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December 24, 2021updated 06 Feb 2022 6:44am

China continues taming its ecommerce market with new app rules as Spring Festival nears

By Elles Houweling

The Chinese government continues its crackdown on the ecommerce and social media industries. The Cyberspace Administration of China (CAC) has announced a two-month special operation to “clean up the internet”. Separately, a consumer protection organization in China’s Zhejiang province began an investigation into five major ecommerce companies. The various probes indicate that regulators are targeting the rapidly growing ecommerce livestreaming industry.

As part of Beijing’s wider campaign to rein in Big Tech and tighten its control in cyberspace, the country’s main internet watchdog said on Thursday that it would launch a campaign to tackle the spread of fake accounts and misinformation online. The campaign will target a range of online behaviours deemed inappropriate, such as inflating engagement records, discrediting competitors or paying for fake reviews.

The CAC said authorities should stay alert to illegal or unsavoury practices throughout the Spring Festival season.

This includes a crackdown on the booming online livestreaming market. Earlier this week, one of China’s most famous ecommerce influencers, Huang Wei – better known under her stage name Viya – was slapped with a record-setting US$210m fine for tax evasion.

Since then, Chinese tax offices have given celebrities and influencers a deadline of ten days to get their taxes in order or face severe penalties.

In its latest move, the CAC held a meeting on Wednesday to implement rules to “normalize the order of communication, protect the legitimate rights and interests of the people and maintain good market order.”

Under the new proposal, authorities will have the right to single out fabricated sales and fake endorsements of products, short video platforms, livestreamers and ecommerce platforms.

The cyber watchdog will also target so-called “dark public relations”, which are paid reviews to harm or destroy competitors’ credibility. It will also go after “internet water armies” or hired bots used to endorse or discredit a certain product or platform.

The CAC’s campaign also aims to prevent the spread of undesired content during Chinese New Year, the country’s most important holiday, which will take place on February 1 in 2022. However, preparations for the festival usually begin well in advance.

This is not the CAC’s first campaign to “clean up the internet”. Previous special campaigns have targeted China’s celebrity culture, minors’ usage of the internet and video games and online discussions of historical events that do not align with the Communist Party’s official narrative.

In a separate instance, a consumer protection organization in the southeastern province of Zhejiang summoned several ecommerce platforms, including Alibaba, JD.com and Pinduoduo. Social media platforms such as ByteDance, the parent company behind TikTok, and domestic rival Kuaishou, were also summoned.

The organization said it would start an investigation into livestreaming irregularities that took place during the Singles’ Day shopping festival – China’s Cyber Monday and the world’s biggest ecommerce event.

It added that it had found irregularities with nearly 30% of livestreamers during Singles’ Day, while almost 40% of the products sold during the livestreams failed to meet national standards.

Regulatory changes have become the most significant challenge for ecommerce platforms operating in China in recent times. According to GlobalData’s ecommerce sector scorecard, which ranks companies based on overall leadership in the ten themes most important to the industry, Chinese ecommerce firms fare particularly badly when it comes to regulation. JD.com, Alibaba and Pinduoduo all received a score of one in that category, the lowest possible score.

Livestreaming has grown exponentially in China over the last few years and is now a key component in the country’s ecommerce industry. During this year’s Singles’ Day event, the country’s two top influencers, Austin Li Jiaqi and Viya, generated a total of 10.7bn yuan (US$1.67bn) in sales within 12 hours.

This phenomenon is also growing in the west, albeit at a slower rate. Verdict previously explained how livestreaming ecommerce might soon take over in western markets, with TikTok leading the way.

UPDATE

On January 5, China’s cyberspace regulator announced that apps that had the ability to influence public opinion should undergo a security review, CNBC reported. The new rules were part of the CAC’s draft regulation on how the app market should operate in China.