China steps up tech scrutiny with rules over unfair competition, critical data

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Illustration picture of China yuan banknote and computer keyboard reflected on Chinese flag

By Josh Horwitz

SHANGHAI (Reuters) -China moved on Tuesday to tighten control of its technology sector, publishing detailed rules aimed at tackling unfair competition and companies’ handling of critical data.

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.

The country issued hefty fines to companies including e-commerce giant 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.

On Tuesday, the State Administration for Market Regulation (SAMR) issued a set of draft regulations banning unfair competition and restricting the use of user data.

New York-listed shares of Alibaba , JD.com Inc and Baidu Inc fell between 2.9% and 3.5% in premarket trading. Tencent-backed online brokerage Futu Holdings slid 7% and was among the most actively traded stocks across U.S. exchanges, while peer UP Fintech Holding slipped 3%.

Tencent Music Entertainment Group shed 3.8% and was set to extend losses for a sixth straight session despite reporting better-than-expected earnings.

“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.”

NO HIJACKING OF TRAFFIC

Internet operators “must not implement or assist in the implementation of unfair competition on the Internet, disrupt the order of market competition, affect fair transactions in the market,” the State Administration for Market Regulation (SAMR) wrote in the draft, which is open to public feedback before a Sept. 15 deadline.

Specifically, the regulator stated, business operators should not use data or algorithms to hijack traffic or influence users’ choices. They may also not use technical means to illegally 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 like fake reviews and coupons or “red envelopes” – cash incentives – used to entice positive ratings.

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

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.

The Chinese government has also taken ownership stakes in the domestic entities of social media giants ByteDance and Weibo, Reuters reported on Tuesday citing corporate filings. Shares of China’s Twitter-like Weibo dropped 2.6%.

(Reporting by Josh Horwitz and Brenda Goh in Shanghai, Yingzhi Yang in Beijing, additional reporting by Medha Singh in Bengaluru; Editing by Lincoln Feast, Jason Neely and Sherry Jacob-Phillips)

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