China Cracks Down on Tech Sector as Curbs on User Data Take Effect

Chinese regulators have ordered tech giants to “rectify” their business models amid an ongoing crackdown on the private technology sector.

Officials from the Ministry of Transport, the Cyberspace Administration of China and the State Administration of Market Supervision, met with managers from ride-sharing app Didi Chuxing, the food delivery app Meituan and nine other transportation and travel firms on Sept. 1 and ordered them to clean up their act.

“Some platforms have recently been using a variety of vicious methods to compete, including recruiting or enticing unlicensed drivers and vehicles to carry out illegal operations,” the Ministry of Transport said in a statement on its official WeChat account.

“Each platform should … immediately rectify non-compliant behaviors,” it said, ensuring that the necessary permits had been obtained for drivers, vehicles and the platform.

“They must not use vicious competition, disorderly expansion to exclude or restrict the competition … nor pass all of their operational risks on to drivers,” it said.

Companies should also ensure that drivers receive “reasonable remuneration” for their labor, and display the amount of commission taken for customers to see.

“It is necessary to unblock channels for drivers to express their demands to avoid the intensification of conflict and the escalation of incidents,” it said.

Drivers should also have enough rest time and companies should reduce the commission they take from each ride, it said.

The move comes amid an ongoing crackdown on large, privately owned technology companies, and as ruling Chinese Communist Party (CCP) general secretary Xi Jinping starts to implement measures aimed at achieving “common prosperity,” or moderate wealth for all.

Reuters reported that Didi and Chinese e-commerce giant recently set up unions for their workers, suggesting that workers’ rights are increasingly the focus of the CCP’s concern with the potential for destabilizing social unrest.

People walk past Chinese e-commerce giant’s autonomous vehicles used to deliver goods to customers, outside a supermarket in Beijing, June 18, 2021. Credit: AFP

Boosting the state sector

A Jiangxi-based scholar surnamed Zhu said the overall thrust of the government’s regulation appears to be in the direction of nationalization.

“Recently, Beijing has struck some heavy blows against some big companies,” Zhu said. “This is not accidental, but a trend that stems from Xi Jinping’s policy of boosting the state sector at the expense of the private.”

“That is now proceeding at an accelerated pace.”

There are growing indicators that the government is also moving towards nationalization of user data and services.

A new data security law that took effect on Sept. 1 lays down strict regulations about what technology platforms must do with data entrusted to service providers by hundreds of millions of users.

Failure to verify the identities of buyers or sellers of data can result in fines of up to U.S.$1.5 million, while organizations and individuals are banned from handing over user data to overseas law enforcement agencies without permission from Beijing.

“Core” data “related to national security, the lifeline of the national economy, major aspects of the people’s livelihood, and major public interests”, will be subject to stricter scrutiny.

The law took effect after regulators began a probe into U.S.-listed Didi Chuxing, which runs one of China’s biggest ride-sharing apps and truck-hailing platform Full Truck Alliance, citing “national security” concerns.

Sharing economy controls

According to a report in The Wall Street Journal in August, the country’s stock market regulator plans to block tech firms handling large amounts of sensitive user data from launching IPOs overseas.

Meanwhile, a personal information protection law aimed at setting controls on companies’ use of user data will likely take effect in November 2021.

And the State Administration of Market Regulation (SAMR) said on Aug. 30 that it would regulate the sharing economy, a sector that includes companies facilitating ride-sharing, bike-sharing, home sharing and even the pooling of battery packs for phones.

Regulators have recently also announced a ban on online gaming by minors outside of designated time-slots on Fridays, weekends and holidays, with weekly gaming limited to three hours.

And the CCP is pushing tech giants to invest in a state-owned “cloud” storage platform, in a direct, and nationalized, challenge to tech giants Alibaba, Huawei and Tencent.

Companies owned by the Tianjin municipal government have been ordered to migrate their data away from commercial cloud service providers to the state-owned alternative, Reuters reported recently.

At the same time, the government is tightening supervision of algorithms used to send tailor-made data, content and advertising to users, banning algorithms that are designed to make users spend large amounts of money, or “disrupt public order.”

Translated and edited by Luisetta Mudie.

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