China to regulate tech giants’ algorithms in unprecedented move

Computer code is seen on a screen above a Chinese flag in this July 12, 2017 illustration photo.

Thomas White | Reuters

In an unprecedented move, China has finalized regulation that governs the way technology companies can use recommendation algorithms, targeting the secret behind the success of many of the country’s giants.

The rules, which were first floated last year, will come into force on March 1, as Beijing continues its push to tighten regulation on China’s tech sector.

Algorithms are critical to how many technology companies operate — from recommending items on e-commerce apps to users, to recommendations on social media feeds.

Investors will be watching whether these rules will affect the business models of companies, from Alibaba to Tencent, and how regulators will enforce the law.

Here are some of the provisions in China’s algorithm regulation:

  • Companies must not use algorithm recommendations to do anything that violates Chinese laws, such as endangering national security.
  • Algorithmic recommendation services that provide news information need to obtain a license and cannot push out fake news. This provision was a new addition to last year’s draft rules.
  • Companies need to inform users about the “basic principles, purpose and main operation mechanism” of the algorithm recommendation service.
  • Users must be able to opt out of having recommendation services via algorithms.
  • Users must be able to select or delete tags that are used to power recommendation algorithms and suggest things to them.
  • Companies must facilitate the “safe use” of algorithmic recommendation services for the elderly, protecting them against things like fraud and scams. This was also a new addition to the previous draft.

Algorithms are a company’s deepest-held secret, their most valuable asset and letting the government dig around in there would be a problem.

Kendra Schaefer

partner, Trivium China

“These changes reflect some of the biggest concerns across Chinese society today — content control online, the aging population crisis, transparency of big tech companies, anti-competitive behavior — and seek to get out in front of a future where algorithms are used to corrode social unity or exacerbate market problems,” Kendra Schaefer, Beijing-based partner at Trivium China consultancy, told CNBC.

Enforcement

Impact on business models


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