The CCP Should Be Careful With Big Tech Crackdowns
“He who rides a tiger is afraid to dismount.”
This ancient Chinese proverb perfectly encapsulates the predicament in which China’s largest conglomerates find themselves. Free-market tech companies for decades have sat comfortably atop the Chinese Communist Party (CCP), driving the Chinese economy with the blessing of the state. But this year, they were bucked off and pounced on. A slew of new legislation from the CCP wiped billions off the tech stocks and erected barriers for future Chinese startups.
While from the outside looking in, China’s aggression toward its economic leaders might seem like self-sabotage, but the purpose of this regulatory mauling is clear. After years of economists, politicians, and academics alike arguing that China values fiscal growth and economic capital above all, the Chinese government has set the record straight. In reality, the Party comes above all, and cultural control takes precedence as its true foundation.
The success of China’s tech giants gave them a platform. And when it comes to messaging, the CCP hates competition.
The regulatory onslaught began in November 2020, when Jack Ma (Ant Group’s CEO) criticized Chinese banking and financial regulation. The CCP suspended the Ant Group’s IPO, halting what would have been the world’s largest share sale accumulating around $34 billion. Message received loud and clear: Even China’s most successful global entity must toe the Party line. Alibaba subsequently tumbled 8% overnight on the U.S. stock exchange as investors got spooked.
Over the past months, the CCP has come down even harder on tech companies. Didi, the Chinese Uber, was taken off the App Store less than 24 hours after its NYSE debut. Alibaba, which hosts twice the amount of e-commerce as Amazon, was fined $2.8 billion in April alongside a battering of investigations that have continually hurt its stock price and ability to freely operate in the country.
More recently, the CCP has even taken a swipe at the video game industry, which last month Beijing’s official news outlets described as “spiritual opium.” The gaming sector is worth a staggering $22 billion in China alone, with around 400 million players and fans. As evident in their rising popularity, next year’s e-sports will be medalled in the Asia Games. So it made sense when the CCP limited gamers’ playtime to one hour on Fridays, weekends, and holidays — now these young gamers will have more time to study “Xi Jinping Thought.”
Though China labels itself a socialist country, its markets have become increasingly free-market, particularly in the last four decades. As the CCP values economic strength over almost all other policies, a clear line has been drawn: The Party is more important than economic growth. Under the guise of national security and social equality, Liu He, China’s economy czar, has said the state will now foresee the “orderly development of Capital.” It is clear that China is unwilling to give up total control of the tech sector, and increasingly feels threatened by Western influence.
These disruptions will see the slowing of China’s economic growth. While China has been able to take advantage of its massive population and authoritative growth, over the past 11 years, the Chinese economy has been experiencing a decrease in growth. Cutting off big tech will just continue this trend. Soon enough, China will be on similar growth path as the G7, hovering around 2% a year, if lucky. Yet, if the CCP maintains its chokehold on some of its biggest companies and startups, it’s not absurd to expect even less. Don’t forget China’s command and control system caused the largest famine in human history.
The CCP should be cautious; it would be naive to assume that big tech will go down without a fight. The citizens of China have grown accustomed to the benefits of the online world, and won’t love their disappearance. Certainly, Alibaba and Didi have become as integrated as Uber and Amazon. The CCP doesn’t want their disappearance, just their outright loyalty. That could quickly become messy. While Western companies like the NBA and Disney have been willing to appease China because of the sheer market size, this could quickly be coming to an end. Today, companies face pressure from Western markets and governments to avoid using China’s unethically sourced goods.
It is undeniable that China is an economic superpower. It was the only country to post growth figures during the pandemic. Yet the continued restriction of its most affluent sector will have severe knock-on effects. Many predict the ‘inevitable’ growth of the Chinese economy to become the largest in the world. This may come true if they don’t get in their own way. Similar predictions were made in the 1960s of the Soviet Union by Nobel Prize-winning economists. Though China is no Soviet Union, these unpopular regulations risk alienating not only China’s own powerhouses of fiscal growth but also, and perhaps even more dangerously, its own people.
China’s tech sector may have come out of this catfight looking a bit worse for wear, but as power dynamics shift, now it’s the CCP that’s riding a tiger. And if it’s not careful with the reins, it’ll end up like the Soviet Union — poor, broken, and at war with its own people.