The China State Administration for Market Regulation issued new draft rules earlier in the week which banned unfair competition in its internet sector. According to a document which was published on the official website of the regulatory, business operators are urged not to use any data, algorithms, or other technical means to hijack traffic or influence the choices of users. In addition to this, the regulator also stated that business operators are prohibited from using any technological means to impose any incompatible barriers to other legal internet products as well as services.
This was the attempt that the regulator made to tighten the grip that it has on internet giants, and it caused the Hang Seng Tech Index to drop a significant 3.1% after the draft rules were issued.
The Impact of New Regulations on Tech Companies, Growth and Profitability
The draft sets out protection for intellectual property along with brand reputation. It also includes a strict ban against the use of algorithms alongside fabricated, fake reviews to promote goods and services.
In addition to these stringent requirements, companies were further prohibited from using any technical means to interfere with how rival platforms operate or render services. While it is understandable why the regulator decided to tighten regulations on major tech companies, it led to significant impacts that were felt across several tech stocks including Alibaba Group Holding, Ltd., which experienced a drop of 5% in its shares.
This resulted in the biggest point-drag on the benchmark and Hang Seng Index closed 1.7% on the day that the announcement was made. There were more losses experienced during the afternoon trading session with Baidu, Inc. as well as NetEase, Inc. both seeing a drop of 5% while Tencent Holdings, Ltd. experienced a slump of 4.1% in its shares.