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Boardroom / Regulation/compliance

How will China handle Big Tech?

China has worked hard to cultivate its Big Tech giants. New antitrust rules and US sanctions are poised to consolidate that progress.

The next speaker needed no introduction. “He says he is going to say something very surprising,” said the host of Shanghai’s Bund Summit last October. Jack Ma, founder of internet sales giant Alibaba and the virtual embodiment of Big Tech in China, gave a shrug as he rose from his chair, as if to say – so what if I do?

The audience would have been aware of the billionaire’s previous gaffes. Affectionately known as ‘Papa Ma’ to many of his devotees, Alibaba’s founder has also been heavily criticised for a string of remarks Chinese audiences have found offensive, from endorsing a culture of overwork to saying that counterfeit products are sometimes better than the real thing. None of these comments, though, had any material consequences for Ma. He remained a man of stature whose name, as one CNN report put it, could be said in the same breath as Bill Gates, Steve Jobs, or Elon Musk. 

Today was different. Instead of defending Alibaba’s corporate culture, Ma took aim at an external enemy: China’s financial authorities. “Regulatory challenges are getting bigger and bigger,” said the billionaire. Good regulation, added Ma, meant both supervising the development of new businesses and ‘managing’ businesses when things went wrong: “We are very good at ‘management’, but our ‘supervision’ ability is sorely lacking.”

The regulators seem to have taken his words to heart. The following month, Ant Group – an offshoot of Alibaba that had grown rich by digitising China’s burgeoning peer-to-peer lending market – was set to make its initial public stock offering. Analysts expected it to confirm the company’s value at something to close to $300bn, making it the world’s largest IPO to date. Just days beforehand, however, the Shanghai Stock Exchange pulled the plug, citing major changes in the regulatory environment. An antitrust investigation against Ant Group was soon opened, with China’s central bank governor saying that chances of the IPO happening remain slim until the company fully abides by the country’s lending laws. 

For some, a clear line could be traced between Ma’s comments and a raft of new antitrust regulations, rules heralding a state-sponsored crackdown against Big Tech in China. In truth, the relationship between the central government and companies like Alibaba is less clear cut. Far from being a new target for the country’s political class in the same mould as Facebook or Google are to Democrats in the US, homegrown tech giants such as Alibaba, Tencent and ByteDance are not only jewels in the crown of a successful economic policy, but strategic assets. Ma may well have flown too close to the sun in his very public criticism of the regulatory establishment, but the system that created him is not only likely to endure – it may also trigger a second, deeper wave of technological innovation in China. 

China is already one of the most digitised societies on the planet. (Photo by Greg Baker/AFP)

A gilded cage

By most metrics, China is already one of the most digitised societies on the planet. A fifth of all internet users on the planet reside in the country, with easy access to a wide variety of online services and features, from e-commerce outlets, social media platforms, and search, to digital banking and ride-hailing apps. These markets are dominated by four huge conglomerates: Baidu, Alibaba, Tencent and Xiaomi, collectively nicknamed ‘BATX’ by Chinese netizens

These platforms are central to modern life in China, says Rui Ma, co-founder of Tech Buzz China. Most Chinese, for example, access the internet through WeChat, a messaging app equipped with additional social media and mobile payment functionality. Developed by Tencent, it is used by a majority of consumers in China and remains the easiest way in which to contact an individual or business. “I can easily de-Facebook myself, and probably a lot of my friends would not even notice,” says Ma. “But if someone tried to leave WeChat… they really couldn’t.”

I can easily de-Facebook myself, and probably a lot of my friends would not even notice. But if someone tried to leave WeChat… they really couldn’t.
Rui Ma, Tech Buzz China 

WeChat is just one example of BATX’s enormous sway over the Chinese internet. It is highly likely, for example, that the search engine of choice for your average Chinese consumer is Baidu; that their favourite method of digital payment is Alipay, owned by Alibaba offshoot Ant Group; and listen to music through smart speakers manufactured by Xiaomi. There are, of course, more companies fighting to compete in China’s technology ecosystem – companies such as e-commerce site JD.com, TikTok owner ByteDance, and telecommunications giant Huawei, who have pushed relentlessly outward into numerous markets throughout the developing world. 

Their ability to do so comes as a direct consequence of protectionist policies maintained by the Chinese government since the millennium, says Alex Capri, visiting fellow at the National University of Singapore. Massive state subsidies went towards the country’s nascent internet sector while protecting it from foreign competition. Effectively, this carved out a space in which start-ups like Alibaba and Tencent could innovate – or Capri describes it, a cage. “They want to throw in all the different combatants and they want to see the best ones emerge,” he explains. “But they want it in the cage. In other words, they want it controlled.”

Inside this space, Chinese internet companies are given largely free rein to compete as they like and remain protected from Western rivals such as Google and Microsoft. In return, these companies are required to forfeit some measure of control in a variety of ways: the maintenance of a CCP network within the company, perhaps, or providing another avenue for surveillance against the wider population. Should those strictures be violated, the government will intervene accordingly. “When things get out of hand, one way or the other, they pull the plug,” says Capri.

Microsoft executives demonstrate the firm’s HoloLens device to Chinese President Xi Jinping. China has historically been wary of foreign competition to its Big Tech companies within its own borders. (Photo by Ted S Warren/Getty Images)

Laissez-faire economics

Those red lines are hard to define – partly because the Chinese government still grants domestic technology companies a great deal of political slack. “They do have a lot of autonomy that I don’t think gets covered,” says Shazeda Ahmed, a visiting researcher at the AI Now Institute. Big Tech has not, for example, embraced the government’s promotion of its social credit system, intended as a means to digitally promote good behaviour and punish societal malefactors. Consequently, as Ahmed’s own research has revealed, the system has not expanded beyond a few urban centres.  

The government’s hands-off approach to Big Tech has also had its downsides. The inability of Chinese consumers and small businesses to navigate daily life without recourse to e-commerce and digital payments means that escaping anti-competitive practices among larger companies is nearly impossible. One of the most egregious cases involved a running dispute between Tencent and internet security provider Qihoo 360, when software from both recognised the other as malware – impacting on the user experience of hundreds of millions of consumers. While that dispute was eventually resolved in 2014 by the Chinese Supreme Court, monopolistic practices still pervade throughout the country’s tech ecosystem – not least the tendency for larger companies to undercut nascent competitors on price

It is impossible to ignore the role of the Chinese state in facilitating this situation, says Ma. While comprehensive antitrust regulations have been in force since 2008, punishments for malfeasance among Big Tech have been relatively light. “Every time someone tried to raise a complaint, or file a case, or whatever, nothing would really come of it,” says Ma. Only in exceptional cases – such as when mass protests against failed P2P lenders erupted across China – has the government chosen to intervene forcefully in the tech sector.

That all seemed to change late last year, with the cancellation of Ant Group’s IPO and the subsequent publication of new antitrust regulations in January. While this shift in the central government’s posture may appear sudden, says Rui Ma, it would be a mistake to think it had directly resulted from an impolitic speech made by Alibaba’s founder. Reports that Jack Ma so gravely offended the CCP with his comments that he was forced underground are also an exaggeration.

“He physically retired in 2019,” she says. Ma’s most frequent public appearances have been confined to his charity work or to front PR offensives for Alibaba. “Actually, in the past three years, he’s only been covered [by Chinese media] when he makes similar faux pas.”

Rather, the tightening of antitrust measures by the central government has been taking place for roughly a year – albeit without much publicity. Many of the elements of the recent revisions to current antitrust regulations had already been published in a new draft of the ‘P.R.C Anti-Monopoly Law’ in January 2020. This followed regional guidance from the authorities in multiple provinces although, as Ma admitted in her own newsletter on the matter, ‘I could be forgiven for not noticing either of these [as] they were not specifically directed at internet companies.’

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Pivoting anew

If Jack Ma wasn’t responsible for ending the central government’s laissez-faire approach to regulating Big Tech, then what was? The new measures can be seen as a belated response to societal outrage at some of the largest technology companies’ alleged practices. Lately, public consternation has centred on e-commerce firm Pinduoduo, after two of its staff mysteriously died on the job. Social media users attributed the deaths to the company’s 996’ working culture, commonplace practice among China’s Big Tech companies, in which staff are encouraged to work from 9am to 9pm for six days a week.

Indeed, says Capri, the Chinese government’s antitrust drive should be seen as one of many campaigns – from promoting less wasteful consumption to rooting out corruption – intended to shore up the moral leadership of the CCP. As such, it is not dissimilar to the Biden administration’s mandate to curb the monopolistic power of Big Tech in the US. “The difference being,” says Capri, that the former will “probably be much more effective”.

Rui Ma finds this argument less convincing. While the government undoubtedly listens to societal concerns about Big Tech, its approach has usually been to wait until the pot boils over before it takes action. This is why it acted to reform the P2P lending market after mass protests, but so far has not taken action to end the growing fad for community buying – a practice it publicly disapproves of, given its potentially negative impact on small businesses, but hasn’t chosen to reform.

“It’s not about limiting tech,” says Ma of the government’s stance. “It’s about making sure they don’t abuse their access to capital and their technology infrastructure, and actually stifle innovation.”

The need for more robust regulation has grown in recent years, however, as the Chinese tech ecosystem has become more sophisticated. Back in the 2000s, many of what are now China’s leading tech companies were relatively small compared to their overseas competitors, meaning that if they failed, there wasn’t much risk to the wider economy. “Today, I don’t think that’s the case,” says Ma. The Chinese economy is not only larger but also more complex and vulnerable to systemic shocks – worrying for some within the government, given the enormous amount of debt many Big Tech companies have taken on in recent years.

It is for these reasons that many of Rui Ma’s contacts throughout China’s technology sector have actually welcomed the new antitrust drive. “I have never heard of a single one who sees this as a ‘crackdown,’” she says. “Indeed, everyone thinks that this is very late in coming, whether you’re the user, vendor or even one of the competing platforms.”

Even so, it is fairly unlikely that the Chinese government will mount direct assaults against one or the other technology firm. While Beijing has taken against Alibaba in recent months, it still views most of these Big Tech companies as valuable assets in furthering its broader strategic goals: namely, greater technological self-sufficiency. The US campaign of sanctions against the country’s tech companies has illustrated both the necessity of this goal and the difficulty in achieving it.

Ironically, Western hostility to China’s tech companies may end up playing into the government’s hands. US sanctions against Huawei, for example, have cut the telecommunications company off from ready supplies of semiconductors. Its frantic search for new suppliers, combined with a new raft of state subsidies to support innovators in the space, are beginning to build a new supply chain for these chips within the Chinese orbit. 

As analyst Dan Wang explained in a recent interview with Bloomberg, US sanctions are effectively putting China in the same position it was in during the 1960s when it was building its own semiconductor industry. The US is “reacting to the technological rise of China mostly by trying to kneecap China’s leading firms”, said Wang. However, “instead of realising its own Sputnik moment, it’s really triggering one in China”.  

It is too soon to tell what form this moment will take. As the Chinese government embraces antitrust regulation in its internet sector, however, it is more than likely that it will adopt new protectionist policies to its high-technology businesses with the aim of bringing about a second great leap forward for Big Tech in China – one that would make the achievements and missteps of Jack Ma a distant memory. 

Greg Noone

Features writer

Greg Noone is a feature writer for Tech Monitor.