Algorithms Become a Point of Emphasis in China’s Antitrust Efforts

On January 4, the Cyberspace Administration of China (CAC) released new regulations for recommendation algorithms on internet platforms. Set to take effect in March 2022, the “Provisions on the Management of Algorithmic Recommendations'' are the finalized version of draft guidelines released by the CAC in August 2021. As defined by the provisions, the use of algorithm technologies refers to uses such as "generation and synthesis, individualized pushing, sequence refinement, search filtering, schedule decision-making… to provide users with information.” While the topic of the consequences of algorithms on content moderation and market concentration has drawn attention from international bodies such as the Organisation for Economic Co-operation and Development (OECD) and the European Union, China has established itself as a leader in this domain by moving swiftly and ambitiously. 

Many outside observers have stressed how the regulations will affect the government’s ability to curate content available to Chinese users on the internet, but they are also central to Beijing’s efforts to control technology giants. That Chinese policymakers have become increasingly focused on the specific technologies enabling tech giants’ competitive advantages signals a new chapter in China’s diversifying antitrust strategy. 

The new rules are part of China’s long-term process of establishing a so-called “internet civilization”—a broadly-defined concept encompassing internet architecture, people’s relationship with the internet, and perhaps most prominently, the integration of the state’s “core socialist principles” into internet ethics and content. The CAC’s new algorithm provisions address some of the undesired consequences facilitated by the internet, such as the malicious targeting of elderly people, fraud, and the spread of misinformation or “fake news.” China’s increased scrutiny in this domain has already led to crackdowns on internet companies’ use of algorithms to enable internet addiction and lure consumers to spend money—developments the government hopes will catalyze the use of “data for good.” 

Content control will always be one of CAC’s priorities, but the new algorithm provisions are further evidence that the cyber agency wants to play a larger role in a critical policy arena: antitrust regulation fostering industry competition. The provisions amend the CAC’s August 2021 draft to feature specific restrictions on algorithmic monopoly behavior. A newly added Article 15 bans the use of algorithms to “unreasonably restrict other internet information service providers, or to obstruct and undermine the normal operation of the internet information services they lawfully provide”—a response to the dominance of monopolistic tech giants in China. 

This is not the first time that internet platforms in China have been scrutinized for their manipulation of digital infrastructure to engage in anticompetitive practices. For instance, netizens have accused Apple of inhibiting competition through algorithms that prioritize native applications and payment methods, and diminish competitor footholds within its App Store. In draft guidelines released in August 2021, China’s State Administration for Market Regulation (SAMR) began prohibiting similar “walled garden” tactics wherein internet platforms would force exclusivity by using algorithms that block links to rival platforms. The CAC’s new algorithm provisions effectively reaffirm the SAMR’s previous regulation, solidifying the concept that forced exclusivity may be an outcome of firms’ manipulation of algorithms within Chinese legal thought. 

Another form of algorithmic collusion that the provisions target is price manipulation, which was prohibited by China’s market regulator in February 2021. The SAMR’s regulations give legal definition to the “coordinated behavior” by firms which collude through the collective use of identical pricing algorithms among competitors, known in antitrust literature as “hub and spoke” collusion. The SAMR also spotlights firms’ unilateral use of algorithms to predictively and automatically set prices based on user data and market information. In this vein, Article 21 of the CAC’s new provisions states that firms are obligated to “protect consumers’ rights to fair transactions” by ceasing the use of algorithms or user data to “carry out unreasonable differentiation in terms of transaction prices.” Insofar as individuals’ data contributes to companies’ capabilities to enable anticompetitive behavior, Beijing’s rhetoric frames price manipulation as an affront to individual users and corporate social responsibility.  

Furthermore, the provisions’ articles on corporate data disclosure and users’ rights seek to strip companies of secrecy in how data and algorithms are used. To ensure that firms do not engage in algorithmic collusion, the provisions mandate transparency over the “fundamentals and mechanisms” of providers’ recommendation algorithms. This would mean that no firms should be able to gain a competitive advantage from a proprietary application of user data without provider review. The provisions also call for more user agency in data-sharing applications, mandating voluntary opt-outs and complaint mechanisms to targeted algorithmic recommendations constructed through personal information, search history, and purchase history. These measures effectively push back on the firms’ use of algorithms to influence competition while publicly “lifting the lid” on the collusive potential of algorithms. 

According to an official policy interpretation published on the CAC’s website, the internet regulator hopes the new algorithm provisions will encourage “corporate responsibility” and “self-discipline” within the internet industry—principles Beijing has continuously stressed throughout a prolonged flurry of regulatory activity. The CAC’s provisions signal that algorithms and data applications will garner heightened scrutiny within competition policy. 

As such, it is appropriate to view the CAC’s new algorithm rules as the latest chapter in an intensifying antitrust battle in China. Moreover, the new regulation reflects Beijing’s growing interest in companies’ use of technological methods to circumvent fair competition. There are no signs that the pace of regulation is slowing down. In fact, this month, China’s highest court proposed increased scrutiny of firms using “algorithms, data, capital advantages, and platform rules to exclude and restrict competition.” Between the SAMR, CAC, judicial system, and other state agencies, China appears to be committed to diversifying the scope and reach of its regulatory ambitions. 

The CAC’s newest algorithm provisions are significant in China’s antitrust agenda in that they dissect the specific mechanisms by which firms may manipulate data to achieve competitive advantages. In confluence with other government activity in recent months, the new rules look to bolster corporate compliance on data-related issues with a strong regulatory framework. Beijing’s decree should elucidate to all that, in the eyes of the state, well-functioning “internet civilization” will require significant changes to how companies apply algorithms to their digital operations.