By Ma Jun& Ma Yuan

Research Report Vol.19 No.1, 2017

Since China launched its Internet Plus Action Plan, the Internet has been moving faster and deeper into all aspects of the Chinese economy and society, smart Internet applications have prospered, the industrial structure and corporate structure have both been reshaped, products have been more and more customized and diversified, cross-industrial competition has increased, and new commercial ecology has taken shape. Internet Plus has given birth to a large number of new organizations, business models, products, competitions, and commercial models, posing new challenge to the traditional regulatory systems of the government. Government regulation must adapt to the new trend of Internet Plus and integrated development by moving faster towards a transformation, and enhancing regulatory efficiency, so as to further unleash the vitality of enterprises for innovation and entrepreneurship.

I.Internet Plus Challenges the Traditional Regulatory System in all Aspects

As Internet Plus develops, the traditional regulatory system is challenged in five aspects.

First, the innovative Internet Plus model changed the traditional industrial structures, overthrew the enterprises under regulation, and challenged the very basis of traditional regulation. As Internet enterprises extend from online to offline business, their business philosophy, operation model, and development path are all vastly different from those of traditional enterprises. They create innovative technologies to meet major demand of users, and thus interrupt the traditional industrial structures. This is especially true in areas where there are administrative access control, such as transportation, medical services, finance, media, food and drugs, because these areas are those in lack of competition. And Internet Plus has the greatest impact here. It may even annihilate entire industries. A typical example is taxis. Online car-hailing services combine mobile Internet, GPS, big data, etc. and fully changed the way people travel to achieve higher efficiency, lower cost, and more competition, dealing a heavy blow to traditional cruising taxis. Facing such an innovation of Internet Plus, the regulatory authorities based on traditional industrial systems will have to make the difficult choice of whether to reject innovation and protect traditional models, bring the new business model into the traditional system, or to create a new regulatory system.

Second, Internet Plus, as integrating business, blurs the boundary between different traditional industries and challenges the separate regulatory systems. The Internet serves all purposes and it may integrate deeply with any sector to brew new businesses and new applications that stride over a number of different industries. Online finance, for example, is both a kind of information service and a kind of financial product. Based on traditional division, as the former it falls under the regulation of IT authorities, while as the latter, it is subject to the regulation in the financial sector, with either one regulator unable to fully perform the required regulatory duties. Therefore, the major problem we must solve for sufficient regulation for Internet Plus businesses in terms of market access, prudent regulation, competition, service quality, data protection, and network security is how to draw clear boundaries, clearly define regulatory power and responsibility, reshape inter-departmental coordination and regulatory mechanisms, forge synergy, and achieve full connectivity with no overlap.

Third, the omnipresence of Internet Plus business removes the regional divide in service provision and challenges the location-based regulation system. On a traditional market, the supplier and buyer of a product or service are usually in the same area and regulation is conducted within a certain administrative area. The Internet, however, gives users access to services from around the world and things are no longer based on location. It does not matter where the Internet enterprise sets its servers, or where the users reside. The Hangzhou-based Alibaba, for example, offers online shopping services to users across the world and once a dispute occurs, coordination may be required from regulators of different countries, regions, levels, and departments. To adapt to the flat and integrated structure of the Internet, we must reshape the existing regulatory work flow to achieve efficient coordination in the regulation of online and offline business operation and the current location-based regulatory system must be changed.

Fourth, Internet Plus business is based on platforms and it changes the traditional organizational structure of various industries and challenges the direct control of the government over business runners. For quite a long time, the government has been exerting direct regulation and control over business runner in areas where the market fails and a full set of regulatory responsibilities and policies has been formed for this purpose, covering market access, quantity control, service standards, competition, users’ rights and interests, labor protection, etc. However, as the Internet steps in, business operation turns to be based on platforms which are third-party entities connecting traditional business runners and registered users who will buy the products and services offered. Such platforms naturally possess data of registered sellers and buyers as well as their transactions. Regulators, therefore, must join hands with platform runners if they are to keep businesses on the platforms under effective regulation. Yet the problem here is how to set an appropriate position and role for platform runners so that they can support government regulation without misusing their power and the power of the market.

Fifth, Internet Plus business, as Internet-based business, creates massive data and requires frequent updates. This challenges the traditional regulatory model of offline patrols. In recent years, China has been vigorously promoting commercial system reform with an aim to ease market access control but maintain good coordination between regulation and power delegation to improve services. In the face of an Internet boom, the traditional regulatory models that focus on on-site, tangible, and experience-based regulation are no longer effective. Also, it is difficult for traditional regulation to keep up with the fast development and continuous upgrades of Internet Plus business and it is even more difficult to maintain systematic monitoring and analysis. With loosened market access control, traditional regulatory models, unfortunately, fail to conduct refined regulation on the various market entities. Therefore, a major task in our innovation of regulatory tools is that we must create a new information-dominated regulatory pattern and form a panoramic view of data resources.

II.Regulators’ Attempts to Adapt to the New Situation

Over the past years, bearing the blunt of Internet Plus, regulators have made some attempts to reshape their regulatory models, issued policies for the regulation reform, and the direction of the transformation are seen mainly in four aspects.

First, regulation will be extended from offline to online business and the guideline will shift from encouraging innovation to balancing development and regulation. To promote the healthy development of Internet Plus, the state has issued a number of guiding opinions respectively for online finance, e-commerce, cross-border e-commerce, and online car-hailing services since 2015 to support the development of these new business models. Over the past more than a year, various Internet Plus businesses have been booming but there are also some cases of illegal operations in the disguise of innovation. For example, some online finance platforms took users’ funds into their own possession and escaped, some online caterers prepared meals in illegal kitchens, online medical service providers gave false information, online tourism service providers sold fake air tickets, and some online live broadcaster disseminated inappropriate and violent content. All these have caused damage to the users and some of the cases attracted extensive attention from society. In response, to encourage innovation, prevent risks, promote the pros and avoid the cons, a number of policies have been issued by relevant authorities since 2016, to tighten control over online finance, online live streaming, food safety of online catering services, and online car-hailing services, intensifying regulation over relevant new business models. ...

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