Chinese tech regulators strike again

ByteDance, the parent company of popular social media platform TikTok, has a not-so-secret weapon. Its powerful algorithms are able to accurately predict user preferences and recommend the content they actually want to see, thus keeping them glued to their screens.

But ByteDance may soon have to sheath that weapon – or, at least, dull its blade.

Internet platform companies in China are facing a host of new data regulations that could restrict the use of recommendation engines. For starters, the Personal Information Protection Act, which went into effect this month, requires platforms to allow users to opt out of personalized content and targeted advertising.

But China could soon go much further. Its internet regulator, the Cyberspace Administration of China (CAC), recently released new draft guidelines that imply a host of restrictions on data collection and processing and its transfer across borders. In particular, applications should obtain explicit consent from users before collecting or using data to make personalized recommendations. In other words, individuals should opt for personalization, rather than opting out, as is the current norm.

This policy could go a long way to erode the business models of online platforms like Douyin (the version of TikTok used in China) and Taobao (an online shopping platform owned by the Alibaba group), with potentially huge implications for innovation. future. in the Chinese technology sector. The reason is simple: many users, if asked, decide that personalization is not worth giving up their privacy.

Asking makes all the difference. When Apple buried the option to opt out of app tracking in its complicated privacy settings, only 25% of users took the time to find it and opt out. But when the company started offering iPhone users the option to opt out of tracking, 84% took it.

Apple’s new opt-out policy, which it introduced on its iOS iPhone last April, has been devastating for U.S. tech companies like Facebook, whose business models rely on collecting user data and selling ads. targeted. Apple’s policy change, according to one estimate, cost Facebook, Snap, Twitter and YouTube together nearly $ 10 billion in revenue – or 12% of the total – in the second half of 2021. Online advertisers, who now owe pay a lot more to reach potential customers, panic.

That’s a worrying sign for Chinese tech companies, not least because the CAC’s proposed data regulation goes way beyond Apple’s new rule. While Apple requires apps to get permission before sharing a user’s data with third parties, China’s new measures would require apps to secure user membership, even to use the data itself.

China’s proposed membership requirement also appears to be stricter than the European Union’s General Data Protection Regulation – currently one of the strictest privacy laws in the world. While the GDPR requires platforms to secure user consent before collecting and processing data, it does not require specific consent to enable referral services.

It remains to be seen how Chinese platforms will react to the proposed settlement. They will almost certainly lobby the government not to enforce it at all. If the government refuses to listen, it will likely try to get around the rule by redesigning the functionality of the app, although this will take time and increase compliance risks.

And yet, for the CAC, the struggles of private tech companies may not be of great concern. While it is impossible to say exactly what was factored into the cost-benefit analysis of the proposed membership requirement, it seems clear that encouraging business growth and technological innovation does not work. part of the CCC mandate.

So what are the objectives of the ACC? To answer this question, we need to consider the agency’s mission, culture and bureaucratic structure. Since Chinese administrative enforcement is shaped by dependence on the trail, we must also examine the past behavior of the CAC – in particular, its status as one of China’s most interventionist government departments.

Operating under the direction of the Central Commission for Cyberspace Affairs, a steering group chaired by President Xi Jinping himself, the CAC was initially responsible for ensuring cybersecurity and regulating internet content. But since 2013, it has grown considerably, notably by absorbing other cybersecurity agencies.

In July, the ACC made headlines when it surprised ride-sharing company Didi Chuxing with a cybersecurity inspection just two days after the company’s New York IPO. The ACC subsequently mandated cybersecurity checks for any data-rich Chinese tech company planning overseas listings, establishing itself as the gatekeeper of overseas capital raising efforts.

Since data is the lifeblood of the platform economy, the CAC has considerable leeway to expand its bureaucratic bailiwick. And, if the new draft regulation is any indication, it plans to do just that, knocking down the walls surrounding the “walled gardens” of internet platforms, banning algorithmic price discrimination, and cracking down on others. unfair pricing practices.

These efforts will undoubtedly overlap with the mandate of China’s antitrust regulator, the State Administration for Market Regulation. But whatever: emboldened by government pressure to curb the tech giants, the CAC has great regulatory ambitions. In the years to come, its efforts to achieve them will play a major role in shaping the trajectory of platform companies – and technological innovation – in China.

Angela Huyue Zhang, Professor of Law, is Director of the Center for Chinese Law at the University of Hong Kong. She is the author of Chinese Antitrust Exceptionalism: How the Rise of China Challenges Global Regulation. © Project Syndicate, 2021

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