When Pony Ma, head of the Chinese Internet power plant Tencent, attended a group meeting with Premier Li Keqiang in 2014, he complained that many local governments had banned the installation of carpooling on smartphones.
Mr. Li immediately asked some ministers to investigate and report back to him. Then he turned to Mr. Ma and said, “Your example illustrates the need to improve the relationship between the government and the market.”
By then, Tencent had invested $ 45 million in a rideshare company called Didi Chuxing, which would later become a model for the government’s efforts to digitize and modernize traditional industries. When President Xi Jinping met global technology leaders in Seattle in 2015, Didi founder Cheng Wei, then 32, joined Jeff Bezos from Amazon, Tim Cook from Apple and Mr. Ma.
But the relationship between Beijing and the tech sector has been very fragmented over the past year. Didi is now a target of the government’s regulatory wrath. Days after the company’s IPO in New York last month, Chinese regulators withdrew their apps from app stores for reasons of national data security and public interest protection.
At the heart of the Didi fiasco, and largely China’s increasingly aggressive cartel campaign, is what Beijing expects from private companies. The answer is much more complicated than in the US or Europe.
China’s big tech has just as much power in the economy as the American tech giants. Like their American counterparts, Chinese companies appear to be engaging in anti-competitive practices that harm consumers, retailers and smaller businesses. That deserves control and regulation to prevent abuse of power.
But it’s important to remember that Chinese tech companies operate in a country ruled by an increasingly autocratic government that demands absolute loyalty from the private sector. So, unlike the antitrust campaigns that European and American officials are running in their regions, China is using the pretext of antitrust law to cement the Communist Party’s monopoly on power, with private companies likely to lose the rest of their independence and become a mere appendage of the state.
The developments at Didi are equivalent to “shock therapy,” said Benjamin Qiu, partner at the law firm Loeb & Loeb in Hong Kong. “We could see more government control, with effective data nationalization as the end result.”
Americans and Europeans, understandably frustrated by their regulators’ lack of progress in curbing big tech, shouldn’t be too impressed with how quickly Beijing is calming down its tech titans. Like much in China, efficiency comes at the expense of laws and due process.
The Communist Party made it clear in the past year that it needs “politically sensible people” in the private sector who “listen closely to the party and follow the party”. They should do more to the longevity of the Communist Party and help make China great again, the party said.
The message, said people in the tech industry, is that companies need to prove they are useful and helpful in advancing government goals while avoiding trouble.
Didi ignored the message, said these people. They were surprised that Didi defied the objections of some regulators and accelerated its IPO in the current regulatory environment.
For some government officials, Didi’s US listing was “yang feng yin wei” – publicly obeyed but privately defied. The choice of words is instructive because the term is often used to describe a subordinate’s betrayal of a superior.
“At a moment like this, internet companies that are ‘politically incorrect’ will only hit a dead end,” wrote Li Chengdong, an internet consultant and investor, on a social media post about Didi.
It is helpful for companies to know Beijing’s priorities. Domestically, it aims to reduce inequality and promote what the party calls “collective prosperity”. At the international level, it manages geopolitical tensions with the United States.
As China’s economic growth slows and opportunities dwindle, the country’s growing inequality becomes a time bomb in the eyes of the party, paranoid about social unrest and any skepticism about its legitimacy. And tech companies are increasingly being blamed for the wealth gap, whose founders are criticized as villains who take advantage of consumers and force their employees to work long hours.
Beijing wasn’t happy last year when some large internet companies invested heavily in apps that sell vegetables to local residents. Because the apps could replace the mom and pop vegetable stalls where many people on low incomes earn their living.
Beijing also persecuted the Ant Group, the financial technology giant controlled by billionaire Jack Ma, in part because it believed Ant made it too easy for young people to get personal loans, which built social discontent.
The government also cracked down on the online education industry, which officials believe will benefit from playing with parents’ fears. This, in turn, has increased the cost of raising children, thereby jeopardizing Beijing’s new policy of encouraging couples to have more than one child.
In April, a government official spent 12 hours delivering food just to make about $ 6. This sparked widespread discussion about how badly online platforms treated their employees.
Tencent, Didi and e-commerce giant Alibaba – known as “platform” companies – are now second-class citizens in the eyes of the government, a Beijing-based venture capitalist told me. (Top-tier companies are developing “real” technologies like semiconductors and artificial intelligence that can help China become more technologically independent, he said.) For the government, the platforms have too many users, too much data, too much capital, and too much power , he said.
For the past six months, the tech giants and some star entrepreneurs have pledged their allegiance, gesturing with money and resignations. Tencent announced in April that it would be spending $ 7.8 billion on green energy, education and village revitalization.
In April, four days after Mr. Xi visited his alma mater, Tsinghua University, in Beijing, Wang Xing, founder of the Meituan food delivery company and also a Tsinghua graduate, established a foundation at the university. In June, Mr. Wang donated more than $ 2 billion worth of shares to his own foundation.
After the death of two of his employees and a lot of online criticism, Colin Huang, founder of the e-commerce platform Pinduoduo, said in March that he would be stepping down to make way for the next generation. He is 41 and has just been named the second richest person in China.
In May, Zhang Yiming, 38, founder of ByteDance, TikTok’s parent company, announced his resignation as CEO. A month later, he revealed a $ 77 million donation to help start an educational foundation in his hometown. The Wall Street Journal also reported that it put ByteDance’s IPO plans on hold in March after meeting regulators.
A Tencent division announced last month that its employees would now have to leave the office at 6 p.m. on Wednesdays and at 9 p.m. on other days of the week. ByteDance announced this month that it will remove the requirement to work Saturdays every other week, a common practice for many Chinese companies.
After Didi’s crackdown, similar announcements kept coming back. JD.com, an e-commerce platform, announced on Tuesday that it would increase the average annual salary of its employees from 14 to 16 monthly salaries. On Friday, Lei Jun, founder of smartphone maker Xiaomi, donated more than $ 2 billion in shares to two foundations.
What do all of these actions have to do with antitrust law and curbing the power of big tech? Not much directly. But corporations and entrepreneurs are effectively telling the government that they know who is the boss and that they must do things that at least appear to reduce social inequality and dissatisfaction.
The other “sin” Didi committed is that it went public in New York as geopolitical tensions between China and the United States intensified and the two countries struggled for tech supremacy.
In China, concerns are growing that many tech companies, backed by Western venture capital firms and listed in New York, could become economic pawns if bilateral ties deteriorate. China has announced that it will require domestic tech companies to undergo cybersecurity checks before listing their stocks overseas, which will likely thwart most IPO plans.
“China has to prepare for the worst-case scenario,” commented a Weibo user, Xiong Weizhou, on his verified Weibo account. “It could be a war with Taiwan or US and European sanctions. Major Chinese companies shouldn’t become the nation’s soft belly. “