The onset of the major techlash has left China watchers guessing as to what is the overarching reason for the consecutive measures taken by the Communist Party of China (CPC). However, most of them speculated that it is a part of Beijing’s plan to assimilate Big Tech into the CPC-led “Chinese Dream”, which includes financial stability, ideological stance, geopolitics, and social challenges. Fintech business was already under the radar of central authorities when the Ant Group filed its initial public offering (IPO) in October 2020. But Ant set the bells ringing when it attracted $3 trillion of retail investor bids, equivalent to the gross domestic product of the United Kingdom.
News Asia reported that the China Securities Regulatory Commission (CSRC) had initially approved Ant’s IPO application, but it ostensibly came under scrutiny after its founder, Jack Ma, overtly criticised the global banking standards and the Chinese regulatory system on the eve of the dual listing of his company. However, this was not the primary reason. Even in the past, Jack Ma had been vocal in his criticisms of the banking sector.
Reducing financial risk was made a top economic priority during the 19th National Congress of the CPC, held in 2017. Financial News, a newspaper affiliated with the People’s Bank of China, published an elaborate commentary criticising Ant’s business model. The core problem was that the so-called freewheeling fintech giant was operating as a bank, albeit unregulated. In November, China’s monetary regulators released draft rules on micro-lending, mandating capital requirements for technology firms offering loans.
Moreover, CSRC guidelines stipulate that mutual fund distributors should not directly or indirectly engage in any other business that conflicts with or has nothing to do with the management of private equity funds. Reuters reported that the Alibaba-owned payment platform Alipay was the only third-party channel through which retail investors could buy into five Chinese mutual funds investing in the IPO, which was a conflict of interest. This meant banks and brokerages, which are the traditional route for retail investors to buy into funds, could not have a share of the pie.
Seemingly, China took the warning more seriously than its peers when the World Economic Forum (WEF) warned that the disruption caused by Big Tech poses a threat to the traditional banking system. China’s ubiquitous online payment platforms Alipay and WeChat Pay had built their parallel credit scoring system, which ran counter to Beijing’s to set up a centralised credit scoring system. Although China claimed that issuing digital Renminbi (eCNY), which is even being developed for offline transactions, was targeted to counter cryptocurrency, it also equipped the state to counter unchecked financial monopoly of private tech companies and maintain the monetary authority of the central bank.
The crackdown also reflects conflicts within the party. Xi, a princeling, has been consistent in consolidating power since the beginning of his tenure. He launched the ‘Killing tigers and swatting flies’ campaign targeted at “Red families” using connections to accumulate stocks in big corporations. In 2016, he touted ‘close and clean party-business relations’ as the ideal. Yet, Xi wanted to clip some feathers of the Jiang section as investment companies linked to the grandson of former President Jiang Zemin and the son-in-law of former Politburo Standing Committee member Jia Qinglin stood to gain a fortune through Ant’s IPO. In August this year, China’s Central Commission for Discipline launched investigations into party officials in Hangzhou, the home ground of Alibaba and Ant, which has raised more questions about the IPO.
With the government’s help, Didi Chuxing emerged as a champion in China’s app-linked ride-hailing business by wiping out the competition. Didi expressed its gratitude by carrying forward the party’s propaganda. In 2018, Didi’s Yinshan Party Committee inaugurated the ‘Lei Feng Fleet’ under its ‘Internet + Party Building’ initiative. By the end of the year, Didi introduced the ‘Red Flag Steering Wheel’ programme that allowed premium users to see the CPC membership status of their driver. In 2019, its CEO Chen Wei announced to increase the number of ‘mobile branches’ of the party. Didi reportedly carried out a patriotic education for drivers through its online driver classroom ‘Baichuan Education Platform’ in line with the propaganda “Love the Country, Love the Party.” Everything was going well until Didi announced to go public in the US and landed in the government’s crosshairs.
Didi holds a trove of sensitive data relevant for national security, such as geographic locations, traffic choke points, and road conditions that could be risky from a national security perspective. According to a report in the Wall Street Journal, as CAC was wary of the possibility of the ride-hailing company’s humongous data, the watchdog suggested Didi delay its IPO and further urged it to conduct a thorough self-examination of its network security. But Didi pushed the deal ahead as investors mounted pressure for a big payout. The defiance irked Beijing to strong-arm Didi.
Geopolitics, too, is influencing the fate of tech companies. China is wary of US-listed companies having sensitive data, including Didi, Full Truck Alliance, and Zhipin, falling into compromising situations. It also wants successful tech companies to generate funds on local stock markets, especially Shanghai’s STAR market. Every country is trying to develop a regulatory model, which relies on a solid data framework for the next-gen internet.the China Securities Regulatory Commission (CSRC) had initially approved Ant’s IPO application, but it ostensibly came under scrutiny after its founder, Jack Ma, overtly criticised the global banking standards and the Chinese regulatory system on the eve of the dual listing of his company.
In 2020, CPC added data to land, labour, capital, and technology as “a new factor of production in its field-based allocation system and mechanism,” which may be passed into public ownership. This became the basis of enforcing interoperability amongst internet platforms. This step will also allow start-ups to flourish, which are often bullied into selling themselves to bigger firms. Above all, the CPC wants data under its absolute control. CPC’s English mouthpiece even explicitly stated, “No internet giant is allowed to become a super database that has more personal data about the Chinese people than the country does.” Now, China has earmarked algorithms as the next agenda of data reforms. The CPC is going beyond trying to control and regulate banking and Big Tech. It is also going for the private education and tutoring sector. Stating the dismal birth rates that surfaced in the Seventh National Census, Xi Jinping set the stage for the crackdown on the for-profit tuition sector when he called it a ‘social problem’. In May, he again lashed out at the industry’s ‘disorderly development’. Following Xi’s criticism of the sector, a dedicated department was set up to supervise it. Though China quoted the greater good logic while placing restrictions on the gaming sector in 2018, it did not face such a grave social challenge back then.
Whether it is privacy concerns, expanding seller choices, or ensuring consumer rights or poor working conditions of drivers, the government has garnered public support as a by-product of its primary objectives. The antitrust probes are also a tactic to ensure tech firms’ subservience to the party. Many firms have come forward to heartily donate to the ‘Common Prosperity’ campaign of Xi Jinping.
Interestingly, terms like ‘common prosperity’ and ‘disorderly expansion of capital’ invoke the old socialist dogmas that built the Red foundation of China. Xi himself has said, “Marxism is full of vitality in 21st century China”. In the article ‘Opening Up New Frontiers for Marxist Political Economy in Contemporary China’, Xi emphasised building a socialist market economy. Beijing wants companies to align their goals with the mission of the great rejuvenation of the Chinese nation. With this goal, in July this year, the Ministry of Industry and Information Technology launched a special rectification action plan for the Internet industry. Experts have inferred it as a hint of returning to Maoism and have even called it the ‘grand steerage.’
Undoubtedly, reining in tech companies is a tightrope walk. Fine-tuning Big Tech that has long been under-regulated will have positive externalities, but it can kill innovation. Nevertheless, China has made it clear that private tech giants cannot be bigger than the government — the country’s largest data processor.
The article was first published in ORF
(The views expressed in this article are those of the author and do not represent the stand of this publication.)
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