China took action on Tuesday to strengthen its control over the industry and issued detailed rules aimed at addressing unfair competition and the handling of critical data by companies.

In recent months, Beijing has been strengthening its control of Internet platforms, citing the risk of abuse of market power to stifle competition, abuse of consumer information, and infringement of consumer rights, which has been reversed after years of more laissez-faire practices.

As part of the expanded crackdown, China imposed huge fines on companies such as e-commerce giant Alibaba Group and social media company Tencent Holdings, and vowed to draft new laws on technological innovation and monopoly.

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

After the rules were announced, the share prices of Internet stocks listed in Hong Kong fell. Video platform Bilibili fell 7.4%, while Tencent, Alibaba and food delivery service Meituan fell 4.1%, 4.2% and 2.6% respectively.

Michael Norris, research and strategy manager at AgencyChina, a Shanghai consulting firm, said: “The particularity of the proposed regulations demonstrates a clear set of priorities for establishing’participation rules’ for online competition.”

“If promulgated, these regulations may increase the compliance burden on trading platforms, including e-commerce markets and short video applications for shopping.”

No hijacking of traffic

The State Administration for Market Regulation wrote in the public comment draft that Internet operators “must not implement or assist in the implementation of Internet unfair competition, disrupt the order of market competition, or affect fair market transactions.” Public feedback before the September 15 deadline.

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Specifically, the regulator said that operators should not use data or algorithms to hijack traffic or influence user choices. Do not use technical means to illegally obtain or use data from other operators.

Companies will also be prohibited from fabricating or disseminating misleading information to damage the reputation of competitors, and need to stop marketing methods such as false reviews and coupons or “red envelopes” (cash rewards) that are used to attract positive ratings.

Soon after the publication of the draft science and rules, the cabinet of China announced that it will implement regulations protecting critical information infrastructure from September 1.

The State Council stipulates that business operators who purchase Internet products and services that may affect national security shall undergo a security review.

Reuters reported on Tuesday, citing company documents, that the Chinese government had also acquired ownership shares in domestic entities of social media giants Bytedance and Weibo.

© Thomson Reuters 2021