China

China's Big Tech Crackdown Shouldn't Be Cheered by Antitrust Fans in the West

An onslaught of antitrust and data-security crackdowns have threatened the country's biggest ride-sharing platforms, cryptocurrency exchanges, and messaging services.

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"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.

NEXT: Sexism in Politics Is Real. It’s Not Kamala Harris’ Main Problem.

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  1. Somebody’s overly invested in big tech stocks I guess.

    Multinational corps not beholden to US interests whose platforms are used to undermine elections and engage in social corrosion are not your friends.

    1. Unless you agree with those goals of course.

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  2. “…it’s consumers who will most likely be hurt …”

    But of course. A government typically reins-in any competition to their own power. And it’s always for the good of the people, Only the government is capable of housing, feeding and clothing the people (not to mention teaching them what to think). The people certainly aren’t capable of doing that properly. It’s a fact. Just ask them. Oh wait, we are talking about China. And here I was thinking it was the USA.

    1. “…it’s consumers who will most likely be hurt …”

      Sure, as long as they chose to be consumers, which is increasingly not the case as evidenced by the rise of the ‘lying flat’ movement. (躺平) The “lying flat” movement calls on young workers and professionals, including the middle-class Chinese who are to be the engine of Xi Jinping’s domestic boom, to opt out of the struggle for workplace success, and to reject the promise of consumer fulfilment. For some, “lying flat” promises release from the crush of life and work in a fast-paced society and technology sector where competition is unrelenting. For China’s leadership, however, this movement of passive resistance to the national drive for development is a worrying trend—a threat to ambition at a time when Xi Jinping has made grand ambition the zeitgeist of his so-called “New Era.” It’s not a neurotic social withdrawal like the Japanese hikikomori, but a social/political movement.

      1. Tune in. Turn on. Drop out.

  3. Emperor Xi’s actions have been about preventing Chinese companies from going public in the United States. The concern doesn’t appear to be driven by economic planning so much as it’s about keeping Chinese companies from being under the sway of Wall Street investors, American regulators, and the concerns of American consumers. If the Chinese government is more interested in promoting manufacturing type technologies, it’s probably because the physical plants are in China, and that keeps them more under Emperor’s Xi’s control.

    The fact is that the more Chinese companies feel driven to beat quarterly targets for Wall Street, placate American investors, subject themselves to SEC regulations, and appeal to American consumers, the less influence Emperor Xi has over their behavior. In the zero sum game over the influence and control of the economy and its assets, capitalism undermines authoritarianism.

    Markets are a huge threat to government control. The original logic of letting China into the WTO was right. Because Milton Friedman’s ideas didn’t play out in his lifetimes doesn’t mean they were wrong.
    To the extent that the ownership of these companies are subjected to the desires of investors, regulators, and customers through markets is the extent to which Emperor Xi loses control over them.

    Emperor Xi may be really smart if he’s more concerned about the threat that American teenagers present to his authority over TikTok than American parents are concerned over the threat TikTok presents to the privacy of American teenagers. For example, American consumer product companies are shunning components and labor coming from Xinjiang for fear of offending American consumer sensibilities. Yes, the concerns of American consumers can be more powerful than Emperor Xi, and he doesn’t want that spreading to the rest of the economy.

    1. I believe there was a period where some English king, maybe Charles I, tried to stomp out coffee houses as hotbeds of anti-governmentism.

    2. “American investors are asking whether China Inc. is still worth the risk following a widening series of regulatory crackdowns that have wiped some $400 billion off the value of U.S.-listed Chinese companies.”

      —-WSJ, July 30, 2021

      https://www.wsj.com/articles/investors-rethink-china-bets-after-beijing-crackdown-triggers-stock-market-rout-11627669954?

      Yes, the unpredictability of Emperor Xi’s temper tantrums can be measured in investment returns, and the willingness of investors to invest in Chinese companies will be effected.

      What are the chances of a Chinese technology company in an emerging field competing with American startups for venture capital–when venture capital firms aren’t even sure they’ll ever be able to take the Chinese company public?

      1. Chou Bai Den will fix it, I’m sure.

  4. Let me get this straight, because I have trouble thinking like a central planner. Consumer tech, like WeChat, is expanding too fast, soaking up capital, spending it on server farms, and the government wants to spend that capital instead on the chip industry which builds and sells those server farms. So now they will force the consumer-facing companies to stop adding more customers, which will reduce their demand for new servers. Meanwhile, they will take the capital rerouted from these consumer-facing industries and give it directly to the chip makers and server makers, who will then have lots of build capacity but no customers.

    I think I need to time travel and give this script idea to Monty Python or George Carlin.

    1. China is still centrally planned, for the benefit of the CCP. I can see that the CCP members who control semiconductor manufacturing arguing China’s limited capital should be invested in their business and compensation. Further, Ken is right Xi doesn’t want foreign control of businesses there, as it also facilitates capital flight from China. Further, consider what the Chinese who knew about the crackdown would do regarding bets in the stock market based on their inside information.

      I see the crackdown as kind of a desperate move, partly as a reaction to a lot of CCP companies there that have expanded beyond demand who have loans they want to roll over.

      1. China is effectively economically fascist. By ‘liberalizing’ their markets (allowing private ownership of the means of production) but still dictating that the RESULTS of production are to be directed towards national goals, they are textbook fascist.

  5. China’s Big Tech Crackdown Shouldn’t Be Cheered by Antitrust Fans in the West

    It isn’t, but just look at Reason iMpLYinG.

    This is like when they try to conflate legal and illegal immigration. They know that opposition to DNC/Big-Tech collusion isn’t the same thing as the CCP’s crackdown but they sure want to pretend that it is.

  6. The chinese communist party ran out of money. The crack down is nothing but a money run on these companies and their billionaire founders. The chinese communist regime does not care about individual successes, they only care about retaining power. Beside, these billionaires are children of corrupt chinese communist party members. These are not saints.

  7. If only big tech could have avoided being totalitarian assholes no one would be after them.

  8. plot $SPX against the $HSI (Hang Seng Index), US markets have returned ten times as much over the last ten years — ten times!

    262% vs 26%

    with China supposedly growing more than twice as fast as the US over that period

    b/c the median Chinese subject now enjoys a cumulative advantage of roughly 10:1 in poured concrete over his much richer OECD citizen counterpart

    growth party ended in 2009, facade collapsed along with their currency reserves in 2015, and only ever-tighter state controls are keeping capital from fleeing

    1. “with China supposedly growing more than twice as fast as the US over that period”

      You have to be wary of the figures for economic growth that the Chinese publish. A good proxy is night time luminosity as measured by satellite photographs. Official Chinese statistics reported that real GDP growth in China was about 122 percent between 1992 and 2006. In contrast, the night-lights data predicts that growth was 57 percent.

  9. It’s not technology that China is smashing—it’s the consumer-facing internet software companies that Americans tend to label “tech”.

    Apps which let you write text or attach emojis that other people can see and read. Ie, “Tech”.

  10. American and Canadian governances typically maintain thinly veiled yet strong ties to large corporations, as though elected heads are meant to represent big money interests over those of the working citizenry and poor. Accordingly, major political decisions will normally foremost reflect what is in big business’s best interests (but don’t expect to hear this fact readily reported by the mainstream news-media, which is concentratedly corporate owned).

    While authoritarian governances like China’s hold much sway over the corporations within their borders (and even without, to some degree), Western governances like those of Canada and the U.S. are essentially steered by corporate interests, sometimes through economic intimidation. Anyone who doubts the potent persuasion of huge business interests here need to consider how high-level elected officials can become crippled by implicit/explicit threats to transfer or eliminate jobs and capital investment, thus economic stability, if corporate ‘requests’ aren’t met.

    In the meantime, why wouldn’t nations like China at least try to take advantage of this (what I see as) weakness in a Western governance, i.e. big corporate profit before individual and even national interests. As much as I hate the fact, so far China seems to know how to handle/exploit us here in the West.

  11. 杀鸡吓猴
    shā jī xià hóu

    It means ‘kill the rooster frighten the monkey.’

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