How the CAC became Chinese tech’s biggest nightmare

The Cyberspace Administration of China (CAC) rose to fame as China’s central internet censor and it still is. But in the past few years, the agency has expanded its regulatory scope, gradually morphing into a super regulator that affects virtually every internet company in China.

The CAC has been making headlines all over the world for the past two years as its power has grown exponentially and it has become the leading Chinese regulator in data security and privacy — playing an instrumental role in China’s ongoing tech crackdown.

It was CAC that ordered a cybersecurity review on DiDi's data infrastructure just days after the ride-hailing giant’s U.S. IPO. The cyber watchdog later required companies that hold data for more than 1 million users to undergo a security review before listing their shares overseas. The agency also represents China’s interest in international data governance.

“Its core functions expanded from content to now include data security and privacy,” Jamie Horsley, a senior fellow at Yale Law School’s Paul Tsai China Center, told Protocol. “They permeate everything in a modern economy. It really gives them an arm in or a finger in every regulatory pie basically.”

What is CAC?

CAC is a young agency. Established in 2013, CAC’s initial mandate was to regulate online content, authorized by the State Council, China’s cabinet. As China’s cyberspace watchdog, its launch coincided with Xi Jinping’s focus on cyberspace, and it was tasked with drafting and implementing the country’s 2017 Cybersecurity Law.

Today, beyond being the primary regulator of online content, the CAC is also in charge of drafting some of the most important legal frameworks regarding data in China, such as the Data Security Law and the Personal Information Protection Law, which went into effect last year. CAC asserting its jurisdiction over the DiDi IPO launched it into an area that used to be just the purview of the Chinese securities regulator, the Ministry of Commerce and, to some extent, the State Council, according to Horsley.

After CAC launched an investigation into DiDi’s data infrastructure, it established a cybersecurity review regime for future overseas listings. It’s clear that CAC is “expanding their regulatory scope extraterritorially, not only within China; now they're doing cybersecurity screening to companies seeking IPOs in the U.S. and in Hong Kong,” said Xiaomeng Lu, a director in Eurasia Group's geo-technology practice.

The expansion of CAC’s mandate in part reflects the evolution of the notion of cybersecurity. “The Cybersecurity Law has the data component to it, but it's very much hardware-focused,” Lu said. “But over time, data has been playing a much bigger role in cyberspace from a cybersecurity perspective … [data] is one of the many characters in the movie that became the breakout character and it needs its own show.”

Behind CAC’s rising power

But CAC is not just any ordinary regulator. Besides acting like an administrative agency that writes rules and enforces them, CAC has a more important identity: It is an opaque Party entity, directly under the Central Committee of the Chinese Communist Party, which acts as the board of directors for the Party.

During China’s massive 2018 government reorganization, Horsley found that CAC was removed from State Council oversight and put directly under the Central Committee. Since then, the agency with dual state-party identity morphed away from just ensuring a clean, healthy, non-threatening internet to more broadly protecting privacy and data security.

“The question is, ‘Where's the CAC getting its orders from? Where is it getting its power from?’” Horsley said. “And the only answer you can think of is, ‘Look, it's right under Xi Jinping and the Central Committee, basically. It can do whatever it decides, and [Xi and the Central Committee] decide what should be its focus.”

CAC's rising power and expanding territory are evident in the spike in the number of releases, policies and regulations it issues. Before 2019, the powerful internet regulator rarely issued more than 20 official releases a month. But CAC started weighing in more regularly just before COVID-19, and for the past several months it has averaged more than 40 notices each month.

Not all of these notices are substantive; many detail Xi Jinping’s speeches, meetings and calls with foreign diplomats. As an agency that blurs the line between the state and party institutions, CAC’s propaganda function perhaps isn’t all that surprising. Protocol reviewed almost 1,600 official releases from CAC, from its founding in 2013 through late 2021, and found that while the total number of notices published each month held steady, monthly mentions of Xi began increasing shortly after Xi Jinping Thought was enshrined in the constitution in 2018. Mentions really skyrocketed from early 2019, shortly after the Two Sessions and just before the 30th anniversary of Tiananmen Square.

Concerns about CAC’s dual identity

As a rule-maker, CAC acts like a regular administrative agency, drafting regulations that encompass online content, algorithms and cybersecurity issues and seeking public comments before finalizing the rules.

“On the rule-making side, they seem to be fairly rational and transparent,” Horsley said. “It's good governance practice because it's the way you get a better rule when you help ensure compliance.”

CAC also operates under this state organ identity when it represents China in meetings with global partners to collaborate on international privacy and data governance.

But CAC’s Party identity raises questions and concerns. As a Party entity, it’s not a transparent agency because it’s not subject to administrative law and other rules that would ordinarily regulate agency behavior. Its heavy Party interest particularly concerns experts when CAC, one of the main Chinese data regulators, goes overseas to discuss issues like data transfer and localization with other countries. “So yeah, they use the state name when they go overseas,” Horsley said. “The problem now is CAC is very clearly not, as an organizational matter, part of the State Council. It's a Party animal.”

Correction: This story was updated on March 11, 2022 to correct a misspelling of Horsley's name and to clarify a definition of the CAC as a Party entity.