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China to regulate tech giants’ algorithms in unprecedented move


In this illustration taken on July 12, 2017, you can see computer code above a Chinese Flag.

Thomas White | Reuters

China is making an extraordinary move to finalize regulations that regulate the use of recommendation algorithms by technology companies. It is a remarkable step and aims at the secret of success for many of its giants.

Here are the guidelines which were first floated last yearAs Beijing pushes to increase regulation in China’s tech sector, a new law will be put into effect on March 1.

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 pay attention to how these rules impact the business model of businesses. AlibabaTo TencentHow regulators will enforce law.

Below are some provisions from China’s algorithm regulations:

  • It is illegal for companies to use algorithm recommendations in order to violate Chinese law, including endangering national security.
  • Algorithmic recommendation service that provides news information must have a license. They cannot publish fake news. This new rule was added to last year’s draft rules.
  • Users must be informed by companies about the basic principles, purposes and operation of an algorithm recommendation service.
  • It is up to the users to decide whether they want recommendation services by algorithms.
  • The ability to delete or select tags which are being used to drive recommendation algorithms, and to make suggestions to users is essential.
  • To protect the elderly against fraud and scams, companies must make it easy for them to use algorithmic recommendations services. The previous draft also included this new feature.

Algorithms can be considered the company’s most secretive asset, and it is a risky business venture to let government officials dig into them.

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.


For violating the rules, companies can face fines of up to 10,000 Yuan and 100,000 Yuan, or between $1,570-$15,740.

However, enforcement of algorithm regulations could lead to a conflict between tech companies and regulators. Because regulators might need to look at the algorithms to determine if there are violations.

Schaefer explained that algorithmics were a company’s greatest secret and most valuable asset. Schaefer suggested that allowing the government to dig in would pose a problem.

What access does the CAC have to the code? Even if the CAC had access, how can they ensure this kind of thing doesn’t happen? Referring to China’s Cyberspace Administration, she stated.

CNBC Pro has more information about China

Regulators will soon be exploring new territory as they try to control the algorithms of tech companies.

CNBC’s Ziyang Fan told CNBC that the rules were complex and technically detailed. “It would be an learning process both for the enforcement agencies as well as the companies who will have to comply with them.” Ziyang Fan is the head of digital trade at World Economic Forum.

Business models and their impact

These rules may seem extensive and broad, but they don’t constitute a death sentence for businesses.

Ziyang Fan

World Economic Forum, Head of Digital Commerce

Given their importance to tech companies’ operations, the new algorithm rules could impact the business model of these companies. However WEF’s Fan stated that the algorithms will probably adapt in the long-term.

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

These rules, although extensive and broad, aren’t a death sentence for businesses. Companies could find ways to meet the requirements of the regulations while still meeting their long-term objectives. [adjusted]Business objectives