China’s Ministry of Industry and Information Technology announced a six-month campaign on Monday to regulate internet companies, particularly practices that “disrupt market order, damage consumer rights, or threaten data security.” That followed repeated fines against tech giants including Alibaba, Baidu, and Tencent for violating antitrust laws, and a new plan to restrict overseas listings by Chinese companies.
The crackdown has extended to successes once viewed as home-grown champions. Ride-hail company Didi Chuxing beat out Uber in China and made inroads in Latin America and Africa. On June 30, the company raised $4.4 billion in an IPO on the New York Stock Exchange—the largest for a Chinese company since Alibaba in 2014.
Two days later, Chinese authorities launched an investigation into the company. Citing “serious violations of laws and regulations in collecting and using personal information,” Didi was pulled from Chinese app stores and barred from registering new users. According to Bloomberg, the penalties could range from fines to a forced delisting. Soon after, another agency levied antimonopoly fines against Didi and other tech companies over mergers and acquisitions over the past decade.
Reportedly, Didi had been warned by Chinese regulators to delay its IPO but chose to move ahead with the listing. Other Chinese giants seemed to get the memo: ByteDance, owner of TikTok, which had reportedly been considering an overseas IPO, put those plans on hold after meetings with regulators, sources told The Wall Street Journal. On Tuesday, Tencent told Reuters it was temporarily suspending new China registrations on the ubiquitous WeChat app “to align with all relevant laws and regulations.”
The reasons for the seemingly sudden crackdown are unclear, but it comes amid moves by president Xi Jinping to assert more authority over every aspect of life. Observers say the government, empowered by a raft of new legislation, wants to regain control of tech companies that have become too big, too powerful, and all too willing to abuse their market share. At the same time, Xi seems to be realigning the country’s tech sector to favor state-led development in the areas he cares about, such as creating breakthrough technologies in artificial intelligence. And there’s growing fear that exposure to foreign markets—and foreign regulators—is too risky in an increasingly hostile international environment.
“Xi Jinping is always worried about political loyalty: to him, the Communist Party, the party’s ideology,” says Susan Shirk, chair of the 21st Century China Center at UC San Diego. She says Xi can’t be sure of the loyalty of China’s private tech titans, who’ve become rich and famous—and sit on large stores of data. “It just makes him very nervous because he doesn’t know what they’ll do with all of these resources. And at some point they could perhaps use them to organize a challenge to Xi Jinping or even party rule.”
Didi’s June 30 IPO, one day before the 100th anniversary of the Communist Party, prompted suggestions that the timing and US listing were unpatriotic. A July 5 editorial in the state-run Global Times said Didi, with 80 percent of the ride-hail market in China, holds sensitive information about personal travel and habits. It said the government won’t let internet giants “become rules-makers of data collection and usage,” adding that ”the standards must be in the hands of the government.” Rumors circulated on Chinese social media that Didi turned over user data to US regulators. The murmurings by online nationalists got loud enough that the company posted a denial to its official Weibo account.
After the IPO, a 2015 report by the company’s research arm recirculated on the internet. The paper detailed the comings and goings of government employees, including which agencies worked the longest hours, based on its trove of user data. That sort of visibility—combined with Didi’s highly detailed maps—can make authorities nervous.
“Clearly, the data that Didi holds is considered sensitive from a national security standpoint,” says Samm Sacks, senior fellow at Yale Law School Paul Tsai China Center. Didi has also faced criticism in the past over how it handled murder investigations, for failing to protect user data, and for using personal information it gathered to charge riders different prices.
The real issue may not be what data is held but who holds it. Government officials aren’t “hyper-concerned and vigilant on behalf of Chinese consumers and wanting just to protect them,” says Scott Kennedy, senior adviser at the Center for Strategic and International Studies, a Washington, DC, think tank. “But they’re worried about the power of Chinese industry itself having this data and it not being accessible to Chinese authorities.”
Online businesses have grown swiftly over the past two decades, along with their access to a wide range of user data. Tencent’s ecosystem alone spans social media, gaming, maps, mobile payments, and investing—with many companies and even some government agencies hosting services within the WeChat app.
The Chinese government sees data as critical to its efforts to become a leader in emerging technologies, especially in AI, which is enshrined in China’s most recent Five-Year Plan, released earlier this year. “Personal data, corporate data, government data—they want access to everything,” says Jeremy Mark, a senior fellow at the Geoeconomics Center of the Atlantic Council. The government plans to apply that data to everything from blockchain-based financial services to medical research to the surveillance state.
Sacks says that Chinese regulators are following a familiar pattern of giving companies room to experiment but then regulating them. “I think there are genuine concerns about abuse of market power and predatory pricing” that harms Chinese consumers, she says. A new draft policy would force education startups to go nonprofit, a measure meant to ease the pressure on poorer students and their parents. New guidelines would improve pay and other protections for food-delivery drivers. One measure in Monday’s announcement on regulating internet companies would prohibit tech companies from blocking links to other companies’ services, a common practice in China.
This level of intervention in the tech industry would have seemed unthinkable until recently. In his book AI Superpowers, Kai-Fu Lee describes a Wild West era in which tech companies were free to battle for dominance with little government intervention. Starting in the late 1990s, Chinese companies were encouraged to list on foreign exchanges to get access to capital, new investors, and new technology, says Kennedy. The companies learned from exposure to international reporting standards, and foreign investors had a stake in China’s rise.
“What we’ve seen now is that the Chinese authorities have basically given up on that project,” Kennedy says, adding that the government now sees mostly risks and vulnerabilities to foreign engagement. Investors seem to agree. Didi’s shares have fallen by roughly half from their peak a day after the IPO. In all, as of Monday, US-listed Chinese stocks had lost $769 billion in value in the past five months according to Bloomberg.
When China joined the World Trade Organization in 2001, the prevailing view was that China would become more like Western, capitalist countries. To a certain extent, that happened, but the past few years should dispel the notion that China would transform itself to fit the Western model.
China’s leadership is still steeped in Marxist thought and is willing to put the needs of the state over the dictates of a free market. Should we really be surprised that a country that will clamp down on ethnic minorities in the name of public safety would sacrifice corporate profits for national goals? In fact, Xi spoke of aligning the tech sector with his goals for national development in 2016 and again in 2018, when he laid out a vision to “move forward the construction of China as a cyber superpower through indigenous innovation,” and a tech sector that’s highly controlled and harnessed for state priorities.
The Chinese government has been steadily ramping up its control of cyberspace since the passage of the National Security Law in 2015. A 2018 reorganization empowered and gave new resources to China’s cyberspace regulators. Regulations released in 2020 call for cybersecurity reviews of Chinese companies in the name of national security, and a new data security law, effective September 1, broadly regulates the data practices of Chinese companies.
The friction between the government and tech came to a head in October, when Alibaba founder Jack Ma gave a speech in which he warned that overregulation could stifle innovation.
“Xi Jinping saw this as a sign that, broadly speaking, these companies forgot who’s boss,” says Kennedy. “Every element of the bureaucracy is now aligned with this broader mission of bringing private high tech Chinese companies to heel to serve the party’s broader mission.” Soon after, Alibaba’s financial arm Ant Group canceled a planned IPO in Shanghai and Hong Kong; in December, regulators opened an antitrust investigation into Alibaba, resulting in a $2.8 billion fine in April.
The crackdown comes amid rising tensions between China and the US, including moves by American officials to push these companies back to China. A US law enacted last year requires foreign companies to delist from American exchanges if they don’t allow their audits to be reviewed by American regulators—which is prohibited under Chinese law. Other American regulations have taken aim at investment in Chinese surveillance companies and exporting technology for microchips to China.
The move to a more independent, state-directed model has risks. “The most vibrant part of China’s economy is the private sector,” says Kennedy, noting that Chinese bureaucrats couldn’t have envisioned tech companies’ innovations in ecommerce and services. Despite rapid development, large swaths of the population still lack a high school education, and the country is still dependent on imported chips. China may have overestimated its strengths, Kennedy says, and risks slowing economic growth in its drive for self-sufficiency.
It’s a gamble the Chinese government may be willing to take. Mark says China’s leaders appear to be ready to “make sacrifices in order to mold or shape a future structure of governance, a future financial system, that is much more controllable and controlled.”
“What is driving that is Xi Jinping pushing his own government and ruling party to assert unprecedented control over the Chinese people,” he adds. “It has existed in the past, but never with the means of technology, the means of surveillance and the means of data crunching that now exists in China.”
- 📩 The latest on tech, science, and more: Get our newsletters!
- A people’s history of Black Twitter, part I
- The latest twist in the life-on-Venus debate? Volcanoes
- WhatsApp has a secure fix for one of its biggest drawbacks
- Why some crimes increase when Airbnbs come to town
- How to smarten up your home with Alexa routines
- 👁️ Explore AI like never before with our new database
- 🎮 WIRED Games: Get the latest tips, reviews, and more
- 🏃🏽♀️ Want the best tools to get healthy? Check out our Gear team’s picks for the best fitness trackers, running gear (including shoes and socks), and best headphones
Leave a Reply
You must be logged in to post a comment.