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Chinese tech crackdown: Is it really what it seems?

Updated: Jun 9, 2023

Photo Credit: Markus Spiske, Public Domain.

In January 2023, DiDi Global, a ride-hailing company, announced that it would soon be allowed to resume taking on new customers after an 18-month pause, during which it was banned from new customer acquisition activities (Feng, 2023). In the same period, Jack Ma, co-founder of Ant Group, China's fintech titan, announced that he would relinquish company control (Espiner, 2023). The decision of Jack Ma, the country's most prominent entrepreneur and the brightest star of the Chinese capitalist dream, is believed to be one of the final steps towards the political approval of the company. This decision came after the Chinese Communist Party (CCP) cracked down on the nation's tech sector in 2020. This crackdown started and ended, perhaps ironically, with the unlucky founder of Ant Group.

Indeed, it “ended” because shortly after the announcement of Jack Ma giving up control of the company, a senior Chinese technocrat suggested that the tech crackdown was ending (Ran & Wei, 2023). But is it truly the end? To answer this question, it is necessary to step back and observe the entire picture. Let’s start from the beginning.

The first time the press talked about the “tech crackdown” was in late 2020, following a speech by Jack Ma at the Bund Summit in Shanghai. In the speech, Ma criticised China's financial regulators for being too focused on risk prevention and not doing enough to encourage innovation. This was seen as a challenge to the CCP's authority, and shortly after, the Chinese government cancelled Ant Group's IPO, which was set to be the largest in history (Yang & Wei, 2020).

However, this hardly was the reason that led to the start of the tech crackdown. Instead, in the 2020 economic work conference, Beijing pledged to prevent the “disorderly expansion of capital” (防止资本无序扩张) because “capital is an important factor of production in the socialist market economy”, according to President Xi Jinping (CGTN, 2022). Since then, the government has initiated a series of regulatory measures aimed at reigning in the power and influence of large tech companies, including Alibaba, Tencent, and ByteDance. The crackdown has included investigations into antitrust violations, data security, and the treatment of workers, among other issues.

Some have tried to explain the tech crackdown as a political strategy by the Chinese government to maintain control over the country's economy and prevent the rise of powerful private companies that could challenge its authority. This is partly true. The government may also be concerned about the potential for these companies to become too dominant and pose a threat to national security. For instance, in the case of Tencent’s app Douyin, the Chinese version of TikTok, the censorship machine has to make great efforts to control the content shared on the platform because of the high number of active users – which reached 730 million (Yu, 2023), more than 50% of China's population.

However, the situation is much more complex, and a combination of factors is at play whenever there is a considerable policy turn in China. Political motivations, concern over economic stability, and national security considerations are all contributing factors.

To better understand which companies have been the target of the tech crackdown, one popular commentator has indicated seven categories of companies that were under scrutiny during the tech crackdown (Chairman Rabbit, 2021). In this article, the seven categories are summarised into four, which are enough to have a clear picture and avoid redundant content.

1. The "Too Big to Fail" companies

If an enterprise reaches a particular size, it consequently takes up a certain proportion of the industry and economy, meaning that in case it has problems of any kind, it could have a snowball effect over entire areas of the economy. Therefore, these companies represent a risk to government politics and social governance and must be regulated.

2. Companies involving national security issues

This is the example of DiDi Global, of which data security issues have been the main motivation for its temporary halting. The control of data by such internet platforms includes not only external and internal security but also national territory security and national citizen security. The CCP does not want these companies to go public in the US because, in a period of rising US-China political confrontation, these companies may become "hostages" and be used by the US to pressure China.

3. Companies which do not take social responsibility

Some companies cover a significant role in society and the lives of citizens, such as real estate, finance, education and so on. In spite of their role in society, the government must further regulate these sectors. For instance, the regulatory changes had a devastating impact on the education technology market. In the last couple of years, it was also imposed limitations on the hours a minor can play to videogames.

4. Companies which have monopolistic behaviours

While the Chinese economy was growing, the regulatory agencies understood the need for the unruled growth of companies. The government has for decades supported large enterprises in their expansion plans, but now that the government's direction is changing towards the creation of a wealthy society and common prosperity, the government has chosen to protect small and medium enterprises.

Therefore, the tech crackdown is aimed at the largest and most powerful companies in China, which can represent a real challenge to the country's rule. In particular, the Chinese economic titans are those companies involved in the platform economy, such as ByteDance, Tencent, and Alibaba. However, other companies have global importance, such as Huawei, Lenovo, SMIC, etc. It is important to highlight that not all the companies involved in the technology sector have been affected by the tech crackdown at the same level. Therefore, the term “crackdown” itself needs to be reconsidered.

Tech crackdown or national rectification?

The word “tech” is misleading because it covers a lot of sectors related to technology products which, in reality, did not experience any kind of turmoil during the tech policy change. For instance, strategic sectors like semiconductors did not experience any problems from the government. On the contrary, it has constantly received more and more funds from the central and local governments (Zhu, 2022). The tech companies that suffered the most from the “crackdown” were those that were not in line with the new needs of the government. For instance, the edtech companies made money from Chinese parents' eagerness to provide their children with the best education. The cost of raising a child in China is extremely high (Wu, 2022), and families are willing to spend a lot of money on English lessons, extracurricular activities, and private tutoring to give their children a competitive edge. The education platforms in China have been decimated in the last few years (Jaramillo, 2022).

Besides, the companies affected by the policy turn have never faced the risk of being shut down due to violations of certain government standards. For example, DIDI Global and Alibaba were temporarily suspended but eventually allowed to resume operations. Therefore, the “crackdown” does not seem to be an attempt by Beijing to eliminate the platform economy. Instead, regulators view the sector as crucial but believe that the excesses surrounding it cannot be tolerated any longer.

This became evident when, last year, the Chinese government launched the Qing Lang campaign (清朗, cleansed and uncontaminated), which aimed to exert more control over social media in China. The campaign claimed to be necessary to protect teenagers from cyberaddiction, a real problem in China. However, some see these regulations as an excuse to monitor citizens and limit freedom of expression (Costigan, 2023).

While some of the rules aim to combat teen cyberaddiction and exploitation of minors by video gaming and other companies, they also censor content that is deemed “deviant,” “unconventional,” “confusing,” or even “aesthetically aberrant” or “subverting traditional moral values” (Tan, 2022). This means any video the CCP disapproves of can be banned, limiting freedom of expression.

It is also important to understand why this regulation change is arriving now. This is a crossroads moment in Chinese politics. Initially, the focus of the Chinese government was on finding quick solutions to facilitate economic stability, employment and income growth, at a moment in which China was moving from a planned economy to a more liberal economic model through the process of privatisation. However, after decades of fast and unruled growth, the priority has become social stability, with new slogans such as “common prosperity” (共同富裕, gong tong fuyu). It is necessary to protect workers from capitalist exploitation – especially in the years of the gig economy, a new threat to social justice.

Since Xi Jinping came to power, ideology has started to play a bigger role in economic decisions (Bloomberg, 2022), and companies must conform to and support China's political order and values. The Chinese government is regulating companies that do not respect ideological requirements and those that go against public morality.

Assuming that the change in regulation was targeted to only certain tech companies and the restrictions did not aim at the repression of the companies, it is more correct to talk about national rectification of the tech sector rather than a crackdown. The final aim is to exert more control over the powerful companies in China and align them with the strategic national goals.

The end of the rectification?

The moment has arrived to reply to the opening question. Nowadays, tech companies understand the requirements of the government and are operating in a much more precise (even though restrictive) sector.

The priority of Beijing is to promote high-quality development of the Internet sector and boost economic growth after the draconian COVID restrictions had a negative impact on the national economy. As a result, the government is sending positive signals to investors by officially stating its support for tech companies. These companies are asked to play a vital role in leading economic growth, creating jobs ,and participating in international competition.

About the Author:

Noemi Capelli holds a master’s degree in Forecasting Innovation and Change from the University of Bologna. She holds a master’s degree in China’s Politics and Economics from Shanghai Jiao Tong and a bachelor’s degree in Asian and African Languages and Cultures from the University of Torino. She is the co-founder of Chinaly, a daily press review of Chinese newspapers. You can find her on Instagram and on LinkedIn.

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