China to regulate tech giants’ algorithms in unprecedented move

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The computer code is visible on a screen above a Chinese flag in this illustrative photo from July 12, 2017.

Thomas Blanc | Reuters

In an unprecedented move, China finalized regulations that govern how tech companies can use recommendation algorithms, targeting the secret behind the success of many of the country’s giants.

The rules, which were first launched last year, will take effect on March 1, as Beijing continues efforts to tighten regulation of China’s tech sector.

Algorithms are essential for the number of tech companies – from recommending articles on e-commerce applications to users, to recommendations on social media feeds.

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

Here are some of the provisions of the Chinese algorithm regulation:

  • Companies should not use the algorithm recommendations to do anything that violates Chinese laws, such as endangering national security.
  • Algorithmic recommendation services that provide topical information must be licensed and cannot disseminate false information. This provision was a new addition to last year’s draft regulation.
  • Businesses should educate users on the “basics, purpose, and main operating mechanism” of the algorithm recommendation service.
  • Users must be able to refuse to have recommendation services via algorithms.
  • Users should be able to select or remove tags that are used to fuel recommendation algorithms and suggest things to them.
  • Businesses need to make it easier to “use it safely” for algorithmic recommendation services for older people, protecting them from things like fraud and scams. This was also a new addition to the previous version.

Algorithms are a company’s deepest secret, its most valuable asset and letting the government dig into that would be a problem.

Kendra schaefer

partner, Trivium China

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

Enforcement

Companies can be fined anywhere from 10,000 yuan to 100,000 yuan (approximately $ 1,570 to $ 15,740) for violating the rules.

But enforcement of algorithm regulations could spark a clash between regulators and tech companies. This is because in order for regulators to find violations, they may have to inspect the code behind the algorithms.

“Algorithms are a company’s deepest secret, its most valuable asset and letting the government dig in that would be a problem,” Schaefer said.

“To what extent does the CAC have access to the code?” And even if they have access to the code, can they really make sure that stuff doesn’t happen? she said, referring to the Cyberspace Administration of China.

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Meanwhile, regulators will enter uncharted territory trying to oversee the algorithms of tech companies.

“Since these rules are quite extensive and partly technical, it would be a learning process both for the enforcement bodies and for the companies, which will have the main responsibility for complying with these rules”, Ziyang Fan, head of digital commerce at the World Economic Forum, told CNBC.

Impact on business models

… although these rules are broad and far reaching, they do not constitute an absolute “death sentence” for companies.

Ziyang fan

Head of Digital Trade, World Economic Forum

The new algorithm rules could arguably have the ability to impact the business models of tech companies given their importance to the way these companies operate, although Fan of the WEF said they would likely adapt. longer term.

“These rules may have more of an impact on businesses in the short term, especially as Chinese tech companies rush to interpret, implement and comply with these rules, as well as a range of other regulations. recently adopted technologies, ”Fan said.

“At the same time, although these rules are broad and far reaching, they do not constitute an absolute ‘death sentence’ for companies. In the medium to long term, it is not impossible for companies to develop workarounds to comply with the rules during the meeting. [adjusted] business goals.”


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