OF ALL CHINA’S achievements in the past two decades, one of the most impressive is the rise of its technology industry. Alibaba hosts twice as much e-commerce activity as Amazon does. Tencent runs the world’s most popular super-app, with 1.2bn users. China’s tech revolution has also helped transform its long-run economic prospects at home, by allowing it to leap beyond manufacturing into new fields such as digital health care and artificial intelligence (AI). As well as propelling China’s prosperity, a dazzling tech industry could also be the foundation for a challenge to American supremacy.
That is why President Xi Jinping’s assault on his country’s $4trn tech industry is so startling. There have been over 50 regulatory actions against scores of firms for a dizzying array of alleged offences, from antitrust abuses to data violations. The threat of government bans and fines has weighed on share prices, costing investors around $1trn.
Mr Xi’s immediate goal may be to humble tycoons and give regulators more sway over unruly digital markets. But as we explain, the Communist Party’s deeper ambition is to redesign the industry according to its blueprint. China’s autocrats hope this will sharpen their country’s technological edge while boosting competition and benefiting consumers.
Geopolitics may be spurring them on, too. Restrictions on access to components made with American technology have persuaded China that it needs to be more self-reliant in critical areas like semiconductors. Such “hard tech” may benefit if the crackdown on social media, gaming firms and the like steers talented engineers and programmers its way. However the assault is also a giant gamble that may end up doing long-term damage to enterprise and economic growth.
Twenty years ago China hardly seemed on the threshold of a technological miracle. Silicon Valley dismissed pioneers such as Alibaba as copycats, until they leapt ahead of it in e-commerce and digital payments. Today 73 Chinese digital firms are worth over $10bn. Most have Western investors and foreign-educated executives. A dynamic venture-capital ecosystem keeps churning out new stars. Of China’s 160 “unicorns” (startups worth over $1bn), half are in fields such as AI, big data and robotics.
In contrast to Vladimir Putin’s war on Russia’s oligarchs in the 2000s, China’s crackdown is not about insiders fighting over the spoils. Indeed, it echoes concerns that motivate regulators and politicians in the West: that digital markets tend towards monopolies and that tech firms hoard data, abuse suppliers, exploit workers and undermine public morality.
Stronger policing was overdue. When China opened up, the party kept a stifling grip on finance, telecoms and energy but allowed tech to let rip. Its digital pioneers used this near absence of regulation to grow astonishingly fast. Didi, which provides transport, has more users than America has people.
However, the big digital platforms also exploited their freedom to trample smaller firms. They stop merchants from…
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