CHINA VS BIG TECH: WHY IS CHINA WIELDING A SWORD AGAINST ITS TECH GIANTS? - Abhinav Goyal

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Jack Ma is revered as a visionary who led the growth of China’s tech sector but when he took stage on October 24, 2020 to give a speech in Shanghai, even the acclaimed visionary could not have predicted the series of events that his words would initiate. Post his scathing speech, the Chinese tech companies saw mayhem like never before starting with Jack Ma’s Ant Group whose $37 Billion world record listing was pulled back just days before, citing anti-trust law violation, then the ride hailing app Didi was banned days after its $4bn IPO in New York and more and more followed. Today we will try to understand the Chinese tech sector and how it might change over the coming years.

Once known for the Great Wall and the infamous “Made in China” products, the China of today has captured everyone’s imagination with half a century of breakneck growth and a rise in economic and political status that rivals the USA. The world’s factory became a manufacturing powerhouse with all global companies heavily relying on the Chinese to build everything from their favourite smartphone to dresses and cars. But a large part of this success story was played by the emergence of the consumer technology sector. With an envious combination of skilled labour, manufacturing prowess, integrated supply chains, unending flow of foreign dollars and generous policy support from the biggest communist government in the world, Chinese tech companies grew into behemoths big enough to match the FAANGs of the world. By 2020, Chinese tech was visible all across the globe, in the form of smartphones, laptops, gaming apps and billions of dollars’ worth of funding in local start-ups across countries, including India.

But come 2020, like everything else, things have changed for Chinese big tech. The vision, as indicated by President Xi Jinping and the communist party authorities is to build a strong Chinese society replete with deep tech like artificial intelligence, cloud computing, self-driving cars, EVs, cutting edge silicon chips designed and made onshore. But instead of big tech companies like Alibaba and Tencent leading the industry it will be an ecosystem of companies innovating and investing in less frivolous and more practical deep tech demands of the society with data available for everyone under the watchful eyes of the government.

Towards this front, China launched a multi-dimensional “Operation Cyber Sword” involving 14 ministries and agencies targeting the tech sector. Their 6-point task is to regulate live commerce platforms, crackdown on unfair competitive practices, strengthen supervision of internet ads, centralise control of online sales and end illegal plants and animal trade online. The operation will target not only companies but entire ecosystems. As a consequence of all this, the country’s hottest tech groups have lost at least $1trn in combined market capitalisation since February 2021.

But it begs the question – Why?

As stated by Chinese Vice-Premier, Liu He, China is moving into a new phase of development to prioritise social fairness and national security over growth at any cost mentality. The first is data, with the new Data Security Law coming into force on September 1 private data held with behemoths Alibaba and Tencent will be available for trade with other public and private companies to build onto. Second, to redistribute the massive wealth cornered by a few companies who strong arm smaller ones to drive out competition. With more options, customers will have better prices and workers will be have better wages and benefits, gone will be the days of cheap labour and stressful overtime. Finally, to drive innovation on more hardware and cutting-edge focus in areas like AI and Quantum Computing to displace and surpass the existing American order.

Such sweeping changes to keep the big tech in line might have unintended consequences like spooking investors and scaring away entrepreneurs due to overregulation and uncertainty. But given China’s history, it might be able to tide over this and come out much stronger in the future. Nevertheless, writing is on the wall for Chinese tech companies – the era of boundless and unquestioned growth is over, to survive, big tech will have to make China’s priorities their own.

 

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