In an unprecedented move, China has finalized regulations governing the way technology companies can use recommendation algorithms, targeting the secret behind the success of many of the country's giants.
The rules, first introduced last year, will take effect on March 1, as Beijing continues its push to tighten regulations on China's tech sector.
Algorithms are essential to how many tech companies operate, from recommending items on e-commerce apps to users, to recommending posts on social media platforms.
Investors will watch whether these rules affect the business models of companies, from Alibaba to Tencent, and how regulators will enforce the law.
The following are some of the new provisions in China's algorithm regulation
Companies should not use algorithm recommendations to do anything that violates Chinese laws, such as jeopardizing national security.
Algorithmic recommendations services that provide news information need to obtain a license and cannot spread fake news.
This provision is a new addition to last year's draft rules.
Companies need to inform users of the “basic principles, purpose and main operating mechanism” of the algorithm recommendation service.
Users must be able to opt out of receiving algorithmic recommendation services.
Users should be able to select or delete tags used to run recommendation algorithms and suggest things to them.
Companies should facilitate the “safe use” of algorithmic recommendation services for older adults, protecting them from things like fraud.
This was also a new addition to the previous draft.
The new rules will affect the business models of companies, from Alibaba to Tencent (European)
"These changes reflect some of the biggest concerns across Chinese society today: the control of online content, the aging population, and the transparency of big tech companies," Kendra Schaefer, partner at Trivium China consultancy in Beijing, told CNBC. Anti-competitive behaviour, seeking out a future where algorithms are used to erode social unity or exacerbate market problems.”
If the rules are broken or violated, companies can be fined between 10,000 yuan and 100,000 yuan (between about $1,570 and $1,740), but the implementation of algorithmic regulations could lead to a clash between regulators and tech companies.
In order for regulators to find violations, they may have to examine the code behind the algorithms.
"Algorithms are the company's deepest secret, its most valuable asset, and letting the government dig into it would be a problem," Schaefer said.
"These rules may have a greater impact on companies in the short term, especially as Chinese technology companies are quick to interpret, implement and comply with these rules," Ziang Fan, head of digital commerce at the World Economic Forum (WEF), told CNBC. Along with a series of other recently passed technical regulations.
"At the same time, while these rules are broad and far-reaching, they are not an absolute death sentence for companies," Ziyang added. "In the medium and long term, it is not impossible for companies to be able to develop alternative solutions to comply with the rules while meeting revised business objectives."
The regulations on algorithms are part of a more than year-long campaign by Beijing to bolster its oversight of the domestic tech sector and control the power of China's giants, which has grown largely unimpeded for years.
China last year introduced antitrust rules for online platform companies and a landmark data protection law, reducing the time children can play games online.
Arguably, the rules of the new algorithm could have the potential to affect tech companies' business models, given their importance to the way these companies operate, although it is Ziang who said they are likely to adapt in the long run.