One need look no further than The Simpsons to be reminded of the power China can wield over the media and technology sectors.

An episode of the long-running Fox series, which includes a sly joke about the Chinese government downplaying the 1989 massacre at Tiananmen Square, was found to have been removed from Disney+ in Hong Kong recently, raising concerns about censorship and Chinese officials’ authoritarian control. 

Similarly, the Chinese government has been taking strong-arm tactics recently with competition issues in the technology sector. But its efforts there might create a more vibrant space for tech development rather than restricting it, or at least that appears to be the intent.

China’s digital markets have long been intensely siloed, dominated by big players in e-commerce, telecommunications, etc. monopolizing their industries. These companies can lord over the industry through data-collection and other practices. 

Curbing the influence of Big Tech isn’t just on the wish list for China — in the U.S., government officials have also been trying to rein in (or possibly break up) some of the industry’s biggest players. While the U.S. efforts have generally been unsuccessful, China’s may have an impact, however. 

Here are five key things you need to know to understand the situation: 

Walled gardens have been a feature in China for a while

Walled gardens control access by siloing segments of the internet, allowing one or a few large companies to monopolize the sector. Telecommunications companies serve as an early - and current - example of walled gardens. Think of AT&T, Verizon, and other big names that largely monopolize the space. They maintain tight control over their networks without much collaboration between companies. 

Take Google as another example. The company has over 1.5 billion Gmail users alone who are almost always signed into their accounts, allowing the collection of obscene amounts of data from online behavior. It also has its own browser (Chrome) and its own mobile operating system (Android), offering even greater control of the ecosystem. 

Their power comes from the nearly incomprehensible amount of data they collect and guard through their platforms. They use this data to perfect their algorithms and only share it with partners who pay for it. These practices create a situation for smaller companies where the question of competing with Google has an easy answer: just don’t bother. 

There are ethical questions surrounding walled gardens

Clearly walled garden practices are not uncommon. So the question then becomes, are they legitimate? Those who stand to benefit would likely argue that yes, these practices are just how big companies use everything in their arsenal to beat the competition and provide a personalized experience for users. But lately, it appears the Chinese government may disagree.

The benefits to the companies doing the siloing are probably obvious, as it allows them to maintain influence by squeezing out smaller players. They also offer benefits to the end user in the form of hyper-personalized recommendations and services.  However, downsides include lack of integration opportunities, difficulty for smaller companies to compete, and more limited choices for consumers.

Tech giants threaten China's control over the internet

China claims that only a handful of companies hold too much power over the internet in the country. That list includes the e-commerce giant Alibaba, WeChat owner Tencent, TikTok creator ByteDance, and search engine company Baidu (often called "China's Google").

The government is after the executives of these companies to dismantle walled garden practices, such as blocking users from sharing links and posting about competitors. This helps cement their own growth in the ecosystem at the expense of other businesses and end users. 

However, those outside of the government might see the situation a bit differently. In 1998, China created a government-sanctioned, technology-powered blockage restricting internet access in the country. Nicknamed the Great Firewall of China, it cuts off the Chinese people from outside information by blocking sites like Google, Facebook, Twitter, and other Western media powerhouses through IP address blocking, content filtering, and other tactics. 

In short, even prior to the rise of the above-named tech giants, China’s internet was not known for its commitment to openness and information exchange. The government is not actually encouraging data sharing, but they are cracking down on how it is collected and used. 

The new regulations target some specific practices

In September, the Chinese government stated that it has ordered big companies to stop external link blocking, which they consider to be anti-competitive. More recently, however, the most significant regulatory step is concerned with data collection practices. Starting in November, a new regulation went into effect called the Personal Information Protection Law. It has some provisions similar to the EU’s GDPR privacy rules such as restrictions on data transfer, extraterritorial reach, and requirements for obtaining consent prior to data collection.  

While some particulars are not yet defined in the law, the regulation generally provides for the following: 

  • Organizations may process personal information only after obtaining fully informed consent with a clear, explicit statement.
  • Data collection must be minimal and purposeful.
  • Data collection and storage must be secure subject to external review if the amount of data collected is over a certain (unspecified) threshold or in cases of sensitive personal information collection.
  • Where personal information is transferred out of China, data subjects must be informed prior to the transfer and the data recipient must obey PIPL or similar regulations.

The link blocking prohibition may certainly address anti-competitive silos, though it’s unclear at this point how the order will be enforced. PIPL, on the other hand, could further cut off Chinese consumers from foreign markets, even as it offers them rights to data protection. 

The new rules could also affect foreign companies

These regulations may impact foreign companies operating in China, even if their data processing activities take place outside of China. Organizations that process Chinese data must establish a legal entity or appoint a person in China to oversee data collection and use. In some cases, they must also pass a security review before exporting data. 

These requirements are somewhat different from GDPR and give the Chinese government a lot of sway in who can operate in the country and what can be done with the data of Chinese citizens. The Chinese government reserves the right to blacklist any organizations that do not comply with the regulations. This comes at a time when some foreign parties are already pulling out of China, despite the global influence of the country - or being kicked out, depending who you ask. 

For example, Yahoo recently made the decision to leave, citing a challenging business and legal environment in the country. Some foreign companies that formerly operated in China are simply deciding that the benefits of having access to the huge Chinese market do not outweigh the headache of jumping through the regulatory hoops. We’ll have to wait and see how both Chinese and foreign entities respond to the new law - and how it impacts consumers in the longer term. 

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