In a bid to tighten its grip over the technology sector, the Chinese government has come up with a new set of rules aimed at tackling unfair competition and companies' handling of critical data.
Facing global criticism over its recent moves to crack down on top tech giants, 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.
In recent times the country has also 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.
The Chinese State Administration for Market Regulation (SAMR) on Tuesday issued a set of draft regulations banning unfair competition and restricting the use of user data.
Following the move the 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 US 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 Agency China.
“If promulgated, the regulations will likely increase compliance burdens for transaction platforms, including e-commerce marketplaces and shoppable short video apps,” Norris added.
According to the new set of rules, 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 Chinese State Administration for Market Regulation (SAMR) wrote in the draft, which is open to public feedback before a September 15.
The regulator has specifically 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 illegally capture or use other business operators' data.
According to the draft, 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 September 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%.
