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Is China’s Crackdown on Big Tech Easing Up?

Depends on who you talk to. It could be wishful thinking on the part of investors

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As a China news site SupChina told the story mid-last year, Beijing practically nuked the Chinese Big Tech industries:

Since the suspension of Ant Group’s IPO in November, Beijing has embarked on an unprecedented clampdown of its technology sector. The casualties include some of China’s leading tech companies, such as Tencent (internet conglomerate), Meituan (food delivery), Pinduoduo (ecommerce), Didi (ride-hailing app), Full Truck Alliance (freight logistics app), Kanzhun (recruitment), online private tutoring companies like New Oriental Education and TAL Education, and a crackdown on cryptocurrencies.

Chang Che and Jeremy Goldkorn, “China’s ‘Big Tech crackdown’: A guide” at SupChina (August 2, 2021)
Padlock, China flag on a smartphone and China map, symbolizing the Great Firewall of China concept or GFW and all extreme Internet censorship in China

SupChina offered a variety of explanations for the sudden lunge at Big Tech, which started in November 2020, from ideological purification through internal Party warfare. Summing up:

What the tech crackdown tells us is that China is much more willing to sacrifice investor interests to achieve public and state priorities — whether optically or substantively. The latest regulatory crackdowns have wiped some $400 billion off the value of U.S.-listed Chinese companies. When Western markets demonstrate that level of risk — like in 2008 — they are usually considered setbacks not policy triumphs.

Chang Che and Jeremy Goldkorn, “China’s ‘Big Tech crackdown’: A guide” at SupChina (August 2, 2021)

One priority is probably global dominance. As suggested at The Diplomat:

… China has leveraged its tech crackdown to rewrite the global economic rules of the road. These regulations redound to China’s geopolitical benefit as they allow Beijing to demand more data from foreign firms, limit the outflow of data on Chinese citizens, and shape business practices in other countries to Beijing’s liking.

Kevin Klyman, “China’s Tech Crackdown Could Give It an Edge” at The Diplomat (April 30, 2022)

Easing up on the restrictions?

Some believe that China is now beginning to ease up a bit:

Investors are desperate for good news as both the regulatory campaign and China’s COVID controls weigh on tech earnings. Video-gaming giant Tencent Holdings reported almost zero revenue growth and a 50% decline in quarterly profit in the first quarter of 2022. Alibaba Group Holding, JD.com and Meituan reported their slowest revenue growth on record over the same period. Sentiment towards the sector was so dour that analysts considered even those bad results “better-than-expected.”

The lockdowns will haunt the country’s Big Tech sector in the second quarter. In the U.S., social distancing led to the rise of “lockdown stocks,” pandemic-era darlings like Netflix, Zoom, and Peloton that boomed as people stayed home. But China’s harsh COVID controls haven’t quite offered the same boost to Chinese tech firms, as locked-down consumers turned to essentials like food rather than discretionary spending. The Hang Seng Tech Index is down 18.8% since the beginning of the year, and even after its recent rally is still only back to the level it was before Shanghai imposed a citywide lockdown on April 1.

Nicholas Gordon, “Investors suddenly bullish on China tech stocks are misinterpreting the end of the country’s harsh COVID lockdowns” at Fortune The article requires a fee or subscription. (June 6, 2022)

But others are uncertain:

Investors should still be cautious. Chinese officials have hinted at ending their regulatory crusade against the country’s technology sector, but Beijing has not introduced any policy changes to back up that rhetoric.

Nicholas Gordon, “Investors suddenly bullish on China tech stocks are misinterpreting the end of the country’s harsh COVID lockdowns” at Fortune The article requires a fee or subscription. (June 6, 2022)

From an article published today at Quartz, we learn of a COVID-19 connection:

China’s softened attitude toward big tech comes as it is grappling with an economy wounded deeply by its stringent zero-covid policy. The repeated mass lockdowns pursued under this strategy has led to expectations from analysts at institutions such as the Rhodium Group, an independent research organization, of sharp contractions of the Chinese economy, which makes it unlikely that it will reach the government’s 5.5% annual GDP growth target for 2022. China’s top economics official Liu He last month pledged the government’s support for the healthy and continuous development of the private and “platform economy,” a reference to internet firms, and said the country supports digital companies to list on domestic and foreign exchanges.

Jane Li, “China is easing its big tech crackdown amid a wounded economy” at Quartz (June 7, 2022)

China technology correspondent Arjun Kharpal addresses the uncertainty astutely:

“I think the big tech companies will have a grace period for maybe the next six months,” Linghao Bao, tech analyst at Trivium China, told CNBC’s “Squawk Box Europe” on Tuesday.

“However, this is a really not a U-turn on the tech crackdown, the long-term outlook hasn’t changed yet. Because Beijing has already come to the conclusion that it is a bad idea to let big tech companies to run wild because it creates unfair market competition … wealth will be concentrated at the top and it will start to influence politics,” he said.

“So the tech crackdown are really here to stay over the long term.”

Arjun Kharpal, “China has signaled easing of its tech crackdown — but don’t expect a policy U-turn” at CNBC

It’s helpful to keep in mind that, unlike, say, the United States, China can inflict suffering on target groups in society with little fear of reprisal. The current government in Washington, for example, fears the upcoming midterms mainly because of inflation. But billions of dollars erased from Big Tech in a COVID-ravaged economy in China are a problem for those it happened to, not necessarily for the Chinese Communist Party. Observers can only really offer hopes and guesses about where things are headed.


You may also wish to read:

What’s behind China’s crackdown on Big Tech? Both China and the U.S. are treating big tech with a heavy hand, but under different motivations. There’s a saying in the gambling industry: the house always wins. In an authoritarian, or neo-totalitarian, regime, the Party always wins. (Heather Zeiger)

and

Chinese tech entrepreneur Jack Ma missing after criticizing The Party. It’s part of a trend? If even Jack Ma can just disappear in China’s high tech world, is anyone safe? The poster boy for new prosperity went missing in October and is said to be undergoing reeducation after he criticized China’s financial system.


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Is China’s Crackdown on Big Tech Easing Up?