China is building a healthy digital economy

China has one of the most vibrant e-commerce landscapes in the world. As its market continues to grow and turn more competitive, the regulations governing it need to be frequently revised to keep pace with the changing requirements.

A draft law submitted to the Standing Committee of the National People's Congress for its third reading last Tuesday aims to keep in check the practices that could put customers and small businesses at disadvantage. It proposes a review of big data-enabled price discrimination, automated decision-making of algorithms and collection and usage of personal information by businesses.

On promulgation, it will markedly change the environment of e-commerce in the country. As the distinction between the digital and the real economy increasingly becomes blurred, it is pertinent to have a look at the effects of this law.

The foremost effect will be on the unfair competition undertaken by larger firms. Some of them have often raised barriers for smaller competitors due to which the latter have not been able to offer attractive prices for their products and services. The government has already emphasized additional support for micro and small enterprises against monopolies and unfair competition since they are the primary generators of jobs.

Admittedly, large firms do get short-term gains through unfair competition. In the longer run, however, the practice disallows the sector that they operate in to evolve while leveraging innovation. Ultimately, such firms are themselves at a loss. Not to mention the end users who end up disadvantaged because of the competition that keeps knocking out new companies that try to bring novelty to existing products and services.

When the top market regulator, the State Administration for Market Regulation, released the draft document on Tuesday, share prices of Hong Kong-listed tech firms were affected. This, again, is an issue of short-term versus long-term profits. The dip in the shares is part of the market noise that fluctuates with investor sentiment. The real gain will be in the coming days when investors will see stability in the sector and fairer competition practices.

At the level of consumers, one factor that greatly influences their choice is online reviews. Before making decisions, they invariably check what other people think of a product. But there have been instances when platforms or sellers on the platforms have engaged in fake or paid reviews. The draft law also targets such reviews since they inappropriately affect buyers' decisions.

The actual losers of the fake reviews are the platform themselves. Since this tactic is well known, it has eroded the trust of many online shoppers in the review system. The negative consequence has been for no one but the platforms which have not been able to arrest this trend. Once trust is in question, brand integrity takes the biggest hit, followed by profits.

Maintaining the confidence of buyers is thus essential for an ethical growth of businesses as well as of e-commerce as a whole. When this law gets promulgated, it will come as fresh air for online shoppers who are concerned about the questionable activities seen on some platforms.

The draft law also lays down guidelines on the way personal information is collected. Online platforms will continue to be able to collect information of buyers but only for the minimum purpose of processing. Information processors of these platforms will not be allowed to target the personal characteristics of people and buyers will be offered ways of rejection.

There is an emphasis on the categorization of personal information of children under 14 years of age as sensitive. Businesses will have to formulate special processing protocols for this age group and improve the mechanism for complaints and reports.

The particular measures related to privacy of information will contribute to increasing the public's trust in the digital economy. In turn, customer commitment and loyalty to the brands that visibly implement the new statutes will see a marked jump.

The SAMR document is open for feedback until September 15, 2021. After the review by the NPC and by the general public, some tweaks can be expected in the draft. But all considered, the legislation is a welcome step in setting the direction of the digital economy as it becomes a ubiquitous part of daily life.

Hayat Bangash is a freelance columnist on international affairs with degrees in business administration and war studies.

The opinions expressed here are those of the writer and do not necessarily represent the views of China Daily and China Daily website.

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