China has begun to tighten up potential abuse of algorithms on tech companies such as ByteDance Ltd. and Tencent Holdings Ltd., by targeting the way this social media platform delivers ads and content to entice users.
The Chinese Cyber Agency will conduct on-site inspections of companies and ask them to submit their various services for review. The government is targeting large-scale websites, platforms and products for inspection.
This campaign aims to tighten the overarching rules that launched in August and went into effect March 2022. This policy governs the use of industry algorithms to bring out content to users.
It is part of a broader effort by the government to limit the influence of China's biggest and richest tech companies, including on entertainment. Therefore, this provision regulates the game business, online education, video censorship, which the industry is concerned about.
The cyber watchdog said it had interviewed representatives from a dozen companies including Tencent, Alibaba Group Holding Ltd., Meituan and JD.com Inc. to overcome layoffs (PHK) as many as 216,800 people from July to mid-March.
Beijing recalls the potential for a wider impact on the economy. The agency highlighted that the company actually employed 295,900 people during the same period, or is increasing.
Yet competition for jobs in the tech industry remains fierce and employers are willing to pay more to retain skilled technicians. Tencent, for example, distributed more than $200 million each to two unidentified executives in 2021.
At the same time, the company actually cut Tencent CEO Pony Ma's compensation for one year due to Beijing's crackdown, which sent Tencent shares down 19%.
Investors, who gutted more than $1 trillion in value in Chinese tech stocks at the height of the crackdown, remained cautious this year. On Friday, Tencent shares were down about 1.8% while video streaming company Bilibili Inc. are among the worst performers in Hong Kong.
Meituan is also considering the measure, following news that Sequoia Capital has reduced its stake in the food delivery giant. One of the biggest areas of uncertainty for investors involves Beijing's intention to curtail the country's broad social media sector, including the arena dominated by Tencent and ByteDance.
The government has always maintained an iron grip on industry, rooting out dissent and other forms of unwanted content that could undermine its rule.
Regulators proposed broad restrictions on content algorithms in August to ban practices that encourage online addiction, as well as any activity that jeopardizes national security or disrupts social order.
In a 30-point draft rule, the government asks companies to disclose the basic principles of each algorithmic recommendation service and provide a convenient option to turn off algorithmic recommendations.
It also says that algorithms must adhere to mainstream values and actively spread positive energy. Tech industry algorithms have been at the heart of political controversies around the world.
Facebook Inc. and Google have been accused of providing news and videos that exacerbate political polarization and fuel violence. While the United States (US) government has limited policy in imposing change, Beijing's regulators have great power.
In February, Beijing's internet watchdog launched a website where providers of algorithms that influence public opinion or mobilize the masses can submit their services for storage.
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Companies including ByteDance and Tencent have made adjustments to their products following Beijing's efforts to protect privacy, for example, by offering users a way to opt out of AI recommendations on apps such as video service Douyin and messaging platform WeChat.
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