Why China Is Rewriting The Rules

CHINA – 2025/05/19: In this photo illustration, a logo of Kuaishou Technology is seen displayed on the screen of a smart phone. (Photo Illustration by Sheldon Cooper/SOPA Images/LightRocket via Getty Images)

SOPA Images/LightRocket via Getty Images

For years, the financial risk of digital piracy was a manageable cost of doing business for China’s tech giants. That calculation has just been rendered obsolete. In a landmark judgment against short-form video giant Kuaishou, Chinese courts awarded damages totalling nearly ¥90 million (approx. £9.8 million)—a historic figure that sets a new record for platform copyright infringement.

This is more than a simple course correction but a redrawing of the financial map for China’s tech sector. As Western regulators debate the finer points of decades-old internet laws, China is actively intervening to shift power from the platforms to the creators. For investors and competitors, this means the very calculus of risk and reward in one of the world’s most vital markets is changing overnight.

The Anatomy of a Digital Black Market

To grasp the full impact of these rulings, one must look into the sophisticated digital black market that powered much of the user growth on these platforms. It has become a highly efficient system built to exploit copyrighted content for commercial gain.

The operation begins on cloud services like Baidu Pan and Alibaba’s Quark, which serve as hubs for pirated media. From these hubs, a network of so-called “content movers” repackage the infringed media for viral distribution. In a process that resembles a digital assembly line, the “movers” would slice entire shows into bite-sized clips. They will then strip watermarks and add original captions to sanitize the content, helping it avoid algorithmic detection.

The destination of these clips is, then, short-form video apps. Platforms like Douyin(Chinese TikTok) and Kuaishou provide fertile ground for infringing content to grow. Their powerful recommendation algorithms become the distribution engine as they push anything that holds the users’ attention. For years, this arrangement has been incredibly profitable with high traffic and ad revenue. With these record-shattering fines, the invoice for that business model has finally been delivered.

A Tale of Two Internets

This represents more than just a new legal chapter in China. It’s a fundamental break from the American-led philosophy that has shaped the global internet for decades. America’s “safe harbor” principle, born in the dial-up era and cemented by the Viacom v. YouTube fight, was essentially a grand compromise. The deal was simple: tech platforms were only liable when they had “specific knowledge” of infringement. In return, they only had to react to takedown notices. For investors, this creates regulatory certainty. But for copyright holders, it means a costly, perpetual game of whack-a-mole.

China, once a follower of this model, is now aggressively rewriting the playbook. For the better part of a decade, Beijing’s approach to digital copyright was an open secret: grow at all costs. While copyright laws existed, regulators were often conveniently looking the other way, effectively creating a protected sandbox for their national champions to expand without the burden of compliance. It was a deliberate bargain: widespread infringement was the accepted price of building a world-beating tech industry.

That era of permissiveness is now over. The record-breaking damages against Kuaishou are the climax of a multi-year campaign to discipline the very giants the state once nurtured.

This legal offensive takes direct aim at the “safe harbor” principle, fundamentally rewriting the risk assessment for the entire industry. Chinese courts now argue that platforms with powerful recommendation algorithms are less neutral hosts and more active publishers. When a company’s code promotes and monetizes infringing content, it forfeits its shield of neutrality. While the underlying tactics of infringement are universal, with the “sludge content” seen in the West being a prime example, the consequences are now worlds apart. Where U.S. platforms voluntarily use tools like YouTube’s Content ID as a proactive business solution, Chinese platforms now face court-ordered ultimatums, backed by penalties that can threaten their bottom line.

Conclusion: China’s New Copyright Playbook

The divergence between the United States and China is no longer a matter of policy nuance, but paths to two different futures for the digital economy. While the US legal framework offers predictability, it remains a product of a bygone era. Meanwhile, China is executing a rapid, state-driven overhaul of platform responsibility. This is not a moral crusade against piracy, but a clear-eyed act of economic strategy, rooted in calculated self-interest.

As Chinese companies invest billions in creating their own global intellectual property, emulating the IP empires of Disney and Netflix, the state can no longer afford to let its own tech giants devalue those assets. The “Great Wall of Copyright” is finally being built, not to keep foreign content out, but to foster and protect the value being created within.

For executives and investors in London and New York, the implications are profound. China’s aggressive new stance offers a compelling case study on how to regulate the modern, algorithm-driven internet, demonstrating a clear playbook for making unsustainable business models financially unviable. As Western governments themselves grow frustrated with the limits of their legacy laws, they will undoubtedly be watching. The era of treating platform neutrality as a given is ending, and China, for better or worse, is providing a powerful glimpse of what comes next.