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Saturday, September 18, 2021

What China Expects From Businesses: Total Surrender


At a meeting with Premier Li Keqiang in 2014, Pony Ma, the CEO of Chinese internet behemoth Tencent, expressed dissatisfaction with the fact that many local governments had prohibited the use of ride-sharing apps installed on smartphones.

Mr. Li immediately directed a number of ministers to look into the matter and report back to him on their findings. After that, he turned to Mr. Ma and said, “Your example eloquently demonstrates why it is necessary to improve the relationship between government and the market.”

When Tencent acquired Didi Chuxing in 2013, it had already invested $45 million in the ride-sharing startup. Didi Chuxing would go on to become a model for the Chinese government’s efforts to digitise and modernise traditional industries. When President Xi Jinping met with global technology leaders in Seattle in 2015, Didi’s founder, Cheng Wei, who was then 32 years old, was among those in attendance. He was joined by Jeff Bezos of Amazon, Apple’s Tim Cook, and Mr. Ma.

However, the relationship between Beijing and the technology sector has deteriorated significantly over the past year. Didi is now a target of the government’s regulatory wrath, according to the company. Chinese regulators removed the company’s apps from app stores a few days after the company’s initial public offering in New York last month, citing the need to protect national data security and public interests.

The Didi debacle, and to a large extent China’s increasingly aggressive antitrust campaign, is centred on the question of what Beijing expects from private enterprises in general and Didi specifically. In comparison to the United States or Europe, the answer is significantly more complicated.

When it comes to the national economy, China’s Big Tech wields as much power as the American tech behemoths do. Consumers, merchants, and small businesses have complained that Chinese companies, like their American counterparts, have engaged in anticompetitive practises that have harmed them and their customers. That merits close examination and regulation in order to prevent any abuse of power.

However, it is important to remember that the Chinese technology companies operate in a country that is increasingly ruled by an autocratic government that demands that the private sector surrender with complete and total devotion. Instead of conducting antitrust campaigns in their respective regions, Chinese officials are using antitrust to consolidate the Communist Party’s monopoly of power, with private enterprises likely to lose what little independence they have left and become a mere appendage of the state, as European and American officials are doing in their respective regions.

According to Benjamin Qiu, a partner at the Hong Kong-based law firm Loeb & Loeb, the developments at Didi amount to “a shock-therapy type of enforcement.” “We could see increased state control, with the end result being in-effect data nationalisation,” says the author.

Americans and Europeans who are, understandably, dissatisfied with their regulators’ inability to rein in Big Tech should not be overawed by the speed with which China is bringing its tech titans to heel, according to the World Economic Forum. Efficiency is sacrificed at the expense of the rule of law and due process in China, as is the case with many other things.

Following a public announcement last year, the Communist Party made it clear that it requires “politically sensible people” in the private sector who will “firmly listen to and follow the party.” They should contribute more to the longevity of the Communist Party and help make China great again, according to the party.

The message, according to people in the technology industry, is that businesses must demonstrate that they are useful and helpful in advancing the government’s goals while avoiding causing trouble in the process.

According to these individuals, Didi did not pay attention to the message. They were taken aback by Didi’s decision to defy some regulators’ objections and rush its initial public offering through in the current regulatory environment.

For some government officials, Didi’s inclusion on the United States’ list was a case of “yang feng yin wei” — to comply publicly while defying privately. Because the phrase is frequently used to describe a subordinate’s betrayal of a superior, the choice of words is telling in this case.

Li Chengdong, an Internet consultant and investor, wrote of Didi in a social media post, saying, “At a time like this, internet companies that are ‘politically incorrect’ will only meet a dead end.”

It is beneficial for businesses to be aware of Beijing’s top priorities. On the domestic front, the goal is to reduce inequality and promote what the party refers to as “collective prosperity.” On the international front, the goal is to manage geopolitical tensions with the United States of America.

Growing inequality in China, as the country’s economic growth slows and opportunities dwindle, has become a ticking time bomb in the eyes of the Chinese Communist Party, which is paranoid about social unrest and any doubts about its legitimacy. Furthermore, technology companies are increasingly being held responsible for the wealth gap, with their founders being portrayed as villains who take advantage of consumers and force their employees to work long hours to achieve success.

When some large internet companies invested heavily in apps that sell vegetables to local residents last year, Beijing was not pleased with the decision. Why? Because apps like these could eventually replace the small vegetable stands that provide a source of income for many low-income people.

Beijing also pursued Ant Group, the financial technology behemoth controlled by billionaire Jack Ma, in part because the Chinese government believed that Ant made it too easy for young people to take out personal loans, thereby contributing to social unrest in the country.

In addition, the government cracked down on the online education industry, which officials believe profits from preying on the anxieties of their students’ parents. Because of this, the cost of raising children has increased, jeopardising Beijing’s new policy of encouraging couples to have more than one child, which was implemented last year.

In April, a government official worked as a meal delivery driver for 12 hours and earned approximately $6. There was a lot of discussion about how poorly online platforms treated their employees as a result of this.

A Beijing-based venture capitalist told me that “platform” companies such as Tencent, Didi, and Alibaba have been relegated to second-class status by the government. (First-class companies develop “real” technologies such as semiconductors and artificial intelligence that can help China become more self-sufficient technologically, he said.) For the government, the platforms have become too invasive.

A number of tech giants and well-known entrepreneurs have pledged their support and made gestures with money or resignation over the past six months. It was announced by Tencent in April that it would spend $7.8 billion on green energy, education, and village revitalization projects in China.

In April, just four days after President Xi Jinping paid a visit to Tsinghua University in Beijing, Wang Xing, the founder of the meal-delivery company Meituan and a graduate of Tsinghua, established a foundation at the university to support students and faculty. Mr. Wang’s own foundation received a donation of shares worth more than $2 billion in June from Mr. Wang’s own company.

Colin Huang, founder of the e-commerce platform Pinduoduo, announced in March that he would step down in order to make way for the next generation following the deaths of two of his employees and widespread online criticism. He is 41 years old and has recently been named China’s second-richest person.

Zhang Yiming, the 38-year-old founder of ByteDance, the parent company of TikTok, announced in May that he would also step down as the company’s chief executive. His donation of $77 million to establish an education foundation in his hometown was made public a month after that. In addition, according to the Wall Street Journal, he shelved ByteDance’s initial public offering plans in March after meeting with regulators.

Tencent’s business unit announced last month that its employees would be required to leave the office by 6 p.m., effective immediately. on Wednesdays from 9 p.m. to midnight on the rest of the weekdays ByteDance announced earlier this month that it would eliminate the requirement to work on Saturdays every other week, which is a common practise at many Chinese companies, effective immediately.

Following the Didi crackdown, similar announcements continued to be made. JD.com, an e-commerce platform, announced on Tuesday that it would increase the average annual salary of its employees to 16 months of pay from 14 months, effective immediately. Lei Jun, the founder of the smartphone manufacturer Xiaomi, donated shares worth more than $2 billion to two charitable organisations on Friday.

What do all of these actions have to do with antitrust and the restraint of Big Tech’s power, you may wonder. There isn’t much to say about it directly. Company executives and entrepreneurs are effectively telling the government that they understand who is in charge and that they must take steps to reduce social inequality and discontent, even if those steps do not appear to be effective in the short term.

One of Didi’s “sins” was that it went public in New York at a time when geopolitical tensions between China and the United States were intensifying and the two countries were competing for technological supremacy.

There is growing concern in China that many technology companies, many of which are backed by Western venture capital firms and are publicly traded in New York, could be used as economic pawns if bilateral relations deteriorate in the future. China has announced that domestic technology companies will be required to submit to a cybersecurity checkup before they can list their shares on foreign exchanges, which will likely put a stop to most initial public offerings.

Xiong Weizhou, a verified Weibo user, posted a comment on his verified account saying, “China needs to be prepared for the worst-case scenario.” “It could result in a war with Taiwan or economic sanctions by the United States and Europe. Chinese companies of significance should avoid becoming the country’s “soft underbelly.”


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