Business

China tweaks tech giants’ algorithms in unprecedented move


The computer code is seen on the screen above the Chinese flag in this July 12, 2017 illustration.

Thomas White | Reuters

In an unprecedented move, China has perfected regulation governing how tech companies can use recommendation algorithms, targeting the secret behind the success of many of the country’s giants.

The rules, floated for the first time last year, which will take effect on March 1, as Beijing continues to push for tighter regulation of China’s tech sector.

Algorithms play an important role in the number of tech companies that operate – from recommending items on e-commerce apps to users to recommendations on social media feeds.

Investors will see if these rules affect the companies’ business models, from Alibaba arrive Tencent, and how regulators will enforce the law.

Here are some of the terms of China’s algorithmic regulation:

  • Companies must not use algorithmic recommendations to do anything that violates Chinese law, such as endangering national security.
  • Algorithmic recommendation services that provide news information require a license and cannot push fake news. This provision is a new addition to last year’s draft rules.
  • Companies need to inform users of the “fundamental principles, purposes, and main mechanism of operation” of the algorithm recommendation service.
  • Users must be able to opt out of recommendation services through algorithms.
  • The user must be able to select or remove the tags used to support the recommendation algorithms and recommend things to them.
  • Companies must facilitate the “safe use” of algorithmic recommendation services for seniors, protecting them against things like fraud and scams. This is also a new addition to the previous draft.

Algorithms are the company’s best-kept secret, their most valuable asset, and letting the government dig into it is problematic.

Kendra Schaefer

partner, Trivium China

“These changes reflect some of the biggest concerns of Chinese society today – controlling online content, the crisis of an aging population, the transparency of big tech companies, anti-social behavior.” competition – and find a way out before a future where algorithms are used to erode social solidarity or exacerbate market problems,” said Kendra Schaefer, partner based in Beijing at Chinese consulting firm Trivium, told CNBC.

Enforcement

Companies can be fined between 10,000 yuan and 100,000 yuan (from about $1,570 to $15,740) for breaking the rules.

But algorithmic regulatory enforcement could create a clash between regulators and tech companies. That’s because in order for regulators to find violations, they may have to examine the code behind the algorithms.

“Algorithms are the company’s deepest-kept secret, their most valuable asset, and letting the government dig into it is problematic,” Schaefer said.

“How much access do CACs get to the code? And even if they do have access to the code, can they really guarantee that that kind of stuff doesn’t happen?” she said, referring to China’s Cyberspace Administration.

Read more about China from CNBC Pro

Meanwhile, regulators will be entering unregulated territory to try to monitor the algorithms of tech companies.

“Since the rules are quite broad and technical in their parts, it will be a learning process for both enforcement agencies and companies, who will have primary responsibility for complying with the rules.” this rule,” Ziyang Fan, head of digital commerce at the World Economic Forum, told CNBC.

Impact on business model

… while these rules are broad and far-reaching, they are not an absolute ‘death sentence’ for companies.

Fans of Ziyang

Head of Digital Trade, World Economic Forum

The new algorithmic rules are said to have the potential to impact tech companies’ business models given how important they are to how these companies operate, though Fan of the WEF says they will likely adapt over a longer period of time.

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

“At the same time, while these rules are broad and far-reaching, they are not an absolute ‘death sentence’ for companies. In the medium and long term, it is not impossible that companies do. can develop comprehensive solutions for code compliance during meetings [adjusted] business goals. “

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