September 18, 2021

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Algorithms – the new focus of Chinese technical regulations

China’s increasingly powerful cybersecurity regulator has published far-reaching draft rules on the use of algorithms, with some drastic restrictions for companies.

The Chinese authorities intend to limit the use of algorithms by companies to sell products to consumers. The country’s largest tech companies, including e-commerce giant Alibaba and owner of Tiktok Bytedance, have built their multi-billion dollar businesses on algorithms. These algorithms deliver content that customers appear to be interested in based on their previous views and search behaviors, and are likely willing to invest money. Restricting the use of algorithms is therefore very likely not in the interest of the respective provider and could also set a precedent for other countries.

On Friday, the cybersecurity regulator released a broad draft of rules to regulate the use of these so-called recommendation algorithms. Part of the proposal provides for users to be given the option to disable algorithms independently. The proposal can be commented on until September 26th. An implementation date is not yet known.

Do companies need to adapt their business models?

Recommendation algorithms consist of code that is fed with specific user information in order to produce perfectly customized results. However, the algorithm code is not published. Regulators may now require companies to disclose code to test algorithms. This could give regulators enormous power in China. “I’m sure companies have problems with data protection rights and that the code is tied to proprietary information,” suspected Kendra Schaefer, partner of Beijing-based consulting firm Trivium China, in an interview with CNBC.

The latest rules could force companies to change their business models. While many of China’s tech giants don’t make money directly from algorithms, they are an important part of attracting consumers to products they end up paying for. “It depends on a number of factors, such as the level of application and market reactions. How many users would disable the recommendation algorithm if it resulted in a suboptimal user experience? ”Says Ziyang Fan, head of digital commerce at the World Economic Forum. Once China’s algorithm law goes into effect, the world will be watching closely how companies react and what regulation means for the future.

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