Why China is cracking down on its tech champions

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The biggest Chinese companies achieved this way with at least the tacit backing of the government, which has taken a relatively casual approach to the internet, e-commerce and digital finance spheres. Today, President Xi Jinping’s government controls the country’s most powerful companies and their billionaire founders, including Alibaba Group, Tencent Holdings, and Didi Global.

The explosion of scrutiny is shaping up to be one of the biggest concerted actions against private enterprise in decades, suggesting that the unusual leeway enjoyed by entrepreneurs like Jack Ma, founder of the sprawling Ant Group, could end.

1. How is China repressing?

The cyberspace regulator ordered the removal of Didi’s app from stores in July as part of a data security review. This happened less than a week after the rideshare company’s successful registration in the United States. Ant, the fintech giant whose business has grown significantly during years of loose regulatory oversight, was set to go public in November 2020 when Chinese authorities imposed new rules on the consumer lending industry in line. New rules to tackle monopoly practices across the internet landscape were then drafted and finalized in just three months. Regulators imposed a record fine of $ 2.8 billion on Alibaba in April for alleged monopoly behavior and ordered numerous “rectifications” to the way it does business. Days later, they offered the first important tips on how Ant should review its operations. Tencent, operator of the “super app” WeChat, is also reportedly under regulatory control, in particular its fintech wing. China has also attacked online grocery units from companies such as Meituan and Pinduoduo for improper prices.

2. What is the stake?

To cite just one example, new measures proposed this year to curb concentration in the Chinese online payments market could reduce Ant’s valuation from around two-thirds to just over $ 100 billion, according to Bloomberg Intelligence. . It could also endanger the growth of Tencent’s fintech division, estimated at $ 120 billion before the crackdown.

3. What explains the repression?

It’s not clear. As is almost always the case, Chinese leaders have said little about their underlying intentions, other than generalizations about protecting consumers and maintaining financial stability. Analysts and investors are making various theories: maybe regulators are simply reasserting their oversight power, or maybe those in power have become frustrated with the arrogance of tech billionaires and wanted to teach them a lesson. Last year, Alibaba, Tencent and Ant had a combined market capitalization of nearly $ 2 trillion, easily overtaking state giants like Bank of China as the country’s most valuable companies. And it is clear that the Communist Party was increasingly concerned about the growing weight of its Internet companies, mostly private entities over which it has little direct control.

Image: Macau Photo Agency

4. Is there more to come?

Presumably. Xi said he would go after “platform” companies that amass data and market power – a broad definition that includes just about all of China’s biggest companies. His administration is particularly keen to eradicate systemic risks – such as the unsupervised growth in consumer debt – in part to ensure Communist Party dominance. More:

  • The cyberspace watchdog quickly extended its review of national security beyond Didi to applications operated by Full Truck Alliance and recruiting firm Kanzhun, both of which had recently signed up in New York City.
  • In April, regulators asked Tencent, Meituan and others, including TikTok owner ByteDance, search leader Baidu and shopping portal JD.com, to “follow Alibaba’s lead.” and fight against anti-competitive practices such as exclusivity requirements.
  • Beijing may also seek greater monitoring of mergers and acquisitions, as Chinese internet companies have invested over the years in hundreds of the country’s most influential newcomers in areas such as online healthcare and intelligence. artificial. Regulators have started imposing symbolic fines for deals concluded years ago, raising fears of further investigation into mergers and acquisitions.
  • The government has reportedly proposed a state-backed company with the tech giants that would oversee the lucrative data they collect from hundreds of millions of consumers.

5. Is it really that surprising?

In some ways it is. The government has played an important role in developing the tech sector in a way that has facilitated the development of behemoths. China has indeed created its own version of the Internet, a version blocked off from the rest of the world by what is called the Great Firewall. In the absence of Facebook or Twitter, Sina’s WeChat and Weibo have flourished as social networks. On the other hand, China has a tradition of cracking down on it or making examples of leading companies. For example, Tencent became the target of a campaign against gambling addiction in children in 2018.

Jack Ma. Image: World Economic Forum

6. Will Ant or someone else go their separate ways?

Not Ant, it seems. It has agreed with regulators on a restructuring plan that will transform it into a financial holding company, subjecting it to capital requirements similar to those of banks. After the $ 2.8 billion fine, Alibaba executives said they were not aware of any further antitrust investigations. However, the government reportedly wished it had sold some media assets, including the South China Morning Post, over concerns about the company’s influence on public opinion. Overall, Beijing authorities should be cautious, seeking to curb the growing weight of tech giants without undermining some of the country’s biggest business success stories.

7. Was Ma singled out?

The charismatic impresario behind two of the country’s largest companies, Ant and Alibaba, is arguably the person most closely identified with the meteoric rise of China’s internet industry. Long accustomed to the global conference circuit, the flamboyant billionaire has all but disappeared from public view after Ant’s initial public offering was derailed and, according to a person familiar with the matter, the government advised him to stay in the country. . It resurfaced in mid-January, propelling Alibaba’s market value $ 58 billion higher. Tencent founder Pony Ma (unrelated) – a delegate to the country’s highest legislative body – was much less heard than his fellow globetrotter; in March, he initiated a voluntary meeting with antitrust officials as part of their regular conversations. Meituan CEO Wang Xing was warned to keep a low profile after posting a poem interpreted as critical of the government. His appearance two weeks later at an official state celebration signaled that he and his business could be back in favor in Beijing. – (c) 2021 Bloomberg LP


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