Opinion: New Legislation Targets Race-to-the-Bottom Competition Among China’s Internet Firms

China is moving forward with new legislation to address what its officials refer to as “involution-style” competition in the country’s large e-commerce and technology sectors. The focus is on creating more transparent and regulated practices within the internet platform economy, counteracting the cutthroat competition currently prevalent among Chinese tech firms[para. 1].

The latest developments involve a second draft of amendments to the Anti-Unfair Competition Law, recently submitted to the Standing Committee of the National People’s Congress (NPC) for deliberation. This step demonstrates Beijing's intention to legally formalize its efforts against harmful, zero-sum practices. Key aspects of the updated bill include the adoption of fair competition review mechanisms, clearer rules for platform operations, stronger obligations for companies to monitor and prevent unfair conduct, and more precise definitions surrounding data rights infringements and malicious transactions[para. 2][para. 3].

This legislative initiative comes in response to the critical significance of platform businesses in China and the urgent necessity to manage their influence. The reform aims to ensure a healthier industry by providing a predictably regulated environment for both platforms and participants[para. 4].

A phenomenon described as “involution”—essentially, a downward spiral of increasingly aggressive but ultimately unproductive competition—has dominated China's tech sector in recent years. Traditional unfair business tactics have been amplified online by the vast scale and speed at which the internet operates. Examples include fake data to mislead the market, character assassination against competitors, and leveraging market dominance to pressure merchants. These tactics, with an audience of hundreds of millions and real-time transactions, have led to more immediate, visible consequences. The creation of a fair market climate is now deemed fundamental to China’s broader ambitions for high-quality economic development[para. 5].

Efforts to address unfair competition date back to a 2017 legal amendment, which introduced an “internet clause” prohibiting certain technical manipulations like unauthorized linking or forced redirection. As platform business practices have evolved, so too has the law, now accounting for actions such as generating fake user reviews, discriminating against loyal customers on pricing, and locking merchants into exclusivity deals. The new draft broadens the criteria for prohibited actions, explicitly forbidding the use of data, algorithms, technology, and platform regulations for anti-competitive means[para. 6].

A core feature of the revised law is imposing greater responsibility on platform operators. The law prohibits compelled below-cost selling and requires the establishment of fair competition rules, effective complaints mechanisms, and active guidance for merchants to compete ethically. Platforms are also expected to take action, document, and report incidents of illegal behavior to authorities[para. 7].

Chinese officials stress that the aim is not to stifle innovation or exert undue control over the tech sector, recognized as vital for economic growth. Instead, the law targets a stable and predictable regulatory framework that protects legitimate business activity while reflecting broad public input and consumer concerns[para. 8].

The proposed law is also designed to support small and mid-size enterprises (SMEs), preventing larger companies from leveraging their financial, technological, or market strength to impose unfair terms or withhold payments, which has historically disadvantaged SMEs in platform rivalries[para. 9].

Nevertheless, internal governance remains a challenge. Between 2020 and 2024, the Haidian District People’s Court in Beijing handled 127 criminal cases involving internal corruption at internet firms, with over 305 million yuan ($42.5 million) implicated. Strong corporate governance is critical, as internal malfeasance can be as damaging as external competitive manipulation[para. 10].

The significant public engagement with the draft law highlights the centrality of the platform economy to China’s future. Lawmakers hope that these legal revisions will enhance the stability and integrity of the market system, promote healthy industry growth, and represent a major stride toward a system governed by clear legal principles[para. 11].