Wednesday, October 20, 2021
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China tightens political grip over internet giants 

Many insiders believe that Chinese leaders don't want to reimpose direct control of the economy but want private sector companies to align with ruling party plans.

Tightening its grip around China’s internet giants and tapping their wealth to pay for its ambitions to reduce reliance on the US and European technology, the ruling Communist Party in China has started tightening political control over internet players.

While the country’s anti-monopoly and data security crackdowns in 2020 have shaken the industry, which flourished for two decades with little regulation. Investors feel the jitters after more than $1.3 trillion was knocked off the total market value of e-commerce platform Alibaba, games, and social media operator Tencent and other tech giants.

The party says anti-monopoly enforcement will be a priority through 2025. It says competition will help create jobs and raise living standards.

Many insiders believe that Chinese leaders don’t want to reimpose direct control of the economy but want private sector companies to align with ruling party plans.

Chinese internet companies and their billionaire founders, including Group’s Jack Ma and Tencent Holdings’ Pony Ma, are among the biggest global success stories of the past two decades. Alibaba is the biggest e-commerce company, while Tencent operates the popular WeChat messaging service.

US curbs on Chinese access to telecom and other technology haven’t helped this Chinese tech either. said it will invest $28 billion to develop operating system software, processor chips, and network technology. The company has pledged $1 billion to nurture 100,000 developers and tech startups over the next three years.

Last year, Tencent promised to invest $70 billion in digital infrastructure. Meituan, e-commerce, delivery, and service platform raised $10 billion to develop self-driving vehicles and robots.

Investors, many burned by the drop in technology shares, are keeping their money on the sidelines. Tencent’s market capitalization of $575 billion is down $350 billion from its February peak, a decline equal to more than the total value of Nike Inc. or Pfizer Inc.

CEO Masayoshi Son of Japan’s Softbank Group — an early investor in Alibaba — said on Aug. 11 he will put off new China deals. Softbank invested $11 billion in ride-hailing service Didi Global, whose share price has fallen by one-third since its U.S. stock market debut on July 30.

The crackdown by the Chinese authorities on the homegrown companies began in November when Beijing ordered Ant Group, which grew out of Alibaba’s Alipay online payments service, to postpone its stock market debut in Hong Kong and Shanghai.

The company, which offers online savings and investment services, was told to scale back its plans and to install bank-style systems to vet borrowers and manage lending risks. Industry analysts cut forecasts of Ant’s expected stock market value.

Meanwhile, Xi’s government is tightening control over data gathered by private companies about the public — especially at Alibaba and Tencent, which have hundreds of millions of users. China’s leaders see information about its 1.4 billion people as a tool for gaining insight into the public and economy — and potential security risk in private hands.

A new law for the technology companies in China that will come into force from November 1 establishes security standards, prohibits companies from disclosing information without customer permission, and tells them to limit how much they collect.

Unlike data protection laws in Western countries, the Chinese rules say nothing about limiting government or ruling party access to personal information.

Beijing also is accused of using its stockpile of data about the public in a campaign of repression against Uyghurs and other mostly Muslim minorities in China’s northwestern region of Xinjiang.

Earlier in April, Alibaba was fined 18.3 billion yuan ($2.8 billion) for offenses that included prohibiting vendors that wanted to use its platforms from dealing with Alibaba’s competitors.

Units of Alibaba, Tencent, live-streaming site Kuaishou, microblogging platform Sina Weibo and social media site Xiaohongshu also have been fined for distributing sexually suggestive stickers or short videos of children. Tencent’s music service was ordered to end exclusive contracts with providers.

Beijing is also using the crackdown to narrow China’s politically sensitive wealth gap by pushing tech giants to share their wealth with employees and consumers.

Didi, Meituan, and other delivery and ride-hailing businesses were ordered in May to cut fees charged to drivers and improve their benefits and security. Meituan CEO Wang Xing promised to donate $2.3 billion to environmental and social initiatives. Tencent’s Ma pledged $2 billion to charity.

Alibaba has promised to spend 100 billion yuan ($15.5 billion) on job creation, rural development, and other initiatives to support Xi’s “common prosperity” campaign.

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