China targets internet giants with new competition rules, putting pressure on tech shares

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China’s latest census hinted that the country might face a demographic crisis down the road, as it contends with an aging work force and falling birth rates. Costfoto/Barcroft Media via Getty Images
  • China’s competition regulator published a draft version of rules for internet businesses Tuesday, Reuters reported.
  • Chinese tech stocks fell as investors fretted about Beijing intensifying its regulatory crackdown.
  • The proposed rules aim to stamp out fake reviews, stop hijacks of customers and restrict use of data tools.
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China’s competition regulator published draft new rules targeting internet providers on Tuesday, Reuters reported, with the move sending their stocks lower as Beijing’s crackdown on the tech sector intensified.

The proposals by the State Administration for Market Regulation aim to clamp down on unfair competition by targeting fake reviews online and restricting how internet companies use customer data, among other measures.

Shares of major Chinese internet companies fell after the draft rules were published. E-commerce heavyweight Alibaba closed 4.77% lower in Hong Kong. Its US-listed shares in New York were down more than 3% in premarket trading.

Tencent shares also struggled, sliding 4.14% in Hong Kong. The entertainment company’s share price went on a volatile ride in July, when a state-run media outlet’s criticism of online gaming harms raise concerns of a clampdown on the sector.

In recent months, Chinese regulators have intensified their scrutiny of the technology and education sectors, prompting investors to pull out of companies that could be affected.

After new restrictions on tutoring businesses drove a rout in education companies’ stocks in July, Beijing officials said they would be more cautious about how they published regulations and would take stock volatility into consideration.

Last week, though, China’s government released its five-year plan, which outlines new regulations for key industries including artificial intelligence, internet finance and big data.

The State Administration for Market Regulation is seeking public feedback on its proposed regulations, with a deadline of September 15.

The rules put forward include a ban on companies hiding negative reviews and on publishing false information on consumer traffic, media reports said. They would also be barred from creating misleading stories meant to damage the reputation of competitors, and from offering “red envelope” cash rewards for good reviews.

Internet-based businesses would no longer be allowed to use data and algorithms to learn about potential customers in order to hijack them. Regulators also want to forbid companies from collecting and analyzing data about their business competitors.