Where does China’s digital economy go from here? Part 2 – The future of the platform economy

Original image by Geralt.

In the previous article in this series we’ve seen how Xi Jinping stressed the importance of the integration of the digital economy into traditional economies. However, this does not mean that there are no plans for the platform economy that has already received many new regulations in 2021. Companies like Alibaba and Meituan have been given record fees for monopolistic practises that forced exclusivity on merchants and restaurant owners respectively. Many internet companies received fines of 500.000 RMB for not registering mergers and acquisitions in the recent years. Tencent, the company behind popular chat-app WeChat, was forced to give up the exclusive rights to music of certain publishers in its Tencent Music division and also saw the merger of game-streaming platforms Douyu and Huya blocked. And last but not least, after a controversial IPO an investigation was started into ride-hailing company Didi Chuxing, which eventually had to delist from the New York Stock Exchange. And these are just the biggest of many cases…

On the 18th of January 2022 a document dated December 24th 2021, with views on ‘Healthy and sustainable development of the platform economy’ was release by the National Development and Reform Commission (NDRC), together with 8 other government bodies:

  • State Administration for Market Regulation
  • Central Cyberspace Administration
  • Ministry of Industry and Information Technology
  • Ministry of Human Resources and Social Security
  • Ministry of Agriculture and Rural Affairs
  • Ministry of Commerce
  • The People’s Bank
  • State Administration of Taxation 

The NDRC is part of the State Council, which has broad administrative and planning control over the economy of China. The NDRC’s function is to “study and formulate policies for economic and social development, maintain the balance of economic development, and to guide restructuring of the economic system of Mainland China”

A document released by a high-level government body like the NDRC and 8 ministries should not be taken lightly. It proved to be highly interesting since not only does it summarise many regulations and policies that have been implemented in 2021, but it also sets the stage for continuation of this direction and clear strategic choices. 

The document also shows the priorities the government sees for the formerly highly unregulated platform economy. The vital role of the platform industry in economic and social development is stressed, but its development should be healthy and sustainable. The trend of regulations that has started in 2021 will therefore be continued. It proves the government is not trying to kill it off in favour of the ‘real economy’. On the contrary, it as assigns a crucial role of digitization of the ‘real economy’ to the platform economy.

The plan consisted of six categories and 19 focus areas. I have taken a surprisingly good Google translation and made it a bit more readable through bullets and paraphrasing. I also tried to shorten it, which proved a challenge for this document of slightly more than 5.000 Chinese characters since there is little inflating party speech. Almost every word and sentence contain an important strategic choice or instruction.

I added some notes as clarification and background information. Where relevant I have also added links to earlier English and Dutch articles on ChinaTalk. I hope the result is a useful reference guide.

Views on promoting a healthy and sustainable development of the platform economy

1. Improve rules and systems

  • Responsibilities: Clarify the boundaries of platform responsibility and strengthen the responsibility of super-large Internet platforms. 
  • Unfair competition/anti-trust: Revise the Anti-Monopoly Law  (link in Dutch) & formulate regulations prohibiting unfair competition on the Internet. Formulate and issue price behaviour rules. 
  • Data: Improve the supporting rules of the Data Security Law and the Personal Information Protection Law. Refine platform company data processing rules.
  • Financial sector: Improve the regulatory rules system in the financial sector, ensure proper supervision and licences to operate.
  • Standards: Increase the development of national standards related to the platform economy. 
  • Collaborative governance: Government departments that manage offline supervision of industries are also responsible for online supervision of the same industries. To avoid duplicating work, various departments should recognise each other’s inspections and appraisals and cooperate on law enforcement and punishment mechanisms.
  • Self-regulation: Promote of industry self-discipline, urge platform companies to operate in compliance with laws and regulations, and encourage industry associations to take the lead in formulating group standards and industry self-discipline conventions.
  • Social supervision: Setting up a mechanism through which the public and 3rd party professional institutions can help supervise the industry and promote openness and transparency of platform companies.
  • Setting up or improving systems related to the above tasks: 
    • platform compliance management system
    • internet platform information disclosure system (to enhance the transparency of platform operations, and strengthen credit constraints and social supervision) 
    • platform economy fair competition supervision system
    • “graded classification + negative list” supervision system for cross-border data flow
    • algorithm security system for internet information services

Note: the last bullet is related to the new regulations for algorithms, the 4th bullet is related to the Data Security law and its different classifications of sensitivity of data and lists of types of data that cannot be transferred cross-border.

2. Improve the ability and level of supervision

This section deals with the requirement for supervision and enforcement.

  • Competition supervision and law enforcement.
    • Investigate and punish monopoly agreements, unfair competition, abuse of market dominance, illegal concentration of operators.
    • Improve supervision of advertising.
    • Regulate issues such as misleading consumers by degrading products, failures to meet market access qualifications for products and illegal operations in the travel sector.
    • Implement recall obligations for defective consumer products.
    • Improve tax supervision and investigate and punish tax-related violations such as false invoicing and tax evasion.
    • Improve management and supervision of platform deposit, prepayment, security deposit and other expenses. 
  • Strengthen financial supervision.
    • Improve supervision of payments, disconnect improper connections between payment tools and financial products, govern exclusivity in payment options, abuse of market dominance by non-bank payment services.
    • Standardise use of data and supervise the credit reporting business (link in Dutch).
    • Implement financial holding company supervision.
    • Regulate platform companies’ investments in financial institutions and local financial organisations and capital and leverage ratio requirements.
    • Improve financial consumer protection, improve supervision of marketing behaviour, which should not induce excessive consumption and ensure true and accurate information disclosure.

Note: the text above reads like a summary of many things that were problematic with Ant Group (link in Dutch), leading to the forced cancellation of its IPO in November 2020. These problems included among others consumer finance services by Ant being pushes in the Alipay mobile payment app, blocking WeChat as a payment option in Alibaba/Ant Group apps, not having a financial holding structure, not bearing the financial risk of outstanding loans by transferring them to regional banks and marketing activities that stimulated consumers to take out loans.

  • Data collection and usage.
    • Collection and use of personal information (link in Dutch) should be legal, legitimate and necessary.
    • Severely crack down on illegal acts like platform companies collecting personal information beyond their scope and authority, black market data transactions, ‘big data killing’.
    • State organs shall obtain and use personal information in accordance with the law in law enforcement activities to protect data security.

Note: the text above relates to the Personal Information Protection Law that came into force in November 2021. As can be seen, it echoes many regulations in Europe’s GDPR. ‘Big data killing’ refers to the practice of setting a price for the same product or service higher for returning customers than for new customers. 

  • Algorithms.
    • Algorithms are considered commercial secrets and therefore third-party institutions will carry out algorithmic evaluation, guide platform companies to improve the transparency and interpretability of algorithms and promote algorithmic fairness.
    • Investigate and deal with illegal activities such as using algorithms to:
      • Falsify information
      • Spread negative harmful information and vulgar/inferior content
      • Traffic hijacking
      • False registration of accounts

Note: the instructions above are related to the regulation for algorithms that will become effective on March 1st 2022.

  • Data security: Promote implementation of network security, data security risk monitoring and reporting and emergency response mechanisms among platform companies.
  • Improve supervision technology and means. This section calls for improving digital supervision support and setting up automated mechanisms for online discovery, investigation, and handling of signs of illegal activity.
    • Supervision capabilities for monitoring and early warning, online law enforcement and information disclosure should be improved.
    • Mature supervision areas should be supported to carry out digital supervision innovation pilots. 
  • Trustworthiness.
    • Improve credit supervision and management of the list of untrustworthy platform companies with serious violations of the law.
    • Industry associations should stimulate internet companies to improve exchange, interconnectivity and mutual recognition of credit evaluations and implement joint prevention and control of illegal acts.

Note: here ‘credit’ (信用, xìnyòng) should be interpreted as ‘trustworthiness’ instead of financial credit (e.g., solvency). The mentioned list most probably refers blacklists of untrustworthy businesses in the social credit system.

3. Optimising the development environment

  • Reduce the operating costs of platform economic participants.
    • Standardise registration of market entities, clean up and standardise rules and regulations and licensing for internet market access.
    • Guide platform companies in setting service fees for payment, commissions, etc. These should be consistent in quality and price, fair and reasonable, and should be negotiated and fully communicated with operators on the platform.
    • Platform companies also need to provide high quality small and micro merchants with certain traffic support.

Note: The latter is especially interesting. In recent years small merchants have complaint that it is difficult to sell on certain platforms. While the low prices they are offering on marketplaces like Alibaba’s Taobao attracts users, traffic is often diverted to big brands and merchants with large budgets (e.g., for search engine advertising). Seemingly these directives want to guarantee SMEs a certain amount of traffic (and thereby sales).

  • Establish an orderly and open platform ecology.
    • Promote cooperation between platform companies, build a compatible and open ecosystem.
    • To advocate fair competition, inclusive development and open innovation platforms should promote open up their ecosystems, provide services fairly and must not be maliciously incompatible or set unreasonable procedural requirements.
    • Platform operators shall not take advantage of data, traffic, technology, market, and capital to restrict the independent operation of other platforms and applications.
    • Promote the formulation of system migration and interconnection standards between cloud platforms and accelerate business and data interconnection.

Note: This partially refers to the infamous ‘walled gardens’ of Chinese platforms, in which it is impossible to connect services of competing platforms. Examples are preventing sharing of links to Alibaba web shops in Tencent’s WeChat and forcing consumers to pay with Alipay in Alibaba apps.

  • Stimulate vitality of platform companies and cultivate new momentum for their development.
  • Improve protection of the rights and interests of workers in new forms of employment [hereafter ‘workers’] such as online delivery staff and online car drivers
    • Improve the identification standards for labour relations between workers and platform companies and labour cooperative companies. Explore and clarify the identification standards for situations that do not fully meet the establishment of labour relations, and reasonably determine the rights and obligations of companies and workers. 
    • Guide platform companies to strengthen negotiations with workers and rationally formulate systems and algorithm rules that directly involve labour rights and interests, such as order allocation, piece-rate unit price, and commission ratio, and publish them publicly to ensure that the system and rules are open and transparent. 
    • Improve the minimum wage and payment guarantee system to ensure that workers receive reasonable labour payment. 
    • Carry out a pilot program of occupational injury protection for people with flexible employment on the platform and explore mechanisms such as the purchase of commercial insurance by employers. 
    • Implement a national insurance plan to promote the participation of workers in social insurance. 
    • Strengthen safety awareness and legal awareness training for workers.

Note: last year the first steps were taken to protect labour rights of gig economy workers like meal delivery couriers for Meituan and Ele.me and ride-hailing drivers for companies like Didi. Algorithms often drove these labourers to dangerous driving. Furthermore, platform companies often sourced couriers from external third parties, thereby avoiding setting up labour relations and the accompanying responsibilities.

If you haven’t been convinced yet that the Chinese government is trying to rectify and stimulate healthy growth of the platform economy instead of destroying it, maybe the next few sections will convince you. Section 4 and 5 repeat a lot of things Xi Jinping said in his October speech (discussed in part 1 of this series).

4. Enhance the ability of innovation and development

  • Support platforms to strengthen technological innovation. 
    • Guide platform companies to further use the platform’s market and data advantages, actively carry out technological innovation, and enhance core competitiveness. 
    • Encourage platform companies to continuously increase R&D investment and accelerate technological R&D breakthroughs and applications in the fields of 
      • artificial intelligence
      • cloud computing
      • blockchain
      • operating systems
      • processors 
      • digital green integration technology (help build a zero-carbon industrial chain and supply chain)
    • Create a favourable policy environment for technological innovation, and further improve the intellectual property protection system that adapts to the innovation and development of platform companies.
    • Support leading companies to lead the formation of innovation consortia and promote key software technology research around the underlying architecture of the industrial Internet, industrial software root technology, artificial intelligence open innovation, public algorithm sets, and blockchain underlying technology. 
  • Improve the level of globalisation development. 
    • Support platform companies to promote digital products and services to “go global”, enhance their international development capabilities, and enhance their international competitiveness. 

Note: this shows the desire to have more companies being internationally successful with digital products like Bytedance has done with TikTok. I was recently made aware that Baidu-affiliated video platform iQiyi is also trying to break into the international market as iq.com, although it seems to exclusively offer content created in China.

    • Actively take part in the formulation of relevant international rules such as cross-border data flow and digital economy taxation.
    • Participate in international coordination of anti-monopoly and anti-unfair competition.
    • Give full play to the role of pilot free trade zones and free trade ports and promote the construction of mutually beneficial and win-win international economic and trade cooperation rules to create a good environment for the international development of platform companies.
    • Cultivate professional intermediary services such as intellectual property rights, commercial coordination, and legal counsel. Pilot and explore convenient judicial coordination, investment protection and relief mechanisms, strengthen overseas intellectual property risk early warning, rights protection aid, dispute mediation and other working mechanisms, and protect China’s platform companies and operations legitimate rights and interests abroad.

Note: it’s interesting to see how protection of right like intellectual property has gained attention in China now that Chinese companies are going abroad and want to protect their own rights.

    • Encourage platform companies to develop cross-border e-commerce, actively promote the construction of overseas warehouses, improve the level of digitization, intelligence, and facilitation, and promote small and medium-sized companies to rely on cross-border e-commerce platforms to expand the international market. 
    • Actively promote the construction of overseas economic and trade cooperation zones and cultivate cross-border e-commerce industry chains and ecosystems such as warehousing, logistics, payment, customs clearance, and foreign exchange settlement. 

Note: this gives further importance to existing (and new) platform companies rolling out their businesses internationally; something we have seen companies like Alibaba, JD.com (for instance with Ochama) and super-fast fashion platform Shein do in recent years. Their role is to help smaller Chinese companies (often manufacturers) sell abroad. 

  • Encourage platform companies to carry out model innovation.
    • Encourage platform companies to make full use of their advantages in technology, talent, capital, channels, data, etc. under the premise of compliance with laws and regulations, play a key role in innovation and leadership, and promote the development of “Internet +”.
    • Encourage the integration and innovation of elements based on the platform, strengthen the collection, analysis and mining, and comprehensive utilisation of industrial data. 
    • Promote the marketisation of data elements in key industries on a pilot basis, exploring a new resource sharing model of “separation of ownership and use rights”, revitalises idle resources in cloud platforms, development tools, workshops, etc., and cultivates new forms of sharing economy. 
    • Encourage platform companies to carry out crowdsourcing of innovative businesses, and open and share resources more to small and medium-sized companies. 

Note: The reference to ‘Internet+’ stresses the importance of the platform companies supporting the ‘real economy’, which includes manufacturing and agriculture, and SMEs in digitisation. This is further specified in the next section.

5. Enabling economic transformation and development 

  • Enabling the transformation and upgrading of the manufacturing industry.
    • Support platform companies relying on market and data advantages to empower manufacturing and develop new manufacturing models such as on-demand production, sales-based production, and personalised customization.

Note: examples of the above are Alibaba’s New Manufacturing initiative Xunxi (link in Dutch) and Shein’s business model.

    • Encourage platform companies to strengthen cooperation with leading companies in the industry, improve their integrated digital production and operation capabilities, promote the digital and intelligent upgrade of supply chains, and drive the overall digital transformation of traditional industries. 
    • Explore and promote the cooperation between platform companies and industrial clusters, make up for the shortcomings of regional industrial transformation and development, and promote the improvement of regional industrial competitiveness. 

Note: this has links to common prosperity policies, in which the wealthier regions are called upon to help underdeveloped regions grow.

    • Guide platform companies to actively take part in the industrial Internet innovation and development project, carry out key technology research, public platform cultivation, and promote the construction of a multi-level and systematic industrial internet platform system. 
    • In-depth implementation of the inclusive “cloud data empowerment” action to support small and medium-sized companies to gradually upgrade from data cloud to management cloud and business cloud.
    • Implement a special campaign for digital empowerment of small and medium-sized companies and encourage the promotion of excellent practises in the digitalization, greening, and intelligence of traditional industries. 
  • Promote the digital transformation of agriculture.
    • Encourage platform companies to innovate and develop smart agriculture, promote the digitization of planting, animal husbandry, fishery and other fields, improve the level of digitalization of all links in the industrial chain of agricultural production, processing, sales, logistics, etc., and improve the quality traceability system of agricultural products. Help achieve high-quality agricultural products. 
    • Standardise the trading behaviour of agricultural products and agricultural materials of platform companies. Purchase and sales of agricultural products, pesticides and veterinary drugs residues should not exceed the standard. Substandard agricultural materials should not be bought or sold. Product quality and safety should be ensured, and the purchase and sales of organic certified agricultural products supported. 
    • Guide platform companies to deploy in rural areas, accelerate the development of rural e-commerce, and promote “Internet +” agricultural products from villages to cities. 
    • Further guide the platform economy to empower the development of “agriculture, rural areas and farmers”, accelerate the construction of a rural credit information system, innovate the way finance supports agriculture and rural areas with digital means, and cultivate new momentum for comprehensive rural revitalization. 

Note: again, ‘credit’ (xìnyòng) should be understood as ‘trustworthiness’ not as ‘financial ability’. Several platform companies, most prominently Pinduoduo (link in Dutch), have made marketplaces for agricultural products a priority. Companies like Pinduoduo, Alibaba and Tencent have also pledged development programs in rural areas in support of common prosperity (while building their own new markets in the process).

  • Improve the platform’s ability to create consumption. 
    • Encourage platforms to expand “Internet +” consumption scenarios, provide high-quality products and services, promote the popularisation and application of smart products such as smart home, virtual reality, and ultra-high-definition video terminals, and develop new retail methods such as smart shopping guides, smart replenishment, and virtualized experience. 
    • Promote telemedicine, online office, knowledge sharing and other applications. 
    • Guide platform companies to carry out online promotion activities for brand and quality products and cultivate new growth points of consumption. 
    • Encourage platform companies to help optimise public services, and improve the level of inclusiveness, convenience, and personalization of services such as medical care, social security, and employment. 

Note: over the past decade, many multifunctional apps like Alipay and WeChat have enabled the government to make public services (e.g. health care, public transport, utility payment, Covid Health Codes (link in Dutch)) available to the public in very convenient ways. This has improved efficiency.

    • Encourage platform companies to provide barrier-free services and enhance the convenience for special groups such as the elderly and the disabled to enjoy intelligent products and services. 
    • Guide platform companies to carry out digital assistance and promote the improvement of digital technology and digital literacy. 

Note: in the past years, the government has already been stimulating internet companies to make versions of their apps that are better suited for elderly users. Internet penetration in China is roughly 70%, with the remaining 30% mainly including rural citizens and elderly citizens. Many of these citizens do not use the internet because they are unable to write in pinyin, a romanization system for Mandarin and the most efficient method to compose Chinese text input for computers and mobile phones. Solutions to this problem (e.g., speech recognition) might help grow China’s stagnating internet penetration.

6. Safeguard measures

The goals in this section mainly relate to ways the government will manage and coordinate their oversight and how resources (funding and skilled labour) should be allocated.

  • Strengthen overall planning and coordination.
    • Fully rely on existing mechanisms, strengthen departmental coordination, central-local linkage, and strengthen collaborative research and judgement on major issues in the platform economy. 
    • Strengthen the overall coordination of regulatory actions and policies, fully listen to the opinions of all parties, especially the opinions of administrative counterparts, avoid affecting and interrupting the normal business activities of platform companies, and prevent unanticipated risks caused by the superposition of policies. 
    • Strengthen the overall planning of the central government, the provincial overall responsibility, and the local implementation of territorial management responsibilities, and adhere to the organic unity of responsibility division, evaluation and evaluation, and accountability. 

Note: This shows the way these directives are decentralised: the central government (including the NDRC) sets the direction, the provinces are responsible and local governments implement.

  • Strengthen policy guarantees.
    • Encourage venture capital, equity investment (funds), etc. to increase investment in the field of scientific and technological innovation and support scientific and technological innovation of companies.
    • Encourage relying on various colleges and universities, vocational colleges and research institutions to strengthen the training of high-end talents and practical talents in the digital economy. 
    • Strengthen digital skills education and training for all. 
    • All localities should actively promote the development of the platform economy, improve the policy system for promoting the development of the platform economy, and study and solve major problems in the development of the platform economy in a timely manner.
  • Carry out pilot exploration. The document ends with the instruction to use various existing pilot programs and free trade zones in ‘the establishment of regulatory models to adapt to the development of the platform economy and build an institutional environment compatible with the innovative development of the platform economy’.

Note: reading the views of the NDRC, we can both recognise a lot of the new regulations stamping out excessive behaviour in 2021. There is no doubt China will continue on this road. The focus will shift from making top-level directives and laws to actual implementation in regions and market sectors. At the same time, the NDRC document stresses the role of the platform companies in digitising the real economy. We can therefore expect the platform companies to continue their earlier activities in a more legal an ethical way, while simultaneously focussing on supporting manufacturing and agricultural sectors in the real economy. After all, supporting government goals is always a good way to guarantee continued support for your own company.

Pledging allegiance

On the 28th of January, ten days after the publication of the NDRC statement, the leaders of 27 major internet companies, among which Alibaba, Bytedance and Tencent, were invited to a symposium on “healthy and sustainable development of internet companies”. Many of the government institutes that had published the mutual statement with the NDRC were also present at what could be considered the ‘launch party’ of the directives. 

Reports of the symposium show a large amount of bootlicking by those who have been under fire in 2021, with praise for the “care and attention that the Communist Party’s Central Committee, State Council, and all levels of the government have paid towards the development of the internet industry” (Pony Ma, Tencent). Meanwhile, Richard Liu of JD.com promised to “take concrete actions to repay the party and the state”. Alibaba’s Daniel Zhang said, “compliance is a precondition for business growth”. Would anybody expect anything different from the heaviest punished platform company? 

More interesting was comments by Zhang Lidong, chairman of Bytedance. He promised to take up the call to ‘go global’ and “actively explore the global market and use its products and services to compete against large international companies”. It will continue to be an interesting space to watch, both inside China and globally.

Still curious about how the government reports on the grovelling attendees of the symposium? Run this or this page through Google Translate.