Regulating for social good: Algorithm Regulation in China

From recommending personalised content on social media platforms to designing work schedules for motorcycle couriers, algorithms are critical to many technology companies’ operations. However these “black boxes” of Big Tech are under increased regulatory scrutiny in China with the advent of a new algorithm-specific regulation for the world’s second largest economy – the Internet Information Service Algorithm Recommendation Management Regulation (Regulation).

Although the technical rules comprising the Regulation will prove far-reaching in shaping business models driving China’s internet services, question how long they will remain unique to the Asia superpower. Even if your operations are not based in China, the commentary below may give you a head start on what is coming down the (digital) track.

Tackling pressing societal concerns

As for other markets in which we advise, China has seen growing concerns among its "netizens" around issues like algorithm discrimination, a lack of transparency from Big Tech, and increasingly acute labour grievances caused by the use of algorithms to schedule work. In early January, the Cyberspace Administration of China (CAC) published the Regulation to provide it with some tools to begin fixing these issues. The Regulation came into force on 1 March, and the CAC then launched a campaign from April to the end of 2022 to ensure early implementation of the Regulation.

The Regulation requires operators of algorithms with recommendation functionality (Operators) to design their algorithms to adhere to the “orientation of mainstream values” and promote “positive content” – societal concepts inherited from the PRC Data Security Law. It also responds to some problems cited as being prevalent in today’s Chinese society, such as:

• teenage addiction to the internet, by requiring Operators to consider teenagers’ physical and mental health and not use algorithms to induce minors to over-indulge in online activities; and
  
• the elderly’s difficulties in using internet services, by mandating that appropriate measures must be adopted by Operators to facilitate seniors’ use of algorithmic recommendation services.

In addition, the Regulation also pays considerable attention to antitrust principles, which have been vigorously enforced within China’s digital economy for the last 12-18 months. The Regulation makes it clear that using algorithms to engage in anti-competitive practices or price discrimination is prohibited.

Key obligations to focus on

• Security responsibility and regular review. The Regulation makes Operators primarily responsible for the running and results of their algorithms. To meet this requirement, each Operator must establish systems and technical measures to review an algorithm from both technology and ethics perspectives, considering the impact on the algorithm’s results from factors such as input data, the models deployed to train the algorithm, and the scenarios in which the algorithm is applied. Specifically, the Regulation requires Operators to carry out daily monitoring of algorithms’ operations and outcomes to predict potential safety issues and ethical problems in advance. 

For platforms disseminating news, views or other information, where illegal content is discovered, Operators must prevent it from spreading, in line with obligations given a statutory footing in Cybersecurity Law. The “S” in ESG is a clear foundation to the Regulation.

• Right to know and right to choose. Under the Regulation, Operators should conspicuously inform users of the use of algorithmic recommendations and publicise the basic mechanisms behind them. The Regulation also seeks improved protection of user rights, including through requirements to provide options/information that are not based on a user’s personal characteristics, convenient opt-outs to turn off algorithms, and the ability to select or delete user tags fed into these algorithms.

These obligations should force greater transparency by Operators in their deployment of algorithms and ultimately allow users to gain a clearer understanding of how their data is used. Tech and design teams of Operators will need to collaborate to reconfigure user interfaces with the required functionality, adding to compliance time and capital costs. Indeed, by mid-March, many of the most popular apps in the Chinese market had adopted a button for users to turn off algorithm-based recommendation services.

• Algorithm’s administration and filing requirement. To measure the relative importance of algorithms to the market and strengthen and refine its supervisory practices accordingly, the CAC will establish an administrative system that classifies algorithms by features like their content type, number of users, and their impact on public opinion. Specifically, the Regulation requires an Operator to file with the CAC a submission pack that includes a self-assessment report, if its algorithm boasts recommendation functions that could “shape public opinion” or “mobilise society”. So far it appears that no companies have completed the filing for their algorithms.

What do businesses need to do

Regulatory enforcement of the Regulation may not be immediate, since violations may not be overtly obvious without systematic use of websites and mobile applications. However, considering the costs and resources needed by Operators to update their policies and systems in compliance with the Regulation’s broad-ranging requirements (as well as the ongoing task of monitoring how the new rules will be implemented in practice), we foresee that many Operators will need any grace period to fully adapt to the new regime.

That said, given the growing trend towards users exercising their virtual rights and lodging complaints against non-complaint digital service providers, Operators should seek to develop a robust compliance programme in line with the Regulation’s guidance on the design and operation of algorithms – and those requirements in other recently published tech regulations – as soon as possible. Strategising to avoid a consumer backlash, and potential regulatory sanction, is a reality of operating in China’s increasing scrutinised digital landscape.