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A sweeping legal overhaul is forcing China¡¯s internet giants to play by new competition rules, rebalancing power between platforms, merchants and consumers. Luna Jin reports

It is late evening in a small restaurant tucked in with others along Beijing¡¯s Third Ring Road. Delivery riders rush in and out, the kitchen never stops. Business appears to be booming, but the owner sighs: ¡°The platform¡¯s subsidy slashed our prices, and we¡¯re the ones footing the bill.¡±

The lament is not an isolated one. Across China, small businesses are caught in a paradox: platforms bring them visibility, but at the cost of unsustainable discounts, opaque rules, and algorithmic pressure on their bottom line.

The pressure intensified in April 2025, when the three food-delivery behemoths ¨C Meituan, JD.com and Alibaba¡¯s Ele.me ¨C unleashed a wave of subsidies, each offering billions of renminbi in coupons to lure customers and grab market share. Merchants were caught in the middle. Joining the subsidy wars might boost visibility, but it also guaranteed thinner margins, and opting out risked being drowned out in the digital marketplace.

In a tech-driven economy, platforms have long acted as both referee and player, setting the rules of engagement while dominating the game. Smaller businesses were left with little bargaining power: to be seen, they had to be prepared to lose money.

Now, that game is changing. This longstanding imbalance stands as the target of a profound regulatory correction.

In early 2025, China rolled out a major revision to its Anti-Unfair Competition Law (AUCL), marking a decisive shift in how the country governs its digital economy. The new law does not just fix gaps ¨C it redraws boundaries, imposes real responsibilities on platforms, and aims to restore fairness in a market long tilted towards the giants.

In June 2025, China passed a comprehensive revision of its AUCL, set to take effect on 15 October. It strengthens fair market competition by defining the responsibilities of online platforms for the first time, closing legal gaps in the digital realm and mandating a new era of what officials term ¡°fair competition¡±.

¡°The old law was often too general, with vague criteria for identifying violations,¡± says Zhan Hao, managing partner of the Beijing office of AnJie Broad Law Firm. ¡°By categorising new types of unfair conduct based on established regulatory experience, the revision makes enforcement more efficient and gives companies clearer compliance expectations.¡±

Full-on obligation upgrade

The most significant shift lies in the expanded duties imposed on platform operators. They are no longer treated as neutral intermediaries but are now cast as ¡°gatekeepers¡±, legally responsible for maintaining a level playing field among the businesses that depend on them.

¡°Platform operators are no longer just market competitors; they are also managers of their own ecosystems,¡± explains Liu Cheng, a partner at King & Wood Mallesons in Beijing. ¡°They now have a positive duty to review and supervise the conduct of the merchants on their sites.¡±

A headline change is an explicit ban on platforms forcing or strong-arming merchants into selling below cost. Such practices, often disguised as ¡°marketing campaigns¡± or driven by opaque ¡°algorithmic recommendations¡±, have long been a source of tension.

Yang Jianhui, a partner at Jingtian & Gongcheng in Beijing, says that platforms must now adapt their rules to ensure healthy competition. ¡°Large platforms can no longer use their relative advantage to squeeze the small and medium-sized enterprises that rely on them,¡± he says.

The effectiveness of this ban, however, hinges on enforcement. Ye Han, a partner at Merits & Tree Law Offices in Beijing, identifies two key challenges: precisely defining what constitutes ¡°forcing or strong-arming¡±, whether overt or hidden in algorithmic settings, traffic allocation or incentive structures; and setting a workable standard for determining ¡°below-cost¡± pricing.

The revised law also tackles the ¡°abuse of relative advantage¡±. Previously, only companies with full-blown ¡°market dominance¡± could fall foul of competition rules. Now, an imbalance of power in a specific trade relationship, such as a platform¡¯s control over a vital sales channel or a merchant¡¯s technological dependency, can trigger scrutiny of contractual fairness.

Zhan believes the new law aligns China with a global trend of stricter digital regulation while addressing local issues such as platforms blocking each other¡¯s links, or maliciously making their services incompatible.

In recent years, these tactics, along with forcing merchants into ¡°pick one of two¡± exclusivity arrangements, became commonplace, eroding the foundations of market competition and stifling innovation.

Liu notes a crucial distinction from antitrust law: ¡°The new AUCL law focuses on an imbalance of bargaining power within a specific transaction, not control over an entire market.¡± The concept of an ¡°advantageous position¡± in the new law is therefore more flexible and context-dependent than the traditional definition of ¡°market dominance¡± under the Anti-Monopoly Law.

He sounds a note of caution, pointing out that Chinese courts have yet to establish detailed tests for identifying such an advantage. Some past rulings have even viewed a refusal to deal based on a strong bargaining position as a legitimate exercise of commercial autonomy, not necessarily an unfair competitive practice.

In response, Zhan advises platforms to build robust compliance around four pillars.

1. 1. Data governance. Implement a classified and tiered data management system, moving beyond merely having a data policy to establishing actionable and auditable mechanisms for refined management;
   2. A thorough review of platform rules. Given that rules governing merchant entry, ranking algorithms, and incentive structures are fertile ground for abuse of a ¡°relative advantage¡±, platforms should consider pre-emptive compliance reviews, enhance transparency and notification, and set up internal channels for appeal and mediation;
   3. Algorithm auditing. As algorithms have become tools for unfair practices such as self-preferencing and hidden discrimination, platforms must consciously retain evidence demonstrating the ¡°good faith¡± and ¡°reasonableness¡± of their algorithmic logic; and
   4. A culture of compliance. Compliance should extend beyond the legal department and reach the front lines of business through training programmes.

Liu adds that platform operators have a duty to either proactively monitor or reactively identify unfair competition on their platforms, and to take necessary punitive actions promptly such as ¡°delisting products or services, restricting traffic, or suspending or terminating service¡±.

He also notes that ¡°when platform operators take action against unfair competitive practices by merchants on their platform, they are obliged to maintain records and report to the market regulatory authorities in accordance with regulations, thereby providing a basis for subsequent oversight and law enforcement¡±.

Penalties for failure are now severe. Fines can reach five times illegal gains or RMB5 million (USD690,000), whichever is higher. Legal representatives and managers face personal fines of up to RMB1 million. Serious violations can lead to suspended operations or the revocation of business licences.

¡°The stakes have been raised dramatically,¡± warns Zhan. ¡°Corporate liability has become personal liability, and operational risks have become existential risks.¡±