China steps up tech scrutiny with rules over ‘unfair competition’

Beijing has been firming its grip on internet platforms in recent months, citing the risk of abusing market power to stifle competition, misuse of consumers’ information, and violation of consumer rights, in a reversal after years of a more laissez-faire approach.

It has issued hefty fines to companies, including e-commerce firm Alibaba Group and social media company Tencent Holdings as part of a widening crackdown, and has vowed to draft new laws around technology innovation and monopolies.

China’s State Administration for Market Regulation (SAMR) issued a set of draft regulations today (17 August) banning unfair competition and restricting the use of user data.

Shares in Hong Kong-listed internet stocks slid after the rules were published. Video platform Bilibili Inc fell by 7.4 per cent, while Tencent, Alibaba and food-delivery service Meituan dropped by 4.1 per cent, 4.2 per cent and 2.6 per cent respectively.

“The proposed regulations’ specificity evidences a clear set of priorities in setting the ‘rules of engagement’ for online competition,” said Michael Norris, research, and strategy manager at Shanghai-based consultancy AgencyChina. “If promulgated, the regulations will likely increase compliance burdens for transaction platforms, including e-commerce marketplaces and shoppable short video apps.”

According to the draft written by the SAMR, internet operators “must not implement or help implement unfair competition on the Internet, disrupt the order of market competition, affect fair transactions in the market.” The draft is open to public feedback before the 15 September deadline.

The regulator also stated that business operators should not use data or algorithms to hijack traffic or influence users’ choices. They may also not use technical means to capture or use other business operators’ data.

Companies would also be barred from fabricating or spreading misleading information to damage the reputation of competitors and need to stop marketing practices such as fake reviews and coupons or “red envelopes” – cash incentives – used to entice positive ratings, they added.

Soon after the draft tech rules were published, China’s cabinet announced it would also implement regulations on protecting critical information infrastructure operators from 1 September.

The State Council said operators must conduct security inspections and risk assessments once a year and should give priority to purchasing “secure and credible network products and services,” marking an elaboration on the landmark Cybersecurity Law that passed in 2017.

According to a Reuters report citing corporate filings, the Chinese government has also taken ownership stakes in the domestic entities of social media firms ByteDance (developer of TikTok) and Weibo.