Why China wants to bring its tech companies more under control

Share your love

There is a ghost looming in the world of tech investors, the specter of corporate regulation in China. The stock market experienced its first shock last year when the global online retailer Alibaba surprisingly had to call off the IPO of its fintech division Ant Financial under official pressure. But in recent months, further actions against a growing number of companies and economic sectors have seen the shares of Chinese companies at home and abroad plummet across the board.

This year, China’s authorities targeted Didi Chuxing’s ride-sharing app, just days after it went public in the United States. A little later, Internet giant Tencent became the target of regulators – for alleged antitrust violations. Then the Chinese government also banned for-profit private cramming schools that earn money from parents’ fear that their children would miss the jump to university.

Since then, there has been speculation in the tech world about the intentions and thrust of the Chinese government. Two explanations compete, but they do not have to be mutually exclusive. Japan’s business newspaper Nikkei for example, saw regulation as an attempt by the Communist Party to remind China’s data giant of the party’s leadership role. Commentators therefore warned that China’s tech giants could become Beijing’s extended arm abroad.

Other observers see a socio-political turnaround with which the giant empire is following a global trend: the curtailment of the power of Internet companies, better protection of citizens’ data and, above all, a narrowing of the gap between rich and poor. Or to put it bluntly: China wants less online Manchester capitalism and more social market economy with Chinese characteristics.

But the world is not black and white, China’s party dictatorship is neither a monolithic bloc, nor is it incapable of pursuing multiple goals at the same time. The truth therefore lies in the middle. Emphasizing the overriding role of the party is an important goal. Under the leadership of party and state leader Xi Jinping, the rulers have made it clear in recent years by increasingly suppressing critical opinions that they will not tolerate any opposition.

This also applies to billionaires like Alibaba founder Jack Ma, who liked to publicly criticize government policy – and because of his stardom in China has reached many people and also had political influence with his wealth. Not only did he give up the management of the company, but he also disappeared from the public eye for a few months. His membership in the communist party did not protect him, but only alleviated his fall.

Read Also   iPhone 13: Apple allegedly increases production significantly

There is even a geopolitical component: In the escalating technology war between China and the US, some in Beijing’s leadership are as much a thorn in the side of some of Beijing’s leaders as the prosperous IPOs of Chinese companies in the US as they are to a wing in the American establishment. But the fears are the other way round: While concerns about the power of Chinese companies rule in the USA, the Chinese government fears the influence of foreign capital on the driving forces of the Chinese economy.

But more important for assessing the situation are the economic policy goals of China’s government. “We are at an important point in the history of the Chinese economy and the Chinese capital markets,” say economists at the US bank Morgan Stanley in a report.

After years of unbridled high growth and a laissez-faire policy in the tech and internet sectors, the government is shifting its priorities, the analysts believe: the relationship between growth and sustainability should become more balanced, and harsh social inequality and insecurity should be fundamentally reorganized legislation should be mitigated.

“This could increase the share of labor income in the economy and decrease the profit share of companies,” say the economists.

From an antitrust, data protection and socio-political point of view, there is little objection to the measures in China either. Anyone who is suspicious of the power of Western Internet companies must shudder at the freedoms of Chinese giants. Tencent has upgraded its chat app WeChat to a super app, without which nothing works in the life of the Chinese any more. Even beggars accept donations on their smartphones via WeChat.

Read Also   OPNsense-Firewall 21.7: Many updates and farewell to HardenedBSD announced

And this is just an example. Lending by fintech companies also flourished, which provoked increasing criticism of the social consequences of private over-indebtedness. Because the Internet sectors were previously hardly regulated and were allowed to grow almost unchecked in order to grow quickly and to drive the economy.

The government has already used the strategy in other sectors. But in the same way, the government sooner or later cut back the wild growth in every industry. Now it’s the turn of the figureheads of Chinese internet power, as well as a number of economic shows that are seen as the drivers of economic inequality.

China’s Gini coefficient, a measure of the income gap, has shrunk continuously since its peak until 2015. But since then, according to Chinese calculations, the value has not improved any further, instead it was 0.465 in 2019. A value of 1 means that income is at most unevenly distributed.

According to calculations by the American intelligence service CIA, wealth in China is roughly as unfairly distributed as in the USA and much more unfairly than in Europe. Other calculations paint a slightly more positive picture. However, that does not change the local perception: In China, the gap between rich and poor is almost on a par with air and water pollution, the greatest worry factor for the population.

In addition to the fear of rising house prices, fear of education also ranks high. Because spending on cramming schools is a heavy burden on many families. The problem: So far, access to the rare study places at universities has been controlled by a central entrance examination, the notorious Gaokao. In order to strengthen the chances of their children in the tough competition, many parents in the big cities begin to drill their offspring in various subjects in extracurricular teaching institutions from kindergarten age. The reason: Without a university degree, there is a risk of the B job market, i.e. low salaries and few opportunities for advancement.

More from MIT Technology Review

More from MIT Technology Review

More from MIT Technology Review

But poor families cannot afford this educational race. And so the Gaokao, which should actually ensure equal opportunities, becomes a social sieve – a very fine-meshed one at that. With a ban on profit-oriented, i.e. listed schools and lessons on weekends, the government wants to reduce the financial burden and ensure more equal competition.

Read Also   Endangered EU monuments should be digitized quickly

Whether this will succeed is another question. But the will for political change is there. However, it is unclear how long the new uncertainty in the corporate and investor world will spoil the gold rush mood in China’s tech industry. Even the savvy Japanese China investor Masayoshi Son, the founder of tech investor Softbank, wants to wait and see, and is now scaling back his investments in China, which have made him one of the largest foreign financial investors.

Softbank is a major shareholder in Alibaba, Didi Chuxing and dozens of other companies in the field of artificial intelligence and the Internet economy. But on Tuesday, Son said at his quarterly balance sheet conference that he first wants to monitor closely which sectors the government in Beijing will regulate and how deeply. “As soon as we have a better view, we want to start investing again.”

Softbank and other investors will be able to get over the slowdown in China. In addition, sympathy for them is likely to be limited anyway, given the noble socio-political goals of the Chinese government. Ultimately, the consensus is emerging in the West that society must reduce the power of technology companies and the income gap.

Why China wants to bring its tech companies more under control

Japan has always tried everything possible with electronics – and often the impossible. Every Thursday our author Martin Kölling reports here on the latest trends from Tokyo.

  • More articles on “Post from Japan”

The problem in China is that companies and people are exposed to the regulatory power of the state more vulnerable than in other industrialized countries. The legal systems in the West are by no means perfect, but they are independent enough that companies and private individuals can legally assert themselves against official measures. This is far less the case in China. And this low legal protection of the individual is the real China risk, for both people and investors.


Article Source

Share your love