China’s Technology War: Why Beijing Took Down Its Tech Giants

124 Pages·2022·3.022 MB·English

by  Andrew Collier

China’s Technology War
Why Beijing Took Down
Its Tech Giants
China’s Technology War
Andrew Collier
China’s Technology
War
Why Beijing Took Down Its Tech Giants
Andrew Collier
Pine Court
Pokfulam, Hong Kong
ISBN 978-981-19-3041-6 ISBN 978-981-19-3042-3 (eBook)
https://doi.org/10.1007/978-981-19-3042-3
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I dedicate this book to my two children, Alex and Abigail.
I wish them the best of luck.
Preface
This book required an understanding of a number of areas, including
economics, finance, political science, history, and sociology, about which
I can only say I have deep experience in one or two. I must acknowl-
edge my debt to a number of other experts in various fields who were
instrumental in writing this book. These include my friend Kellee Tsai,
whose work in the field of political science has been an inspiration to
me; Andrew Sinclair, a rising star bridging the gap between finance and
politicalscience,whowaskindenoughtositdownforlengthydiscussions
aboutwhereChinaisheading;RyanManuel,anexpertinChinesepolitics
with a broad range of world experience; Matt Roberts, a longtime China
hand; and Eric Wong, a longtime friend and investor in New York who
is always insightful about China’s financial situation. I also would like to
thank my publisher Jacob Dreyer at Palgrave Macmillan, who has stuck
with me through three books, and the online group, Chinapol, whose
daily opinions (with both heat and light) have kept me sharp. And last,
to my wife, Kelley Loper, a passionate scholar whose dedication to the
discipline of academia gives me hope.
Pokfulam, Hong Kong Andrew Collier
vii
Contents
1 The Setting 1
2 Common Prosperity: Vision or Campaign? 11
3 The Bureaucracy Strikes Back 27
4 The Party and Common Prosperity 47
5 Can China Innovate Without the Platform Economy? 69
6 Xi Jinping’s End Game 87
Bibliography 105
Index 117
ix
CHAPTER 1
The Setting
Abstract This chapter outlines the beginning of the technology crack-
down with the speech by Jack Ma of Alibaba on October 24, 2020. It
then traces the reaction to the speech within the Chinese leadership and
the gradual rise of a series of measures restricting the growth of China’s
technology sector. It classifies the underlying motivations for the policy
shift according to economic and political rationales. Economically, the
platform economy was viewed as increasing the risk of financial insta-
bility, particularly regarding Ant Financial’s lending business. However,
moreimportant,politicalcontrolfortheCommunistPartyisdiscussedas
the underlying reason for the government’s actions, many of which had
no economic rationale. Last, the chapter discusses Xi Jinping’s Common
Prosperity program to improve the distribution of income and why it is
likelytofailduetoeconomicdifficultiesofimplementationandstructural
deficits in the Chinese economy.
Keyword Jack Ma · Alibaba · Common prosperity · IPO · Ant
financial · Party congress · Regulation · Data
© The Author(s), under exclusive license to Springer Nature 1
Singapore Pte Ltd. 2022
A. Collier, China’s Technology War,
https://doi.org/10.1007/978-981-19-3042-3_1
2 A. COLLIER
When Jack Ma, the billionaire founder of Chinese e-commerce company
Alibaba,gaveaspeechonOctober24,2020tothecountry’spoliticaland
financial elite, he was clearly unaware that his talk would be the catalyst
for a new era in China.
Jack started his speech with disarming words. “I am delighted to have
thisopportunitytolearn,discuss,andexchangeideastogetherwithyou.”
Dressed conservatively in a dark suit, blue checked tie, and white shirt,
he noted that his views could be considered “immature, incorrect, or
laughable” and added, “if they make no sense, just forget about them.”
But his main points were anything but forgettable. He attacked the
country’s leadership—many sitting in the room—for how they treated
innovation in the internet industry. “We are very good at management
butoursupervisionabilityissorelylacking,”hesaid.Headded,“Itisnot
difficult to regulate. What’s difficult is to deliver regulation that achieves
the purpose of producing sustainable and healthy development.”
Jack, who also founded one of China’s most progressive online finan-
cial firms, Ant Group, said the financial regulators in Beijing were old,
out of touch with the modern internet, and slacking in their jobs. “We
cannotregulatethefuturewithyesterday’smeans,”Mr.Masaid.“There’s
no systemic financial risks in China because there’s no financial system in
China. The risks are a lack of systems…Today’s banks continue to have a
pawnshop mentality.” This model “is not going to support the financial
needs of the world’s development over the next 30 years.” Strong words
to the people in charge of that very system.
To some, Jack’s speech was simply a reflection of his no-nonsense
personality. “Jack is Jack. He just wanted to speak his mind,” said one
person who knows him (Zhai 2020). To the Communist Party, however,
it was a direct challenge to their rule. Xi Jinping and other senior leaders
whoreadthespeechwere“furious,”accordingtotheWallStreetJournal
(Wei 2020).
Jack gave his speech to the Bund forum in Shanghai on a Friday. Just
a week later, the country’s most important financial regulators struck
back. Jack was summoned to Beijing for a meeting with the officials in
charge of China’s economy. These included government employees from
the People’s Bank of China (PBOC), the China Banking and Insurance
RegulatoryCommission(CBIRC),theSecuritiesRegulatoryCommission
(CSRC)andtheStateAdministrationofForeignExchange(SAFE).After
themeeting,Ant’scorporateheadquartersinHangzhourespondedwitha
statement suggesting that the hurried corporate meeting was an ordinary
1 THE SETTING 3
regulatory chat. “Views regarding the health and stability of the finan-
cial sector were exchanged,” Ant said (Yang 2020). The government’s
bland summary said the parties “conducted regulatory interviews with
Ant Group’s actual controller Jack Ma, chairman Eric Jing, and chief
executive Simon Hu.”
Buttooutsiders,theperemptorysummonstomeettheregulatorsand
Beijing was ominous. Jack was in trouble. The next day, in a move that
shocked the world’s investors, the Shanghai Stock Exchange suspended
Ant’s$34billionShanghailisting—justadaybeforethelaunch.TheWall
StreetJournalreportedthatXiJinpingpersonallyintervened(Wei2020).
Itwasaclearsignthattheworldinwhichgiant,privatelyheldcompanies
could operate independently in China had forever changed. “The Party
hasonceagainremindedallprivateentrepreneursthatnomatterhowrich
andsuccessfulyouareitcanpulltherugoutfromunderyourfeet atany
time,” said one western observer (Bishop 2020).
The cancellation of the IPO of one of China’s most successful compa-
nies took observers by surprise. Few senior leaders would appreciate a
billionaire telling them in front of a public audience how to manage the
economy. But the reaction was excessive—canceling a billion-dollar IPO
just days before its launch because the chairman was a bit too outspoken
is not an appropriate reaction by any government. Something else was
afoot in Beijing.
The world soon discovered that Ant was just one chapter in a much
larger book. The crackdown on one company soon broadened to include
other technology firms. Over the succeeding months, the regulators in
Beijing imposed a series of draconian rules on Alibaba and other tech-
nology firms. Alibaba was fined $2.8 billion for monopolistic practices.
Didi Chuxing, the Chinese equivalent of Uber, was accused of going
public before completing a review by the country’s internet watchdog,
the Cybersecurity Administration of China (CAC). Didi was forced to
take down more than 25 applications from its online store, and remove
the“super-apps”thatwerethemaininterfacefortensofmillionsofusers,
badly harming its business (Caiping 2021). The app removal program
came four days after Didi’s US$4.4 billion initial public offering, one
of the biggest American stock market debuts of the past decade. With
the share price falling like a stone, chagrined American fund managers
launched a lawsuit accusing Didi of misleading investors. The online
gaming industry was the next target. Regulators summoned the top
gaming companies to a joint meeting with the CAC and the Ministry of