China takes on Big Tech
Each month, Digital Bulletin analyses one of the digital policies that countries are enforcing with the goal of regulating the online world. In this issue, we look at China’s tech crackdown
As governments are engaged in discussions regarding the need to regulate Big Tech, China has already begun taking action towards this goal.
Following a period of relatively lax regulatory oversight, in 2020 the Chinese Community Party completely transformed its attitude towards the tech industry and opened a series of investigations into the alleged anti-competitive behaviour of large technology companies.
“The wave of new regulations has cascaded and grown since the initial response to the Ant Group IPO,” says Brian Bandsma, Asia-Pacific Portfolio Manager at Vontobel Quality Growth. “At the time and into the following weeks, there was no indication this would expand in so many different directions. Each time it seemed like we were near the end, something new came along.”
In November 2020, Ant Group’s initial public offering — which would have been the largest ever in history — was suspended. Since then, Chinese regulators have introduced anti-monopoly legislation that affected a huge range of companies, from ecommerce to food delivery, as well as new laws pertaining to data security and protection.
But Ant Group was not the only large Chinese company to feel the impact of the regulations. Ecommerce giant Alibaba was fined $2.8 billion after being accused of anti-competitive behaviour and ride-hailing firm Didi was forced to stop user registrations following a cybersecurity review. In addition, Tencent is currently under investigation regarding its policies to protect minors in its WeChat app.
The decision to take on WeChat is part of China’s aim to reduce the power of “super apps”, mobile applications that can provide a huge variety of services to their users, from ordering food, ride-hailing taxis and booking plane tickets. Many experts believe that the decision to place these apps under regulatory scrutiny stems from concerns regarding the huge power that they hold over consumers.
Mike Rhodes, CEO and Founder of ConsultMyApp says: “China typically exerts a much larger degree of influence over the behaviours of its citizens — for instance, the restriction recently brought in to limit the amount of time children can play games each day. It is therefore not unsurprising they are looking to curtail certain businesses and apps that are able to deliver a large number of public services in one box.
“Having so much functionality (a la WeChat) gives one company a large amount of one-on-one interaction with members of the public throughout the day, allowing them to some extent control their day-to-day existence; this may be a little too much as far as the authorities are concerned. In fact due to the intimate companion relationship between app and user it’s no surprise clampdowns such as these are coming, not just from China but also other governments across the globe. Too much control and influence given to entities outside government inherently weakens the government and, quite simply, limits their ability to govern effectively.”
The latest of these regulatory changes has been the banning of cryptocurrencies. On September 24th, the People’s Bank of China deemed all virtual currency-related business activities illegal, claiming they “seriously endangers the safety of people’s assets”.
Although China has been issuing warnings since 2013 regarding its plans to ban cryptocurrency, the country continues to be a key player in the field, mainly due to people’s easier access to affordable hardware and electricity. The new regulations will constitute a huge blow for the industry, but its decentralised nature might allow it to survive.
“I don’t think it will be possible for crypto transactions to be stopped in China following the ban, although businesses might start facing stricter restrictions,” says Vlad Faraon, Co-Founder and CBO at Coreto. “As a consequence, some might migrate to the USA or other European countries that are more flexible. China is an important player, but it’s not the only one.
“Long-term, the crypto transactions and the technology behind them are here to stay. We see more and more countries starting to look into finding uses for blockchain at an institutional level, and this is likely to become a key focus for all moving forward. But until stricter regulations are issued to protect the investors in what can be a volatile, speculative market, my advice for people and businesses is to find reliable sources of information to base their transactions on.”
The result of the regulations has been the creation of a climate of uncertainty regarding the Chinese market, as investors wait for the next wave of regulations. And, although it is unlikely that other countries follow China’s example, the eyes of the world are set on the Asian country.
“Whilst I doubt the US or UK would be the first to say they are following the example of China here, I am certain controlling the influence of Big Tech is on the minds of governments behind most major economies,” Rhodes says.
Countries like Australia, the US and the UK have proposed policies that would limit the activities of technology giants. However, so far neither of them has been able to implement measures that have the potential to transform the whole industry to the extent that China has. Or, at least, not yet.
