"Among the richest men in China, few have good endings," Jack Ma, who disappeared for three months this past winter after getting in trouble with his government, famously said.
The richest man in China and creator of online retail marketplace Alibaba was trying to take his finance giant Ant Group—which owns Alipay, a payment platform with over 80 million merchants and 1 billion users—public back in November. At the last minute, Chinese regulators cracked down on the initial public offering (IPO), sending a clear message to Ma that his purported bad behavior at the end of October, when he had thrown barbs at financial regulators and Chinese banks in a speech, had angered Beijing.
He was made into an example: If you act like Ma, the might of the government will crush you, and your little business empire too.
Ma went into hiding for three months after the sabotaged IPO, but the Chinese government's tech crackdown was far from over.
This past week, Beijing kept teaching companies lessons about submission to the regime. An onslaught of antitrust and data-security crackdowns have threatened the country's booming online tutoring software sector, plus ride-sharing tech like DiDi (China's Uber equivalent) and chat/gaming platforms like Tencent. Cryptocurrency exchanges like Huobi and Okcoin shut down Chinese subsidiaries amid the crackdown. WeChat, which is China's enormous messaging platform owned by Tencent, stopped registering new users, saying it needed to update the app's security to comply with new regulations. Some companies, like DiDi, Tencent, and search engine Baidu, will be fined by regulators. All in all, two dozen of China's top companies have come under heightened regulatory scrutiny that the government says will last for six months as they crack the whip.
Though much of this is under the guise of eliminating purported anticompetitive practices—some businesses have been ordered to end "malicious blocking of website links," meaning companies like Alibaba will soon have to accept competitors' payment systems—many theorize that this is really about Beijing using state power to double down on its semiconductor manufacturing/hardware sector, shifting manpower away from apps and platforms that benefit everyday consumers. "Beijing would strongly prefer more investment to flow into what it regards as real technology like microchips, batteries, robotics and advanced materials, rather than continuing to endure what it calls a 'disorderly expansion of capital' in areas such as internet software platforms," writes Nathaniel Taplin in The Wall Street Journal.
"If you wanted to, you might see the Chinese tech crackdown as simply a Neo-Brandeisian movement on steroids," writes Noah Smith in his Substack. "But the breadth of the Chinese crackdown suggests a major difference." Smith continues:
The government is going hell-bent-for-leather to try to create a world-class domestic semiconductor industry, throwing huge amounts of money at even the most speculative startups. And it's still spending heavily on A.I. It's not technology that China is smashing—it's the consumer-facing internet software companies that Americans tend to label "tech".
Still, it's astonishing that today's antitrust crusaders in the West look somewhat positively at China's blunt-force use of state power to cripple these companies. "China is doing what the U.S. can't seem to: regulate its tech giants," reads a Washington Post headline from Wednesday. Though "the government's hard line has sent Chinese tech stocks plummeting and rippled across the financial world," China's "aggressive stance toward anticompetitive practices, speculative and carbon-intensive cryptocurrencies, and gig worker exploitation aren't necessarily the destructive moves they might seem to U.S. observers and investors." They may even "be laying the foundation for a more sustainable and vibrant Chinese Internet sector in the decades to come," writes tech journalist Will Oremus.
But Dan Ikenson, director of policy research at ndp | analytics and economist who specializes in trade policy, tells Reason that "in the U.S., the motivation is at least rhetorically to advance consumer welfare. In China, it may be to reassert the values of the state. [The logic goes that] these technology companies need to know…who's really in charge."
Beijing is essentially saying "look, we're going to inject a lot of uncertainty into the market unless you do what it is we want you to do," says Ikenson, noting that what China probably "really wants is self-sufficiency or preeminence in semi-conductor, hardware stuff."
"It seems antithetical to do things that could financially kneecap these firms and chase western investors away," Ikenson notes.
Looking at how Ma's business empire has been crushed in the wake of Beijing's earlier crackdown, the economic ripple effects this exertion of state power may have could be enormous. Alibaba and Tencent stocks, among others, suffered earlier this week.
Consumers in China and the U.S. have good reason to object to antitrust crusaders and their media cheerleaders; it's consumers who will most likely be hurt by aggressive use of state power to intervene in the market. And in China, unlike in the U.S., there doesn't need to be much debate or broad political will behind the regulatory push—it can be imposed at any time from on high.