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Morgan Stanleyis shifting more than 200 technology developers out of mainland China after the country tightened access to troves of data stored onshore, according to people familiar with the matter.

The employees, accounting for more than a third of Morgan Stanley’s technologists on the mainland, are primarily moving to Hong Kong andSingapore, one of the people said, asking not to be identified discussing private information. Most of the relocation has been completed, according to the person.

Morgan Stanley’s remaining staff on the mainland have started to build a stand-alone China system to comply with local regulations. The new infrastructure, which may cost hundreds of millions of dollars, will be incompatible with its legacy global platforms as the lender overhauls its Asia strategy of handling client records, the person said.

The moves are among the most significant by a Wall Street bank in response to a new law restricting the transmission of sensitive information out of China. Multinational companies across industries are being forced to reassess the way they operate in the world’s second-largest economy asXi Jinping’sgovernment tightens its grip on data — a key battleground in the rivalry with the US.

A representative for Morgan Stanley declined to comment.

The bank’s staff relocations come as multinationals become increasingly wary of being caught up in Beijing’s crackdown on perceived threats to national security, with tensions growing between the West and China. Authorities have also raided and questionedforeign consulting firms.

“The real macro issue, if you step back from it is the China-US relationship,” said Morgan Stanley Chief Executive OfficerJames Gormanin a separate Bloomberg Television interview on Tuesday, after the bank reported its second-quarter earnings. “We’re very dependent on China, and China is more dependent on the rest of the world, frankly, for trade. So that’s sort of the tipping point.”

WATCH: Gorman discusses Morgan Stanley’s plans to replace him when he steps down, second-quarter results, and staffing plans.

The new data regime not only impacts the build-out of technology infrastructure in China for international banks, it makes running their businesses more challenging. Currently, regulators allow data to move across borders, in keeping with the relevant legal requirements and approvals, the people said.

Since China tightened data security further with two new laws in 2021, global firms have focused on information segregation. Many banks and asset managers have created onshore centers to keep China data in the country as part of global operations, adding costs and hindering management of their Chinese businesses, according to the Asia Securities Industry & Financial Markets Association.

ASIFMA, the region’s top lobby group for financial firms, said the increasingly stringent and unclear rules may complicate the operations of international institutions as they’re unable to leverage the benefits of centralized infrastructure.

Tech Team

Morgan Stanley had built a sizeable tech team in Shanghai to support its China and global operations, taking advantage of the relatively low-cost base and local talent pool at the time. It also has technology hubs in India and other parts of the world.

To start afresh, the bank will build a stand-alone technology system that over time will be tailored for its futures, derivatives, and asset management businesses on the mainland, the person said.

Goldman Sachs Group Inc.has also been running a separate system for its onshore operations, and doesn’t have global or regional teams in the country. It accelerated its technology build-out over the past two years, putting additional barriers on cross-border information flow to comply with the new laws as it shifted from a joint venture to a 100%-owned entity, people familiar said. A spokesperson at the bank declined to comment.

UBS Group AGhas about 600 back-office staff in three locations in China supporting global and China businesses. The Swiss bank also has separate servers to keep its China data onshore, while segregating overseas operations. The lender declined to comment.

— With Daniela Wei, Sridhar Natarajan, and Michael J Moore