China’s tech crackdown is not over
Shares in China’s technology sector have risen sharply due to a perception that the central government is relaxing its regulatory restrictions on the industry. This would be a mistake. Control mechanisms are in place that will hinder the industry’s growth. There are certain key sectors – namely, data, education, and banking – in which private capital will be restricted both in size and in voting rights. The government will allow the entry of new companies but their size and scope of activity will be limited, highly monitored, or directly owned by state entities.
The share prices of some technology companies jumped following statements by the government about relaxing constraints. Guo Shuqing, Communist Party Secretary of the People’s Bank of China, announced the winding down of the tech crackdown on January 9, when he said the special campaign to rectify 14 internet platform companies’ financial businesses was basically complete, with few remaining issues to resolve, according to Caixin magazine.
However, I would argue – as explained in my 2021 book on the crackdown – that the regulatory changes were not a methodical change in laws but an assertion of power by competing regulatory bodies and the Communist Party. Both forces were threatened by the rising capital, economic influence, and popularity of people like Jack Ma of Alibaba and Pony Ma of Tencent. The reasons for the 2020 crackdown remain in effect today. Regulatory changes will continue to increase state control.
Apart from capital, data is the most important commodity that the government will seek to dominate. Any technology firm with substantial amounts of personal or societal data will be forced to allow government entities to be responsible for the rules governing its usage. This will prevent China from utilizing its key advantage – economies of scale.
Now read on...
Register to sample a report