Tech scrutiny stepped up as rules to curb unfair competition issued

China on Tuesday published detailed rules aimed at tackling unfair competition in the Internet sector and companies' handling of critical data.

The country has been tightening its regulation on Internet platforms in recent months, citing the risk of abusing market power to stifle competition, misuse of consumers' information and violation of consumer rights.

Internet operators "must not implement or assist in the implementation of unfair competition, disrupt the order of market competition, affect fair transactions in the market," the State Administration for Market Regulation wrote in a set of draft regulations, which is open to public feedback before a September 15 deadline.

Specifically, the regulator stated, business operators should not use data or algorithms to hijack traffic or influence users' choices. They may also not use technical means to illegally capture or use other business operators' data.

Companies would also be barred from fabricating or spreading misleading information to damage the reputation of competitors and need to stop marketing practices like fake reviews and coupons or "red envelopes" – cash incentives – used to entice positive ratings.

"The proposed regulations' specificity evidences a clear set of priorities in setting the 'rules of engagement' for online competition," said Michael Norris, research and strategy manager at Shanghai-based consultancy AgencyChina. "If promulgated, the regulations will likely increase compliance burdens for transaction platforms, including e-commerce marketplaces and shoppable short video apps."

The blue-chip CSI300 index dropped 2.1 percent to 4,837.40 points on Tuesday, while the Shanghai Composite Index lost 2 percent to 3,446.98 points. Both indexes had their worst day since July 27.

China's tech-heavy STAR 50 Index plunged 2.5 percent. The semiconductor index, the target of intensive buying recently, tumbled 4.3 percent.

Soon after the draft tech rules were published, the State Council announced it would also implement regulations on protecting critical information infrastructure operators from September 1.

It said operators must conduct security inspections and risk assessments once a year, and should give priority to purchasing "secure and credible network products and services," marking an elaboration on the Cybersecurity Law that passed in 2017.