China’s giant new gamble with digital IDs

Under the new scheme people obtain a digital ID by submitting a raft of personal information, including scans of their faces, to the police via an app. They can then use it to register and log in to other apps or websites. A pilot went live a year ago and 6m people signed up. Currently voluntary, it may not remain so for long. Officials and state-run media are pressing citizens to sign up in the name of “information security”. China’s 1.1bn internet users are in their sights. Some $1.3trn of market capitalisation is tied up in the big Chinese internet firms that cater to this huge customer base, from Alibaba to Meituan and Tencent.

The state already tries to maintain a tight grip on what happens on the web. The government maintains the “great firewall” through its control over telecoms infrastructure. It blocks hundreds of thousands of sites, including foreign news outlets, search engines and social media. But the system is multilayered and fiddly. Before posting a comment, playing an online game or paying for a takeaway, Chinese must register with the company running the service using their real name. This way the state partially outsources the job of surveillance. Last year the police say they punished 47,000 people who spread “rumours”. Firms help with gusto. Weibo, an X-like site owned by Sina Corp, uses a combination of blocked keywords and armies of censors to keep its 600m users in line, for example.

The digital ID is an evolution of this set-up. Companies will know much less about who their users are from now on. Instead the IDs will allow people to log in to websites or apps without revealing their personal details to firms, which will see just an anonymised stream of digits and letters. Internet platforms can still censor users and report troublemakers—but only the police will hold all users’ details.

In some ways it is surprising that China, a forceful surveillance state, did not roll out digital IDs earlier. Dozens of countries have versions of one, including Australia and Britain, although their IDs are just used for access to government services, and are not run by the police. India began work on its vaunted Aadhaar programme back in 2009.

So why is China doing this now? In the short term the scheme is meant to prevent consumer harm. Many Chinese are deluged with spam phone calls because their personal details have been sold to third parties. A lot of data also leak to gangs of telecoms fraudsters, whose scams cost China billions of yuan a year. “It’s like the government has sent us a bullet-proof vest for our personal information!” said one excited state-media journalist, in a video encouraging people to sign up.

Critics fear the ID will turbocharge snooping. It may, for instance, help the police assemble a list of all the websites and apps each person uses. They could probably already get this information with a few phone calls, but the new scheme could make things more convenient. Data from the digital IDs might in the future be plugged into a new, more comprehensive online-surveillance system. When the scheme was first announced last year it created an online backlash. Lao Dongyan, a professor at Tsinghua University in Beijing, called it a “ruse” on Weibo. Then her comments were scrubbed and her account was temporarily suspended.

In the long term the digital ID is part of a far more ambitious vision, with the state taking firmer, more centralised control over the vast data flows the economy creates. In part this is motivated by national-security concerns. In the wrong hands—say, of foreign spies—personal data could be used for disinformation campaigns or cyberattacks. It could also be used to train AIs so as to glean insights on China’s population.

Economic opportunity underlies the vision, too. State planners say data is a factor of production, alongside labour, capital and land. They want to avoid it being hoarded inside companies and make it available for widespread use and trading. Local governments have built data exchanges to allow it to be monetised and traded between state agencies, state-owned enterprises and private companies. In Shenzhen, a tech hub in China’s south, firms can buy data on how consumers use power from the national grid, for example. A national data-exchange is in the works. And in June the State Council, China’s cabinet, announced new rules to prevent data being siloed by competing government departments.

This all has implications for the rents derived from China’s torrents of data and who gets them. In principle the digital ID harms the interests of private-sector internet platforms—not that the stockmarket seems to have noticed. The calm belies the government’s capabilities. In recent years it has clobbered data-hoarding titans in other industries. In 2021 Ant Group, a subsidiary of Alibaba, a tech giant, was forced to share its consumer-credit data with China’s central bank. That year Didi, a ride-hailing firm, angered regulators by listing on the New York Stock Exchange despite their concerns that its data might be exposed. In 2022 it was fined 8bn yuan ($1.2bn) and forced to delist for “illegally collecting millions of pieces of user information” and processing data in a way that threatened “national security”.

Centralised data flows may supercharge China’s AI initiatives. Chinese firms are prevented from buying American-designed AI chips, which are the most powerful in the world. But they could still try to find a competitive edge by feeding their algorithms more and higher-quality data as Lee Kai-fu, a Taiwanese tech investor, has argued. One area where masses of data have already helped Chinese companies to the bleeding edge is facial-recognition technology, thanks to the millions of surveillance cameras Chinese officials have set up across cities.

For all its techno-optimism about data, though, China’s government has a poor record of managing it. Officials are often badly paid and looking for ways to make more money—for instance, by selling valuable information. And practices can be lax. In 2022 a hacker stole 1bn personal records from the Shanghai police by lifting them from an unsecured database. Scandals like this might have made Chinese people more wary of government schemes like digital IDs. Fortunately, China’s ever-watchful tech firms stepped in: reports of the theft were censored.