Regulatory policy

Policy experts weigh in on China’s new algorithm regulations TechNode

In mid-March, two weeks after China’s new algorithm regulations came into force, many of China’s most popular apps, including WeChat, Douyin, Weibo and Taobao, changed their app settings to allow users to disable algorithm-based recommendation services, comply with the new rule.

Announced last November and effective March 1, the new regulations, titled Provisions on the Administration of Algorithm-Generated Recommendations for Internet Information Services, were issued jointly by four Chinese government agencies: the Cyberspace Administration of China (CAC), the Ministry of Industry and Information Technology (MIIT), the Ministry of Public Security and the State Administration for Market Regulation (SAMR).

The regulations address the very mechanisms governing the delivery of content online – from algorithm-based recommendations that are at the heart of the business model of many popular internet services across the country, from social media apps to e-commerce sites, delivery apps and video platforms.

The settlement is also the world’s first attempt by a national regulator to control the possible abuse of algorithmic decisions. It asks companies to inform consumers about the use of algorithms, provide opt-out choice, and protect vulnerable groups, such as minors and the elderly.

In order to better assess the relevance of the new rules for the future of the country’s digital economy, its relationship with other regulations in China and outside, and its possible impact on the Chinese technology industry, I have spoke to a number of digital policy experts.

More digital economy regulations around the world

“It is truly impressive to see how quickly China has adopted or revised key legislation to address some challenges related to the digital economy,” said Elena ScaramuzziHead of Global Research at Cullen International, an independent regulatory research firm based in Brussels.

Scaramuzzi added that China is not alone in regulating digital businesses and behavior, other countries and regions are looking to do the same, including the EU, Australia, South Korea, Japan, Singapore and the UK.

Considerable efforts have been made to regulate the data economy across the world. A notable example from the EU, Scaramuzzi said, is the European Commission’s proposal to regulate the use of AI, presented in April 2021, which use subliminal techniques to distort a person’s behavior. According to our recently published research on global AI policy trends, half of the economies studied (Brazil, China, EU, Germany, UK and some US states) now have rules requiring transparency, explainability and contestability of some AIs. – informed decisions.

Scaramuzzi also pointed out that China’s algorithm regulation is not siled. “The regulations refer to several Chinese laws, including the Personal Information Protection Law (PIPL), among others,” she said.

The new Algorithm Rules borrow from PIPL’s principles of transparency as well as user consent by establishing that algorithm-enabled service providers must publicly disclose the logic, purpose, and core mechanisms of the algorithm. algorithm, and allow users to disable these services, introducing a de facto opt-out system. They also address competition issues, with clauses prohibiting, for example, the use of algorithms to restrict other service providers or to discriminate on price.

The broad scope of the new rules – encompassing different angles – was also noted by a industry practitioner I consulted, representing a large Chinese technology group. The person asked not to be named as they do not have their company’s approval to speak to the media, but further pointed out the moralizing slant present in the rules. “One can better understand the rules of the algorithm and China’s latest interventions in privacy, data security, online gaming and ed-tech by looking at it all through the prism of common prosperity.” Common Prosperity is a political-economic campaign launched by the Chinese government in the middle of last year to reduce growing social inequalities.

This social values-driven approach, unique to China’s way of regulating the digital economy, is reflected in the terms of algorithm regulation: requiring all algorithm-recommended service providers to “respect mainstream values, disseminate actively the positive energy and promote the good and positive application of the algorithms.

Chinese regulators have indeed appeared increasingly sensitive and responsive to public controversies and consumer complaints in this area. The mistreatment of on-demand workers by delivery platforms – which has already drawn much criticism – is for example explicitly addressed in the new rules of the algorithm. The same applies to damage caused to minors by algorithms intended to stimulate addictions or overconsumption.

Show transparency in algorithms

The value of the rules goes beyond their broad scope and moralizing intent. In a comment to the DigiChina project funded by Stanford University, Rogier Cremers, University Professor of Modern China Studies at Leiden University, noted how “the new regulations attempt to impose a regulatory system categorized by type of application and level of impact for algorithms.” In essence, the law introduces a sort of “transparency index” for algorithms; service providers capable of influencing public opinion or social mobilization will have to disclose information such as the types and scope of their algorithms, as well as their self-assessment reports.

To achieve this level of transparency, Chinese regulators have required companies to register their algorithms with a state system, launching a new online portal the same day the regulations come into effect.

When it comes to regulating the digital economy, it is interesting to note the similarities in approaches across jurisdictions.

“The new Chinese regulation indicates a point of contact with the European approach to data regulation, which is based on the principle of transparency and disclosure to interested parties,” said Francesco PizzettiProfessor of Constitutional Law at the University of Turin and former President of the Italian Data Protection Authority.

“Chinese regulators seem to have recognized the need for users to be informed about the operating rules of the digital services they use on a daily basis. This is particularly important given the historic shift we are witnessing towards a global digital society, in which automated programs funnel the information we receive.

The Impact of Algorithm Rules on China’s Tech Industry

It may be too early to predict the impact of regulation on Chinese tech companies and more generally on the growth of China’s internet sector, which has already come under heavy regulatory pressure over the past year.

Chinese tech companies are facing headwinds on several fronts: tighter domestic regulatory scrutiny, a slowing economy, concerns over the possible delisting of U.S.-listed Chinese stocks from overseas markets, and the delicate position in which Chinese technology groups find themselves in the midst of Russia’s war in Ukraine. This regulation risks adding other worries to their plate.

Angela Huyue Zhangdirector of the Center for Chinese Law at the University of Hong Kong, said in an op-ed for Nikkei that she fears China’s attempt to regulate algorithms could hamper the growth of its most creative internet companies, such as ByteDance, the parent company of Douyin. and its international version TikTok, both of which rely on sophisticated recommendation engines.

One can get an idea of ​​what could happen with the introduction of the option to disable recommendation systems by looking at the case of Apple in Western markets. When Apple offered iPhone users the option to opt out of tracking, 84% of users took it, hurting ad revenue for apps like Facebook and Instagram.

“If an equally large share of Chinese consumers forgo personalization, collecting and using personal data would become much more costly for platforms and merchants,” Zhang told Project Syndicate in an interview in February, adding that the general trend towards tighter data regulation could not only affect China’s consumer internet business, but also derail China’s ambition to become an AI superpower.

However, not everyone shares the same point of view. The anonymous tech industry practitioner I quoted earlier thinks there is room for optimism.

“The new regulatory measure will require technology companies to make a cultural shift within the organization to ensure privacy is built in, consumers are protected, trust in digital services and sustainability of business models are assured. While there may be short-term disruptions as platforms need to adjust their internal processes, in the long term it will be beneficial for the healthy growth of China’s internet ecosystem,” the person said.

While it may be too early to assess the real effects of the new regulations, they will certainly be watched closely by both the tech industry community and the international circle of lawmakers. As Professor Pizzetti suggested, the opportunity before us lies in the future establishment of shared regulations allowing the free flow of data in the digital world.