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Chinese tech regulators strike again




Hong Kong – ByteDance, the parent company of the popular social media platform TikTok, has a lesser-secret weapon. Its powerful algorithms can accurately predict user preferences and recommend what you actually want to see, so you can keep your users on the screen.

However, ByteDance may need to quickly obscure the weapon, or at least blunt its blade.

Internet platform companies in China are faced with a number of new data regulations that could reduce the use of recommendation engines. First, the Personal Information Protection Act, which came into force this month, requires a platform that allows users to opt out of personalized content and targeted advertising.

But China has the potential to move further in the near future. Its Internet regulator, the China Cyberspace Administration (CAC), recently issued a new draft guideline with numerous restrictions on data collection and processing, and cross-border data transfer. In particular, the app must obtain explicit consent from the user before collecting or using the data to make personalized recommendations. In other words, individuals need to opt in for personalization instead of opting out for personalization as is the current standard.

This policy could greatly help erode the business model of online platforms such as Douyin (the version of TikTok used in China) and Taobao (an online shopping platform owned by Alibaba Group), and future innovations. In China’s engineering sector, which can have a widespread impact on. The reason is simple. Many users, when asked, decide that personalization is not worth giving up privacy.

Asking makes all the difference. When Apple filled the option to deny app tracking with complex privacy settings, only 25% of users took time to find it and opt out. But when the company began encouraging iPhone users to opt out of tracking, 84% adopted it.

Apples’ new opt-out policy, introduced on iPhone iOS last April, has had a devastating impact on US tech companies such as Facebook, whose business model is built on the collection of user data and the sale of targeted ads. I am. According to one estimate, Apple’s policy changes will bring Facebook, Snap, Twitter, and YouTube revenue to nearly $ 10 billion, or 12% of the total in the second half of 2021. panic.

This is an ominous sign for Chinese tech companies, especially as CAC’s draft data regulations go far beyond Apple’s new rules. Apple needs to get permission from the app before sharing user data with third parties, but the new Chinese action requires protecting users’ opt-ins even if the app uses the data itself.

The opt-in requirements proposed by China appear to be stricter than the European Union’s General Data Protection Regulation, which is currently one of the strictest privacy laws in the world. The GDPR requires a platform to secure user consent before collecting and processing data, but does not require specific consent to enable recommended services.

It remains to be seen how the Chinese platform will respond to the proposed regulations. They will almost certainly urge the government not to do it at all. If the government refuses to listen, it may try to circumvent the rules by redesigning the app’s functionality, which can be time consuming and pose a significant compliance risk.

Still, the struggle of private tech companies may not be that much of a problem for CAC. It is not possible to say exactly what was considered in the cost-benefit analysis of the proposed opt-in requirements, but it is clear that encouraging business growth and innovation is not part of CAC’s obligations.

So what are the goals of CAC? To answer that question, we need to consider the bureaucratic mission, culture, and structure. Given that China’s executive branch is shaped by path dependence, it is also necessary to look specifically at CAC’s past actions, especially its position as one of China’s most interventionist government sectors.

The CAC, which runs under the Central Cyberspace Issues Committee, a leadership group chaired by President Xi Jinping himself, was initially responsible for ensuring cybersecurity and regulating Internet content. However, since 2013, it has expanded significantly, including absorbing other cyber security agencies.

In July, CAC was talked about when it surprised ride-hailing service company Didi Chuxing with a cybersecurity inspection just two days after its initial public offering in New York. Since then, CAC has mandated cybersecurity checks on data-rich Chinese tech companies planning to go public, effectively establishing itself as a gatekeeper for overseas funding efforts.

Given that data is the lifeline of the platform economy, CAC has a lot of room to expand its bureaucratic bailiwick. And if the new regulatory proposal is any sign, it’s planning to do just that, destroying the walls surrounding the garden surrounded by the walls of the Internet platform, banning price discrimination by algorithms, and others. Suppress unfair pricing practices.

These efforts will undoubtedly overlap with the mission of the National Market Regulatory Authority, China’s antitrust regulator. But it doesn’t matter. CAC has great regulatory ambitions as the government becomes bold as it seeks to curb tech giants. Over the next few years, efforts to achieve them will play a major role in determining the trajectory of platform business and innovation in China.

Angela Huyue Zhang, a professor of law, is the director of the Chinese Law Center 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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