January 16, 2011 5:44 pm

China issues rules to internet businesses

The Chinese government has threatened stiff fines or even closure if internet companies engage in unfair competition, in its first comprehensive attempt at regulating often unruly behaviour in a fast-growing industry.

In draft rules published on Friday, the Ministry of Industry and Information Technology warned that internet businesses must not refuse service to users, make their service incompatible with a rival’s or influence customers’ use of rivals’ services.

The regulations are a warning shot to Tencent, the world’s third-largest internet company by market capitalisation, and Qihoo 360, China’s largest provider of free antivirus software, after a fierce battle the two fought late last year on users’ computers.

Tencent runs QQ, the world’s largest instant messaging service, and offers a range of value-added applications such as social networking, shopping and games to subscribers.

In October last year, the company suspended services for those QQ users who also had 360 software on their computers. Tencent said it was defending itself against a malicious software attack but the move triggered accusations that Tencent was denying smaller companies the space to develop.

The two stopped their row after MIIT stepped in, warning them against unfair competition and practices harming consumers. The government has also said it is investigating whether the two companies violated any laws.

The draft rules, which the industry is invited to comment on by February 14, indicate that Beijing has diagnosed a regulatory vacuum, however. Although the fight between Tencent and Qihoo 360 was the most prominent, it was by no means an exception, as online smear campaigns between rival companies are widespread in China.

The new rules also ban internet companies from installing, de-installing, updating or otherwise changing content on a user’s computer without clearly letting them know.

Companies that violate these could be fined up to Rmb1m ($152,000) or even closed down for a “clean-up”, the rules say.

Beijing also plans to establish a comprehensive system for supervision and arbitration in this area. The ministry demanded the industry adopt a system of self-discipline, and said that government departments would set up an emergency mechanism allowing quick response to disputes between internet companies that involve information security threats.

China has one of the highest frequencies of cybersecurity threats, such as viruses.

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