User Protection with Chinese Specificity: The Centre's Expert Article Was Published at VPost

User Protection with Chinese Specificity: The Centre's Expert Article Was Published at VPost
Photo: 17.02.2022 742

Russia and China signed an agreement on cooperation in the antimonopoly sphere. An important part of the agreement is interaction in the regulation of digital markets. 

More than a billion people — about as many people in China have access to the Internet. That is the population of the Americas, a digital continent. Is it easy to manage? How do the "authorities" of this virtual world effectively protect each of its many citizens?

If not long ago China was cautious in its approach to digital platforms and claimed "balanced and tolerant" regulation, today news of fines and investigations into the digital sector impresses with vivid metaphors: "the antitrust sword is drawn from its scabbard," "the lasso of antitrust has tightened," "the heavy blow of the antitrust hammer." And these dithyrambs are more than deserved: while other countries are measuring the legal wording, China is really acting.

Common problems are being solved together — several bodies and departments have taken up the management of the "digit" at once. The State Council of the People's Republic of China and the National Development and Reform Commission set a common direction, the Cyberspace Administration regulates content and algorithms, ensures Internet security, the Ministry of Industry and Information Technology monitors the development of digital technology, the Ministry of Human Resources and Social Security protects the rights of workers on platforms (for example, couriers or taxi drivers) and so on. The most active role went to the State Administration for Market Regulation (SAMR) — it protects fair competition and a favorable business environment in the "digital reality".

Threats from digital giants

And there is a lot to protect against. One of the most acute problems today is forcing exclusive cooperation. In Chinese, this practice is literally called "choosing one of two": in pursuit of audience growth, the platform forces registered providers of goods and services to choose between themselves and competitors, that is, not allowing both to be present at the same time. At first, the term existed informally, but then it penetrated the regulatory practice and became firmly entrenched in it. The main victims here are businesses. For example, in the Chinese food delivery sector, Meituan is the undisputed leader, with 62 million monthly active users. In October, it paid $533 million for just such a claim. Next in the ranking is with 53 million users — in conditions of fair competition, restaurants could have almost doubled their clientele, but under pressure from the giant were forced to abandon all other sites.

Sometimes it is forbidden to be placed on competitive platforms; sometimes, it is only prohibited to participate in other people's promotions or offer more attractive prices "on the side". For violating the internal rules of the game, the seller faces a range of penalties: from lowering in search results and reduced traffic to display interference and complete blocking.

Marketplaces do not forget to reward "obedient" ones: stores receive advertising, subsidies and other nice bonuses for their loyalty. All these measures help to focus the maximum number of unique brands on the platform and thus be in a winning position. This strategy became fatal for Alibaba as well — this spring, the corporation received a record $2.78 billion fine for Chinese antitrust practice precisely for forcing stores to "choose one of the two", read: offer goods only on their trading floors — Taobao and Tmall.

Another problem is "killing existing customers with the help of big data." So dramatically, the Chinese public calls price discrimination when old customers are shown a higher price than new ones. According to users, this often happens in a hidden form — for example, during the search, the price is the same, but if you go to the store page, the new client receives a discount coupon, but the old one does not. To do this, the digital platform uses big data — all available information about the age, location, habits, and preferences to offer him an increased price for more interesting goods and services based on the "portrait" of the buyer. Price discrimination of iPhone users has also received great publicity in China — the taxi ordering service inflated prices for Apple gadget owners, apparently attributing higher solvency to them.

The array of data accumulated on platforms is enormous — according to China UnionPay, 80% or more of purchases are made through mobile payments. Operators know where you go, where and what you buy, how much you are willing to spend. The platforms collect detailed dossiers on users, know their social connections, character traits, interests and personal secrets. Dai Xu, a senior colonel in the Chinese People's Liberation Army Air Force, said such platforms should be nationalized:

"If Alibaba continues to collect data at its current scale for another 30 years, then the generation of Chinese leaders that will come to power by then will come from the ranks of users of its services. And if so, then the personal data of these future leaders will be available in big data and cloud storage".

Back in 2015, an hourly chart of Chinese officials' trips in the July heat was published online based on data from cab aggregator DiDi: the order times clearly show which agencies' employees stayed at work the longest and which left earlier. The statistics from six years ago got a repost in the summer of 2021, when DiDi went public on the U.S. exchange. Alarm bells rang: the platforms know too much not only about ordinary consumers, but also about the authorities, which means they are capable of manipulating them to some degree.

The Other Side of the Medal

Access to large amounts of data can be not only dangerous but also beneficial: Chinese regulators turn this resource to their advantage and use it to learn how to detect violations more effectively. For example, this winter Alibaba helped law enforcement agencies prove the sale of goods under someone else's brand. Company representatives explained:

"When a party to a case refuses or is unable to produce the necessary evidence, the Office of Market Regulation can qualify a violation and impose a fine directly based on the electronic evidence provided by our platform. This makes Alibaba a platform where any infringer would be afraid to come”.

In addition, platforms — if well-controlled — actually help the state to put laws into practice. When authorities demanded that teenage addiction to online games not be encouraged, during the winter holidays of 2022, the largest video game developer Tencent allocated only one game hour per day to players under 18 years of age — commentators on the network have already called this period "the most severe New Year's holidays in history." Clearly, the digital giants want to convince the government that there is no threat coming from them.

Control and digitalization — finding a balance

The state's anxiety about digital power is resulting in a hurricane of new regulatory measures. China is tightening controls where it sees the risk of out of control or data leakage: it bans cryptocurrency transactions (while offering a fully traceable digital yuan), eliminates foreign participation in the education sector, tightens checks before entering foreign exchanges, does not allow Chinese companies to disclose American accounting records... The list remains open. So is the question: Who exactly are the Chinese authorities protecting from the bloated tech giants?

The increased pressure on digital platforms does not cancel China's desire for widespread digitalization — the introduction of information technology has been and remains one of the country's most important strategic priorities.

Right now, the Internet Initiative is underway - it involves the introduction of advanced digital solutions in key industrial sectors. The only cause for concern is, to quote Chinese President Xi Jinping, the "disorderly expansion of the capital" of digital companies, where by disorderly they apparently mean the lack of control by the state.

Antitrust law was created at the beginning of the 20th century in order to prevent excessive concentration of market power in the hands of industrial corporations. And as the Chinese experience shows, today, in its new version, it is able to overcome the same challenges in the digital economy. China is fighting the overgrown "private power" with antitrust methods: it detects abuse of dominance and imposes fines, but, most importantly, it does not subtly hint at who is in charge here. The tool has been so effective that the ordinary SAMR antitrust department was recently upgraded to the State Antimonopoly Bureau — a whole agency at the vice-ministerial level.

Investigations and active lawmaking have already managed to bring down the shares of the Chinese "figure": for example, Alibaba securities fell from $300 in October 2020 (before the investigation began) to $112 at the end of 2021 — after a fine and in the face of an antitrust campaign that is gaining momentum. But despite the losses, corporations are actively demonstrating their full cooperation with the authorities and donating huge sums of money to what the government has made a priority: the flood victims' fund, the concept of "universal prosperity," social guarantees for drivers and couriers exhausted by rigid rating algorithms. Perhaps the regulator's pressure, in addition to the obvious goal of protecting consumer rights, has another, deeper meaning — to show who makes the rules and who obediently follows them.

Hear the voice of the people

It should be recognized that the rights and interests of consumers are indeed getting more and more effective protection. The digital economy as a relatively new phenomenon is terra incognita for law enforcers: the current legislation operates with the terminology of the real economy, and it is not always clear how to apply it in the digital environment. It is expected that very soon - for the first time since its adoption in 2008 — the Antimonopoly Law of the PRC will be amended, and, of course, it will not do without articles on "digital".

But while the amendments have not yet been adopted, China has already been at the forefront of lawmaking and has introduced a number of supporting normative documents. The first to appear was the most substantive one, the Antimonopoly Guidelines for the Platform Economy. They provide guidelines for antimonopoly regulation in the new environment: for example, they establish criteria for defining the boundaries of digital markets. Regulations on recommender algorithms were adopted — to preserve the freedom of user choice and not allow technology to decide for people. The updated law on the Protection of Personal Data is called by many experts the most stringent in the world. The classification of platforms by type is currently under consideration — depending on the functions and connected parties — and levels — based on the number of users, the number of business lines, and market value. What happens next can be learned from Opinions on the healthy development of the platform economy:

  • improving regulatory institutions
  • increasing supervisory capacity
  • strengthening self-discipline
  • introducing public control
  • encouraging openness and order

As if to say "we're on your side," agencies are fighting to ensure that the people's voice is always heard: demanding that complaint channels and hotlines be opened, encouraging denunciations with monetary rewards. Chinese users have more and more opportunities and legal grounds to assert their rights, the burden of responsibility on platforms is constantly growing, and the "good cop"-state is on guard to protect personal data from prying eyes. Whether the state's own eyes are prying eyes is an unanswerable (or needless?) question.

Source: VPost Media

digital markets  China 

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