China tightens political controls on internet giants

BEIJING — The ruling Communist Party is tightening political control over China’s internet giants and harnessing their wealth to fuel its ambitions to reduce dependence on US and European technology.

Anti-monopoly and data protection crackdowns beginning in late 2020 have rocked the industry, which flourished for two decades with little regulation. Investors have been panicked by the aggregate market cap of e-commerce platform Alibaba, games and social media operator Tencent and other tech giants.

The party says anti-monopoly enforcement will be a priority by 2025. It says competition will help create jobs and raise the standard of living.

Businessmen, lawyers and economists say President Xi Jinping’s government is likely to stay in this direction even if economic growth is affected. “These companies are world leaders in their fields in innovation, and yet the leadership is set to outlast them all,” said Mark Williams, chief Asia economist at Capital Economics.

Steve Tsang, a Chinese political expert at the School of Oriental and African Studies in London, said the action reflected Xi’s public emphasis on reviving the party’s “original mission” of economic and social development. He said it could also help Xi politically, as expected, as he pursues a third five-year term as party leader.

Lester Ross, the head of law firm WilmerHale’s office in Beijing, said Chinese leaders do not want direct control over the economy but want private sector companies to align with the ruling party’s plans.

“They’re worried about companies becoming too big and too independent of the party,” Ross said.

Chinese Internet companies and their billionaire founders, including Jack Ma of Alibaba Group and Pony Ma of Tencent Holdings, are among the biggest global success stories of the past two decades. Alibaba is the largest e-commerce company, while Tencent operates the popular WeChat messaging service.

But party planning emphasizes robots, chips, and other hardware, so these companies are rushing to show their loyalty by moving billions of dollars.

The ruling party’s campaign is warning that the world could be divided or split into separate markets with incompatible technology. Products from China will not work in the United States or Europe, and vice versa. Innovation and efficiency will suffer.

US restrictions on Chinese access to telecommunications and other technology have not helped.

Alibaba said it would invest $28 billion to develop operating system software, processor chips and network technology. The company has pledged $1 billion to nurture 100,000 developers and tech startups over the next three years.

Last year, Tencent pledged to invest $70 billion in digital infrastructure. E-commerce, delivery and service platform Meituan raised $10 billion to develop self-driving vehicles and robots.

Tsang said Chinese officials believe the operation incurs an economic cost, but was unwilling to speak up. “Who will stand up and tell Xi Jinping, your policy is going to be harmful to China?”

Burnt out by declining technology stocks, many investors are putting their money on the sidelines. Tencent’s market capitalization of $575 billion is down $350 billion from its February peak, a drop equivalent to more than the total value of Nike Inc. or Pfizer Inc.

Masayoshi Son, CEO of Japan’s SoftBank Group, an early investor in Alibaba, said on August 11 that he would close new deals in China. SoftBank invested $11 billion in ride-hailing service Didi Global, whose stock price has fallen a third since its July 30 US stock market debut.

The action began in November when Beijing ordered Ant Group, which evolved from Alibaba’s Alipay online payment service, to postpone its stock market debut in Hong Kong and Shanghai. The company, which provides online savings and investment services, was told to scale down its schemes and put in place a bank-style system to scrutinize borrowers and manage lending risk. Industry analysts cut forecast for Ant’s expected stock market price.

Meanwhile, Xi’s government is tightening controls on data collected by private companies about the public – especially Alibaba and Tencent, which have hundreds of millions of users. China’s leaders see information about its 1.4 billion people as a tool to gain insight into the public and economy – and potential security risks in private hands.

A law that goes into effect on November 1 establishes security standards, prohibits companies from disclosing information without customer permission and limits how much they collect. Unlike data protection laws in Western countries, Chinese regulations say nothing about limiting government or ruling party access to personal information.

Beijing is also accused of using its repository of public data in a campaign of repression against the Uighurs and other mostly Muslim minorities in China’s northwestern region of Xinjiang.

“Too lax” Until a few months ago, China has become “one of the most active and forceful jurisdictions in regulating the digital economy”, wrote Angela Zhang, an anti-monopoly expert at the Hong Kong Law School, in a paper. this month.

In April, Alibaba was fined 18.3 billion yuan ($2.8 billion) for offenses that included restricting sellers who wanted to use its platform to deal with Alibaba’s competitors.

Units from Alibaba, Tencent, live-streaming site Kuaishou, microblogging platform Sina Weibo and social media site Xiaohongshu have also been fined for distributing child porn stickers or short videos. Tencent’s music service was ordered to terminate exclusive contracts with the providers.

Beijing is prompting tech giants to share their wealth with employees and consumers in a bid to bridge China’s politically sensitive money gap.

In May Didi, Meituan and other delivery and ride-hailing businesses were ordered to cut fees charged to drivers and improve their mileage and safety. Meituan CEO Wang Jing pledged to donate $2.3 billion to environmental and social initiatives. Tencent’s Ma has pledged $2 billion to charity.

Alibaba has pledged to spend 100 billion yuan ($15.5 billion) on job creation, rural development and other initiatives to support Xi’s “shared prosperity” campaign.

Such income redistribution schemes are “reminiscent of large-scale mobilization and populist strategies” under then-leader Mao Zedong of the 1950s and ’60s, Zhang wrote.


Suu reported from Singapore.


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