How China tries to tame its new business dragons
July 7, 2021
Maximilian Mayer thinks being among China's richest people may not be an advantage these days. The global technology and China expert at Bonn University is convinced the country's political leadership is "determined to crack down on its tech elite."
As an example, he points to ride-hailing company Didi Chuxing as the latest technology company to fall victim to the Communist Party "crusade," which came despite Didi's successful public listing in New York recently — the second-biggest IPO in the United States by a company based in China.
And indeed, there's a long list of so-called platform economy companies from China that, for one reason or another, have drawn the ire of the government recently. It includes, for example, online truck logistics firms Yunmanman and Huochebang — both part of China's leading online commercial freight platform, the Full Truck Alliance — as well as online recruitment site BossZhipin.
China's e-commerce regulator, the Cyberspace Administration of China (CAC), ordered all three of them to suspend user registrations and remove their apps from Chinese app stores — a ruling also slapped on Didi last Sunday (July 4).
Antitrust meaning state control?
"What we are seeing is a sustained and probably widening campaign aimed at a stronger regulation of internet companies and their big databases," Mayer told DW. Chinese authorities, he said, were apparently looking to protect consumers from companies abusing their huge data collections, and are aiming to curb the market dominance of those firms.
However, China isn't alone in trying to control large technology firms. Mayer noted that similar antitrust actions were currently being taken by the European Union against US tech giants Amazon, Google, Facebook and Apple.
Mayer believes, though, that China's Big Tech companies may have simply grown too big, too fast in the opinion of the government, which would explain China's swift regulatory action to curb their rising influence.
In its campaign to impose tougher controls on the nation's tech firms, Beijing delivered a first powerful broadside at the sector in November 2020, when it pulled Ant Group's dual listing in Shanghai and Hong Kong virtually at the 11th hour. An affiliate of Jack Ma's Alibaba Group, Ant dominates the country's financial technology sector affecting the lives of millions of Chinese through its Alipay app and the Yu'abao money market fund.
By April this year, it was clear authorities were widening the offensive, as they slapped a fine of 18.2 billion yuan ($2.8 billion, €2.3 billion) on Alibaba for antitrust violations, and launched a probe into food-delivery service Meituan over similar concerns. Meituan, Alibaba and its fintech rival Tencent meanwhile belong to China's most valuable firms.
Alongside data security concerns, China's Communist Party was also interested in regaining control over the private data of its more than a billion citizens, Mayer said. "The Communist Party has secured a membership of 90 million over the past 100 years. A digital ecosystem like messenger service Tencent has grown 1.2 billion active users within just 10 years, allowing the firm to access more real-time data of people than will ever be possible for the party."
Data secrecy and heads rolling
"China perceives its economy primarily from a national security point of view," said Kirsten Tatlow from the German Council on Foreign Relations (DGAP). In an emailed statement to DW, she presumed that China's current antitrust policy was aimed at preventing sensitive data from falling into the hands of US security officials. The fact that Didi Chuxing's IPO took place in New York could have heightened concerns in Beijing, she said.
China's current measures against platform companies can also include drastic actions against their founders or acting chief executives. Alibaba CEO Jack Ma, for example, all but dropped from public view after he had criticized financial regulators saying they were out of touch and stifled innovation. During his long absence, it was rumored he might have been abducted by the authorities.
Other Chinese corporate heads have announced recently they would step down from their current positions. ByteDance founder Zhang Yiming is one of them saying in May he would be "transitioning to a new role" in his own company at the end of the year. Already in March, Huang Zheng, CEO of online discounter Pinduoduo, called it quits, publicly stating he wanted to make way for "a new generation of leaders."
Maximilian Mayer from Bonn University thinks the signals sent by the Communist Party are "ambiguous." One the one hand, political leaders want to underscore businesses have to subordinate to politics, "but on the other, the campaign also seems targeted at those superrich founders personally because of the cult status they have obtained." Mayer said he could imagine the Communist Party wanted to force them to be more responsible with the private data their firms have accumulated.
China decoupling?
China's antitrust measures, officially called "rectification," have made investments in fintech firms riskier for global investors.
"This regulatory cycle is long-lasting compared with 2018," Lucy Liu, portfolio manager for global emerging markets equities at asset manager BlackRock, said during a mid-year Asia investment outlook event in June. In contrast to that period of increased scrutiny, which ran for about six months to a year, she said that this time "we think it's going to be a multiyear cycle."
As a result, BlackRock plans to "stay a little bit away from the large, dominant platforms for a little bit longer," Liu added, meaning those stocks aren't a buy for now.
Meanwhile, the effects of the Chinese antitrust measures might soon begin to hit US stocks via financial markets. Apple, for example, invested $1 billion (€845 million) in Didi in 2016 to show support for the Chinese ride-hailing market.
"The risks are clearly mounting for investors who have invested in the Chinese internet companies," DGAP China expert Kirsten Tatlow wrote in her email to DW. "The [Chinese] state will always do what's necessary to retain control over digital data."
Bonn University's Maximilian Mayer believes, though, not even the Communist government will be able to decouple the Chinese platform-economy giants from global markets. "Their potential is simply too big to ignore for investors from outside of China."
This article was adapted from German.