China issues draft rules banning unfair competition in the internet sector

Chinese regulators on Tuesday issued a lengthy set of draft regulations for the internet sector, banning unfair competition and restricting the use of user data, the latest move in a crackdown on the country’s powerful tech companies.

China has been tightening its grip on internet platforms, citing the risk of abusing market power to stifle competition, misuse of consumers’ information and violation of consumer rights.

It has issued hefty fines to companies including e-commerce giant Alibaba Group (9988.HK) and social media company Tencent Holdings (0700.HK) in recent months.

Shares in Hong Kong-listed internet stocks fell following the rules’ publication. Video platform Bilibili Inc (9626.HK) fell more than 5%, while Tencent, Alibaba, and food-delivery service Meituan (3690.HK) dropped 3.5%, 2.6%, and 1.4%, respectively.

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 State Administration for Market Regulation (SAMR) wrote in the draft, which it published on its website.

Specifically, the regulator stated, 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.

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” used to entice positive ratings.

The draft rules also called for a ban on “two-choose-one,” a practice e-commerce companies used to ban merchants from listing on rival platforms.

The rules are currently open to public feedback before a Sept. 15 deadline.

SAMR has imposed various restrictions and punishments on tech giants in an effort to restrict anti-competitive or monopolistic behavior.

In April, following a months-long probe, SAMR fined Alibaba a record $2.5 billion for engaging in unfair competition.

In July, the regulator ordered Tencent to end exclusive licenses for certain songs on its music streaming service, and also blocked a merger between two game streaming companies Tencent had led. – Reuters

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