INSIGHTS: Three Key Chinese Technology Regulators

“Regulation” has become the new buzzword in China’s technology sector for a reason. 2021 began with tighter antitrust enforcement against major technology companies, wiping billions of dollars off their market capitalization.

The crackdown reached a new peak this month when the Cyberspace Administration of China (CAC) launched a cybersecurity review of ride-hailing platform Didi Global just days after its initial public offering on the New York Stock Exchange, sending shockwaves through investors around the world.

Such measures are not new. Over the past several years, regulators have pushed technology companies to comply with stricter rules on data use and privacy. Understanding who these regulators are and what they do is therefore becoming more important than ever for investors and those following China’s technology sector.

Below are the three key Chinese technology regulators you should know.

1. The Cyberspace Administration of China (CAC) oversees content, privacy and cybersecurity.
2. The State Administration for Market Regulation (SAMR) is responsible for markets and consumer protection and has led the recent antitrust campaign.
3. The People’s Bank of China (PBoC), China’s central bank, is a key financial regulator and the most important player in drafting new rules for lending and payments.

Cyberspace Administration of China (CAC)The CAC was established in 2011 as part of the State Council Information Office, but its powers have expanded significantly over the past several years. It is responsible for areas including online content, privacy and data security.

Initially, it was primarily an online content regulator: the CAC was founded in 2011, with responsibilities including online content moderation, regulation of online news and “online publicity work.”

A restructuring turned it into a more powerful regulator: in 2014, the CAC became associated with the Central Cyberspace Affairs Commission, an organ of China’s ruling Communist Party.

• Under a special arrangement known as “one institution with two names,” the two organizations share the same staff and offices. The body reports to the Central Leading Group for Cyberspace Affairs, which reports directly to Chinese President Xi Jinping.
• The 2014 restructuring formally gave the CAC authority to regulate content on the Chinese internet. In a document published in August 2014, the State Council authorized the CAC to “take responsibility for nationwide management of internet information content, as well as supervision and management of law enforcement activities.”
• The 2014 document remained the sole legal basis for the CAC’s law-enforcement powers until the adoption of the Cybersecurity Law in 2017.

It is no longer just about content: over the past decade, the CAC has expanded beyond content moderation, assuming responsibility for privacy regulation and cybersecurity in several areas.

• According to Carly Ramsey, Director at Shanghai-based consultancy Control Risks, legislation adopted after the CAC’s establishment gave it authority to “coordinate” regulation of online privacy and data.
• China’s Cybersecurity Law states that the CAC is responsible for “coordinating” national cybersecurity regulation.
• The country’s Data Security Law, adopted in June and due to take effect in September, assigns the CAC responsibility for “coordinating” online data regulation and security.
• Under the cybersecurity and data-security laws, “the CAC always performs a coordinating and supervisory role when it comes to the development and implementation of laws and regulations related to cybersecurity.”

It can also influence which companies are allowed to go public: earlier this month, the CAC proposed revisions to China’s cybersecurity review process that would require companies holding data on more than 1 million users to seek regulatory approval before applying for an overseas initial public offering.

• According to the regulator’s draft provisions, the main purpose of cybersecurity reviews for overseas IPOs is to control the risk of companies exporting “core” and “important” data or becoming subject to “influence, control or malicious exploitation” by foreign governments during the listing process.

Related regulators: the CAC works with government agencies including the Ministry of Industry and Information Technology (MIIT) and the Ministry of Public Security (MPS) on privacy and data regulation.

State Administration for Market Regulation (SAMR)

SAMR is China’s main market regulator and the principal regulator behind China’s antitrust campaign against technology companies.

Before 2020, dealing with the CAC was often the main priority for government-relations departments at Chinese technology companies. But since the Chinese government began its antitrust push against the sector in November, SAMR has become another major regulator demanding their attention.

China’s antitrust authorities had previously largely left technology companies alone, but the situation changed sharply in November when SAMR proposed guidelines targeting anti-competitive practices by internet companies. The new rules expanded the scope of antitrust enforcement, which had previously focused largely on industrial companies.

SAMR subsequently targeted major technology players such as Alibaba and Tencent, penalizing them for relatively minor antitrust violations such as failing to register mergers and acquisitions completed several years earlier.

In December, the regulator launched an antitrust investigation into Alibaba. The investigation ended in April, when SAMR imposed a RMB 18.2 billion ($2.8 billion) fine on Alibaba for antitrust practices including “forced exclusivity.”

More recently, SAMR blocked the proposed merger of Tencent-backed game-streaming platforms Huya and Douyu.

SAMR was established in March 2018 as part of a structural reorganization of the State Council, China’s cabinet. Under the government reorganization plan, it absorbed three ministerial-level government agencies and inherited antitrust powers from three other central-government bodies.

• During the restructuring, the State Council abolished the State Administration for Industry and Commerce, the General Administration of Quality Supervision, Inspection and Quarantine, and the China Food and Drug Administration. The enforcement powers of all three agencies were transferred to SAMR.
• The new super-regulator also assumed antitrust enforcement powers previously held by the National Development and Reform Commission, the Ministry of Commerce and the State Council.

China’s 2008 Anti-Monopoly Law designated the State Council’s Anti-Monopoly Commission as the body responsible for coordinating and supervising antitrust regulation in China. This commission, like other bodies, was incorporated into SAMR during the 2018 restructuring.

Under the Anti-Monopoly Law, SAMR also has the authority to formulate antitrust rules and guidelines.

Price Regulation

Having inherited powers from the State Administration for Industry and Commerce, SAMR regulates companies’ pricing practices under China’s 1997 Price Law.

• As a result, online platforms such as Taobao and Ctrip fall within SAMR’s jurisdiction.
• Earlier this month, SAMR proposed consumer-pricing rules that would prohibit e-commerce platforms from using big data and algorithms to charge different customers different prices for the same product or service based on their purchasing history.

People’s Bank of China (PBoC)The PBoC, China’s central bank, is the country’s principal fintech regulator.

The financial regulator oversees China’s online-payments sector, including companies such as Alipay and Tencent’s WeChat Pay, which together have more than 1 billion users.

The bank has participated in some of the highest-profile regulatory actions against China’s technology sector, leading the investigation into fintech giant Ant Group after China halted the company’s planned mega-IPO in November.

Regulating Online Payments

The PBoC became a fintech regulator in 2015 after issuing rules governing the online-payments sector and requiring digital-payment providers to operate under its supervision.

Ant Group’s Alipay is China’s largest mobile-payment service, followed by Tencent’s WeChat Pay.

It Does Not Like Cryptocurrencies

The banking and online-payments regulator also uses its authority to crack down on cryptocurrencies.

In June, the central bank summoned several commercial banks and Alipay and instructed them not to provide financial services to cryptocurrency traders, according to state news agency Xinhua.

See Also

Finance is also regulated by two specialized regulators.
The China Banking and Insurance Regulatory Commission (CBIRC) is also responsible for online banking and insurance products.

And If You Like IPOsThe China Securities Regulatory Commission (CSRC) regulates securities and appears to be playing an increasingly important role in approving the listings of Chinese companies.

Wei Sheng, TechNode
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