Opinion: How the tightening of China’s digital economy could be a new horizon for Western brands

For the past decade, the Chinese government had taken a relatively hands-free approach to its fast-booming tech industry, favouring a nurturing attitude to accelerate growth. In return, the world witnessed the incredible rise of the Chinese Internet economy with tech giants such as Tencent, Alibaba, and ByteDance, dominating the market’s digital ecosystem.

However, this utopia has come to an end. Beginning from the end of last year until last week, the Chinese government has gradually published a series of regulations to set the rules of play for its booming digital economy, including new formats such as livestreaming commerce. New antirust guidelines were published last November in an effort to curb monopolistic behaviours, followed by an ongoing investigation into Alibaba and its affiliate Ant Group. Just in the first week of January this year, the Cyberspace Administration of China published a draft to update its two-decade-old Internet Services Regulations. The draft, which will be formalised by 7 February, has tripled the length of the original regulation with astonishing details and coverage.

Why the sudden change?

Following the launch of these upgraded regulations, we may start to see an improvement to some of the notorious issues with China’s digital ecosystem today:

• The Chinese eCommerce sphere has long been dominated by a couple of gigantic players such as Alibaba’s Taobao/Tmall and JD.com. With revenue and sales potential at such a scale, brands are sometimes forced to commit exclusively to one of the big platforms instead of having the freedom to diversify its distribution channels and exercising autonomy over their eCommerce strategy. The new antirust rules will seek to root out anti-competitive behaviour such as sharing sensitive consumer data, forcing exclusivity with merchants on certain platforms and subsidising services at below cost to eliminate smaller rivals, with penalties ranging from fines to official intervention of mergers/acquisitions.

• As China’s digital economy has grown massively, so has the prevalence of fraudulent tactics in the eCommerce industry, hurting the integrity of the entire industry. From inflated sales figures and bots-generated artificial engagement, to mispresenting products, the lucrative yet previously unregulated live-streaming industry came under fire and the trust has eroded in recent month. Under new regulations, streamers need to submit their real-name identification and social credit codes to the internet platforms, while the platforms will be responsible to submit regular reports to local authorities to monitor their content and illegal activities.

• Data privacy and protection has also been a grey area in China’s tech industry, especially for the super apps which offer a wide range of everyday life services, and hence feel justified with the need to collect various personal data, exposing the users to potential identity theft and fraud. In the new amendments to the Internet Services Regulations, mass registration and selling online accounts for profit are strictly prohibited. The internet services providers will be held responsible to ensure their users’ personal data safety with report and rectify any potential information leak.

How will the regulations affect Western brands?

The crackdown by the Chinese authorities has two sides to it for Western brands that are looking to enter this massive market. Historically, China has always been a complex market for foreign brands as the landscape is everchanging with little regard for the rest of the world. The latest regulations can be seen as changing the playing field once more, adding an additional level of friction to an already difficult task. Brands who are already operating in China market will need a comprehensive compliance review of their marketing activities and privacy policies to align with the new regulations.

On the other hand, we can see this as a sign of market maturity and a very natural and frankly overdue exercise by the Chinese market. Decentralisation of the eCommerce marketplace away from the increasingly growing oligopoly of Tencent, Alibaba and ByteDance groups opens up the market for more players. Brands can have the chance to retain autonomy in making strategic decisions, as well as the flexibility and freedom to diversity its eCommerce channels. Furthermore, brands will also benefit from data integrity to gain genuine consumer insights to forge a greater brand reputation and trust from the end customers.

The takeaways

The rise of China market and its tech industry has brought unprecedented potential for both China and the rest of the world. To the western brands who are looking to find its footing in China, it’s proved to be a difficult path to tread with the everchanging sociological and political environment. With the latest government intervention, we may look forward a healthier and yet more complicated eCommerce space that demands deeper knowledge and greater flexibility.

Photo courtesy: 123RF

The writer is Iris Gu, account strategist at Aiken Digital.