Xi Jinping's assault on tech will change China's trajectory | MCUTimes

Xi Jinping’s assault on tech will change China’s trajectory

ISLANDF ALL CHINA results in the last two decades, is one of the most impressive increase in its technology industry. Alibaba hosts twice as much e-commerce activity as Amazon does. Tencent operates the world’s most popular super-app with 1.2 billion users. China’s technological revolution has also helped transform its long-term economic outlook at home by allowing it to leap beyond manufacturing into new fields such as digital healthcare and artificial intelligence (TO). In addition to driving China’s prosperity forward, a dazzling tech industry could also be the basis for a challenge to American supremacy.

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That’s why President Xi Jinping’s assault on his country’s $ 4 billion tech industry is so startling. There have been over 50 lawsuits against dozens of companies for a dizzying array of alleged offenses, from antitrust abuse to data breaches. The threat of public bans and fines has weighed on stock prices and cost investors around $ 1 billion.

Sir. Xi’s immediate goal may be to humiliate tycoons and give regulators more control over unruly digital markets. But as we explain, the Communist Party’s deeper ambition is to redesign the industry according to its plan. China’s autocrats hope this will sharpen their country’s technological edge while increasing competition and benefiting consumers.

Geopolitics can also spur them on. Restrictions on access to components made with American technology have convinced China to be more self-reliant in critical areas such as semiconductors. Such “hard technology” can be beneficial if the onslaught on social media, gaming companies and the like steers talented engineers and programmers its way. But the attack is also a huge investment that could end up hurting the company and economic growth in the long run.

Twenty years ago, China hardly seemed on the threshold of a technological miracle. Silicon Valley fired pioneers like Alibaba as replicas until they jumped ahead of it in e-commerce and digital payments. Today, 73 Chinese digital companies are worth over $ 10 billion. Most have Western investors and foreign-educated executives. A dynamic venture-capital ecosystem keeps pushing new stars forward. Of China’s 160 “unicorns” (startups worth more than $ 1 billion), half are in areas such as TO, big data and robotics.

Unlike Vladimir Putin’s war against Russia’s oligarchs in the 2000s, China’s attacks are not about insiders fighting for booty. In fact, it reiterates concerns that motivate regulators and politicians in the West: that digital markets tend to have monopolies, and that technology companies are hammering out data, abusing suppliers, exploiting workers, and undermining public morale.

Stronger police were too late. When China opened up, the party held a stifling grip on finance, telecommunications and energy, but allowed tech to tear down. Its digital pioneers used this near-absence of regulation to grow astonishingly fast. Didi, which provides transportation, has more users than America has people.

However, the big digital platforms also took advantage of their freedom to trample smaller businesses. They stop merchants from selling on more than one platform. They deny food delivery drivers and other concert workers basic benefits. The party wants to put an end to such offenses. It is an ambition that many investors support.

The question is how? China is becoming a political laboratory where a non-responsible state is fighting with the world’s largest companies for control of the essential infrastructure of the 21st century. Some data that the government says is a “production factor” that land or labor can go into public ownership. The state can enforce interoperability between platforms (so, for example, WeChat cannot continue to block rivals). Addictive algorithms can become more stringent politically. All of this would hurt profits, but could make the markets work better.

But make no mistake, the attack on China’s unruly technology is also a demonstration of the party’s unbridled power. In the past, its priorities often fell victim to interests, including corrupt insiders, and this was limited by its need to raise foreign capital and create employment. Now the party feels discouraged, issuing new rules at a furious pace and enforcing them with fresh zeal. China’s legislative immaturity is fully demonstrated. Only about 50 employees notice its main anti-monopoly agency, but they can ruin business models with a stroke of the pen. Denied proper process, companies must laugh and bear it.

China’s leaders have spent decades successfully defying Western lectures on liberal economics. They see their reduction in the technology industry as a refinement of their policy of state capitalism – a plan to combine prosperity and control to keep China stable and the party in power. As China’s population begins to decline, the party wants to increase productivity through government direction, including by automating factories and forming urban mega-clusters.

But the attempt to reshape Chinese technology can easily go wrong. It is likely to arouse suspicion abroad and hamper the country’s ambitions to sell services and set global technological standards worldwide in the 21st century, as America did in the 20th century. Any move on growth will be felt far beyond China’s borders.

A major risk is that the downturn will weaken the entrepreneurial spirit in China. As the economy shifts from doing things to services, spontaneous risk-taking, backed by sophisticated capital markets, will become more important. Several of China’s leading tech tycoons have retired from their businesses and public life. Wannabes will think twice before trying to emulate them, not least because the attack has increased the cost of capital.

Start-up brake

China’s largest technology companies are now trading at an average discount of 26% per year. Dollars in sales relative to US companies. Startups, such as The memories that take business from Didi in mapping apps have snapped at the government’s main goal. Far from being encouraged by the crash, they are likely to feel exposed. Economic development is very much about creative destruction. China’s autocratic leaders have shown they can handle the devastation. Whether this technological tumult will also promote creativity is still very much in doubt.

This article appeared in the “Leaders” section of the print edition under the heading “China’s attacks on tech”

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