Politics Analysis

Chinese Government cracks down on its own tech industry

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Chinese digital tycoon Jack Ma has been turned against by his own government (Image by Dan Jensen)

The Chinese Government has caused a stir by making changes within its own tech industry, leaving experts to question its motives, writes Paul Budde.

IT WAS ON THE CARDS. For weeks, Jack Ma, the digital tycoon of China, founder of Ant and of e-commerce giant Alibaba (the Chinese Amazon), disappeared off the radar after he was summoned by the Chinese Government and most likely lectured on the fact that his company was out of step with official Chinese policy.

Consequently, the Government levied a multi-billion dollar antitrust fine against Alibaba, deleted its popular web browser from app stores and took several other actions against the company. As a result, the value of Jack Ma’s business empire collapsed.

Of course, we did not know what exactly happened. This has now become a bit clearer with the following steps undertaken by the Chinese Government.

The Chinese Government has now also effectively cancelled the upcoming listing of Ant Group Ltd. This is China's largest digital payment platform known as Alipay, which, according to Wikipedia, serves over one billion users and 80 million merchants, with total payment volume reaching CN¥118 trillion (AU$24 trillion). Furthermore, it has dismantled the company.

However, much more has happened in recent weeks:

  • Didi (China’s Uber) prepared to IPO in the U.S., regulators started to review the company on “national security grounds”. This was followed up and severe penalties are now being imposed on the company;
  • they accused the internet companies Tencent and Badu of antitrust behaviour and issued significant fines; and
  • other digital companies such as ByteDance (the owner of TikTok) have been questioned by the regulator and will most likely also be told to change their businesses.

So, is China killing its digital golden goose industry?

An initial observation could be that what China is doing is in line with what is happening in the USA, Europe, and Australia. Regulators are stepping in to question their market powers, tax evasion, the social damage they produce and so on.

And yes, this most certainly is part of the turmoil. These internet giants have significant power over the social behaviours of the people in China and as such, they potentially can undermine the strict authoritarian regime in that country.

But there could also be another reason, more linked to the current geopolitical war that is raging between China and the USA and increasingly with the rest of the West.

While dismantling its internet-based industry, the country is not intervening in its massive hardware tech industry. It is not requiring “rectifications” from Huawei or ZTE. On the contrary, it continues to massively invest in AI, quantum technologies, robots and so on. It is also by far the largest investor in hi-tech research and development.

It looks as though China is indicating that its hardware industry is going to provide the country with better value than the consumer-oriented internet services industry.

If you prepare for traditional warfare, you invest in hardware — be it fighter planes, submarines, aircraft carriers, weaponry and so on. If you prepare for geopolitical-economic and/or cyberwar you invest in AI, quantum technologies and robots.

While on the surface it looks like China reconstructing its internet industry will cause it to lose out on innovation, in my opinion, it will not lead to better opportunities for Western internet companies. Where the West will lose out is on the hardware side as most of that has been, over the years, outsourced mainly to China.

What we can learn from the developments in China is to investigate what the value is of the internet-based industry to Western societies and, at the same time, if we do have the right balance between hi-tech hardware industries and internet-based consumer services industries.

A lot of food for thought.

Paul Budde is an Independent Australia columnist and managing director of Paul Budde Consulting, an independent telecommunications research and consultancy organisation. You can follow Paul on Twitter @PaulBudde.

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