The latest target of China’s tech regulation blitz: algorithms

BEIJING — Chinese authorities are planning to restrict how companies use algorithms to sell products to consumers, a move analysts said likely runs counter to business interests and sets a precedent for other countries.

China’s largest tech companies from e-commerce giant Alibaba to TikTok-owner ByteDance have built their multibillion dollar businesses on algorithms that serve up content a customer is more likely to spend money or time on, based on previous viewing records.

The increasingly powerful cybersecurity regulator on Friday released sweeping draft rules for regulating use of these so-called recommendation algorithms. The proposal is open for comment until Sept. 26, with no specified implementation date so far.

The groundbreaking rules could set up a clash between China’s technology giants — which have been subject to increasing regulation over the past 10 months — and Beijing, which has sought to rein in their power.

And China’s algorithm rules will be closely watched by other countries and technology firms around the world for how it might affect business models and innovation, analysts said.

“Companies are going to have a lot to say about this because this has the potential to restructure business models,” Kendra Schaefer, Beijing-based partner at Trivium China consultancy, told CNBC.

The rules have also thrown up questions about how enforcement will happen and how intrusive regulators might have to be to actually get companies to comply with these rules.

Here are some of the key points in the draft rules:

• Companies must not set up algorithms that push users to become addicted or spend large amounts of money.
• Service providers need to notify users in a clear way about the algorithmic recommendation services they provide.
• Users need to have a way to switch off algorithmic recommendation services. Users should also have a way to choose, revise, or delete user tags used for the recommendation algorithm. 
• When algorithms are used to market goods or provide services to consumers, the company behind it must not use the algorithm to carry out “unreasonable” differentiation in terms of prices or trading conditions.
• Any violations of the rules could land companies with fines between 5,000 yuan and 30,000 yuan ($773 and $4,637).

These proposed rules come as the Chinese government has ramped up its regulation on homegrown technology giants in the last year, primarily in the name of cracking down on monopolistic practices and increasing data protection.

On Wednesday, a new data security law took effect. A personal data privacy law is set to take effect on Nov. 1.

Recommendation algorithms are formed of code that is fed specific information about users to help provide more tailored results. If you’re on an e-commerce site, some of items you see on the homepage are likely there because…