In November 2020, the Chinese fintech world was shocked when the initial public offering (IPO) of Ant Financial was cancelled. This IPO, which was slated to be the biggest ever, fell afoul of new rules on online lending which would have a considerable impact on Ant’s profit model. This regulatory move turned out to be the first visible step in what since has turned out to be a wholesale restructuring of the regulatory environment for large online platforms. In a year and a half, authorities passed two major pieces of legislation for data protection, a raft of regulations addressing algorithms, unfair competition and cybersecurity review, dozens of specific technical standards and numerous policy documents clarifying the new direction for the online economy.
A closer look reveals, however, that this is not quite a uniform or centralised campaign. Rather, it is better understood as a bundle of measures aimed at realising six different (although sometimes interlocking) kinds of objectives.
First, there are Party idiosyncrasies, or typical elements of PRC (People’s Republic of China) regulation that form a natural, logical and gradual extension of existing regulatory systems. In other words, they constitute moves that Beijing would have likely made anyway. These include many of the measures related to online content. Matters such as policies on the “dominant responsibility” of companies in managing information, or the prohibition on algorithmically generated news, fall in a long tradition of content control. This is exacerbated by the growing political sensitivity of the run-up to the 20th Party Congress later this year, where tighter control over the public opinion sphere is a given.
A second category of measures constitutes basic forms of market regulation, aimed at ensuring fair competition and consumer protection. In many ways, these are elements that were in the works before: the 2019 Consumer Protection Law already contained several dedicated provisions for e-commerce, which have now been made more detailed. Yet they also reflect a growing political awareness of complaints coming from users and on-platform traders of large online platforms, who often were subject to onerous obligations, such as “pick one” provisions that made it impossible for traders to be present on multiple large platforms. These measures are largely aimed at restoring a balance between the huge platform companies, and their comparatively much less powerful users.
The third category addresses emerging concerns in Chinese politics, most notably surrounding social issues and common prosperity. Perhaps the most visible target was the educational technology sector, whose market valuation was nearly completely wiped out after the central government prohibited for-profit tutoring services. These measures formed part of a broader policy to reduce burdens on parents and spur China’s languishing birth rate. Another very important element is labour protection. At the higher end, the Supreme People’s Court targeted the ubiquitous “996” working culture (working from 9 AM to 9 PM, six days a week), to which programmers and platform employees were often subjected. At the lower end, regulations concerning algorithms also limited their use concerning the dispatching of delivery drivers.
A fourth category concerns macro-economic risks, most notably in the financial sector. The rapid growth of Ant Financial signalled the expansion of online financial services from simple payment handling to issuing credit and loans. By 2020, Ant issued 10 per cent of non-mortgage consumer loans in China, and its underregulated nature contributed to worries about the build-up of financial debt. More broadly, this element fits within an emerging policy narrative that seeks to avoid the volatility risks of financialization, and seeks to promote the “real” economy instead.
Fifth, Beijing seeks to reorient investment by private companies to better support its technological, economic and social development policies. On the one hand, there is a concern that the enormous market power and the deep pockets of large platform enterprises allow them to buy up innovative start-ups with the potential to become competitors, and thus prevent further technological development. On the other hand, there are moves aimed at creating the market for new supporting industries by instituting new obligations. For instance, data protection requirements concerning cybersecurity reviews and annual audits mean there will be ample demand for third-party service providers with the requisite technological capabilities. These, in turn, would raise China’s overall cybersecurity preparedness – or so it is hoped.
Lastly, the measures serve to limit foreign influence in the Chinese digital sphere. In the decade since the Snowden revelations, it has become a common refrain in Beijing that the US will stop at nothing to divide and Westernize China, and subvert the CCP-led regime. Technology could be a significant conduit in doing so. Hence, the new data protection law contains strict restrictions on data export, as well as foreign ownership of Chinese companies holding large amounts of personal information.
Apart from these substantive elements, departmental interests should be considered as well. The State Administration for Market Regulation, for instance, is a newly established body that may well use the high profile of its anti-monopoly efforts to gain visibility and bureaucratic traction.
It is too early to say to what extent these six different elements have already coalesced into a coherent model for governing the digital industry. To a certain degree, the sum of this regulatory wave is greater than its parts, symbolizing tremendous changes in China’s development strategy as well as the role and importance of the targeted companies. Put briefly: China’s economic growth has achieved a stage where the mantra of “GDP at all costs” is increasingly being replaced by a broader set of objectives that partly seek to remedy the imbalances caused by the rapid-growth strategy in the first place. Digital platform companies, in turn, are no longer the scrappy upstarts of a mere few years ago, but mature giants with significant market shares whom Beijing expects to act as good corporate citizens. Yet at the same time, many of these measures are new and experimental, remain vague and under-detailed, and are untested in practice. They serve different and often conflicting goals, and Beijing has not yet made clear where it sees trade-offs that need to be resolved. It should therefore be expected that the next few years will be spent on finetuning and revising the broad brushstrokes painted over the past 15 months.
The opinions expressed are those of the author. They do not reflect the opinions or views of ISPI.