With the aims of improving the development of the Internet industry, ensuring fair competition and protecting consumers’ rights, the Chinese government has launched a series of rules to regulate Internet platforms in 2021.
The past few months have seen a flurry of regulatory activity in China’s Internet sector.
In April, China’s State Administration for Market Regulation (SAMR) fined Alibaba Group a record 18.2 billion yuan ($2.75 billion) for violating the country’s Antitrust Law. The penalty was regarded as precedent-setting after the Antitrust Guidelines for the Platform Economy took effect. It also was China’s largest fine for anti-monopoly violations.
In July, the Ministry of Industry and Information Technology (MIIT) launched a six-month campaign to tackle Internet misconduct. It focused on addressing issues including a disturbed market order, infringement of users’ rights, threats to data security and unauthorised Internet connections.
In turn, the SAMR also issued draft rules aimed at stopping unfair competition on the Internet. These draft rules highlighted market regulators’ push to tighten scrutiny over unfair competition, such as exclusive dealing agreements, big data discrimination and fake deals.
In August, the Standing Committee of the National People’s Congress passed the Personal Information Protection Law, which is set to take effect from the beginning of this November. The new law imposes restrictions on how personal information can be collected, used and managed, and prohibits excessive data collection, big data discrimination, as well as illegal trade and leaks of personal information.
Recently, the government has launched a new round of supervision of the platform economy.
In late August, the Cyberspace Administration of China (CAC) issued guidelines on how technology companies can use algorithms to drive their business. The SAMR also proposed amendments to the E-commerce Law, which took effect in January 2019, to better regulate the Internet industry.
The CAC requires that algorithm providers not set up algorithm models that induce users to indulge or spend a large amount of money in consumption, which could disrupt the public order. It aims to comprehensively regulate algorithm recommendation services and address issues such as big data discrimination, fake reviews, excessive recommendations and the manipulation of rankings.
Meanwhile, China intends to punish platforms that fail to take the necessary measures against vendors who infringe on intellectual property rights by means of the revised e-commerce law.
A regulatory tightening of Internet platforms was inevitable, says David Pan, partner at Llinks Law Offices.
“As the Internet industry enters the second half of its development, the speed of regulation is gradually exceeding that of the development of the industry. The policy dividends for the Internet industry are diminishing and the era of the Internet industry developing by burning cash is going to end, which is in line with the law of industry development,” says Pan.
He believes regulatory tightening is also triggered by issues and characteristics unique to the Internet industry.
Without regulation, Pan points to the initial chaos in the early days of the Internet industry.
“The Internet sector in the early stage experienced relatively loose regulations. The regulators are taking measures to correct it, from the cybersecurity review, stricter rules for the employment of deliverymen, strict limits on the time young people spend playing online games, new rules for algorithms, to more e-commerce platforms’ responsibilities and supervision of blocking links to other platforms,” says Pan.
IMPACTING DAILY LIFE
The development of the Internet industry has also impacted daily life.
“It developed rapidly and has become an important platform to provide services for people in daily life. The social and public attributes of the Internet industry have led to more social attention, wider impact and strong public feedback on the regulations,” says Pan.
He also believes that government policies play a big role in the development of the Internet industry.
“Stimulus policies are tilting toward high-tech manufacturing industries such as new energy vehicles, semiconductors, electric vehicle batteries, commercial aircraft, and telecommunications equipment. They are correcting an ‘emphasis on the virtual economy’ by directing capital and human resources from Internet companies to industries that contribute to China’s self-reliance,” Pan points out.
Compared to previous measures, Pan believes the latest regulation includes diversified sectors.
“Several areas have received tightened scrutiny. It shows that regulations are expanding to different areas, covering market order, users’ rights, data security and labour protections.”
— David Pan, Llinks Law Offices
“Several areas have received tightened scrutiny. It shows that regulations are expanding to different areas, covering market order, users’ rights, data security and labour protections,” says Pan.
Meanwhile, “the law enforcement agencies tend to focus on the rectification of illegal activities by launching different projects and tackle the problems one by one,” Pan observes.
For example, MIIT launched a campaign back in July to address the issue of blocking competitors’ plat-forms. Also, the campaign on Internet misconduct could last half a year. The law enforcement agencies will organize enterprises to conduct self-inspections and rectifications, collect clues, identify problems and strengthen their accountability systems.
Pan expects these will lead to the normalization of some law enforcement inspections. He believes regulators will also include more areas and strengthen law enforcement.
In the face of ever-evolving regulations, Pan says Internet companies should keep an eye on legislation and law enforcement. “There is no doubt that the law is not keeping pace with the development of the Internet economy. In this case, Internet firms should not think they have a lucky escape from any illegal activities as there is no specific law to regulate them. Recently, the regulators issued tons of new rules for the Internet industry and took enforcement actions frequently. It is important to pay close attention to legislation and law enforcement, as well as sort out the requirements of corporate compliance,” he says. Meanwhile, Pan says Internet companies should conduct self-inspections on corporate compliance and rectify any issues. If they fail to do so in a timely manner, regulators may summon them for talks or their apps could be delisted from stores. Also, they may be added to the list of dishonest judgment debtors and even bear administrative or criminal responsibility.
Finally, Pan believes it is necessary to establish compliance systems. He says many employees working at Internet firms do not know about compliance systems and related responsibilities they need to take. When there is a compliance problem, they just ask for help from the legal department. Eventually, this could lead to legal violations.
“It could help to build standardized operating procedures by establishing a complete compliance system,” Pan suggests. “Employees would be more familiar with their responsibilities related to corporate compliance to prevent compliance risks.”
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