In an unprecedented move, China has finalized regulations governing the way technology companies can use recommendation algorithms, targeting the secret behind the success of many of the country's giant corporations.
The rules, first introduced last year, will go into effect on March 1, as Beijing continues its push to tighten regulations on China's technology sector.
Algorithms are essential to how many technology companies operate, from recommending items on e-commerce apps to users, to recommendations for posts on social media platforms.
Investors will be watching whether these rules affect the business models of companies from Alibaba to Tencent, and how regulators enforce the law.
The following are some new provisions in China's regulation of algorithms
These changes reflect some of the biggest concerns across Chinese society today, which are the control of online content, the aging population crisis, and corporate transparency,” Kendra Schaefer, partner at Beijing-based consultancy Trivium China, told CNBC. Big technology, anti-competitive behaviour, and striving to break out into a future where algorithms are used to erode social unity or exacerbate market problems.”
For breaking or violating the rules, companies can be fined between 10,000 yuan and 100,000 yuan (between about $1,570 and $15,740), but the implementation of algorithmic regulations may lead to a clash between regulators and technology companies. In order for regulators to find the violations, they may have to examine the code behind the algorithms.
Algorithms are the company's deepest secret, its most valuable asset, and allowing the government to dig into them would be problematic," Schaefer said.
These rules may have a greater impact on companies in the short term, especially as Chinese technology companies are quick to interpret and implement these rules,” Xiang Fan, Head of Digital Trade at the World Economic Forum (WEF), told CNBC. and compliance with it, along with a series of other recently approved technical regulations.
"At the same time, although these rules are broad and far-reaching, they are not an absolute death sentence for companies," said Xiang. "In the medium and long term, it is not impossible that companies can develop alternative solutions to comply with the rules while meeting business goals." modified".
The regulations on the algorithms are part of a more than a year-long campaign by Beijing to consolidate its control over the domestic tech sector and control the power of China's giants, which has grown largely unhindered for years.
Last year, China introduced antitrust rules for online platform companies, a landmark data protection law, and limited the time children can play online games.
It could be said that the rules of the new algorithm could have the potential to affect the business models of tech companies, given their importance to the way these companies operate, although it is Xiang who said they will likely adapt in the long run.