Regulating China’s tech sector is expensive, but not shocking – The Diplomat
Pacific money | Economy | East Asia
The wave of tech industry regulations follows the typical pattern of China’s regulatory crackdown on a sector that has been allowed to develop over time.
Many observers have watched with anxiety the regulatory activity of China’s tech sector, wondering what the next crackdown will bring. Such activities have been well covered in the media, from the suspension of Ant Group’s IPO to the investigation into Didi’s data security. Didi had just signed up in New York City when regulators ordered the company’s apps removed from app stores and new user registrations suspended, shaking US investors. Of course, that was not all. Regulators have also fined Alibaba, Tencent Holdings and Baidu for anti-competitive practices and drafted new antitrust and data protection rules. Thirty-four companies, including Meituan, Alibaba, Tencent and Ant Group, have been ordered to carry out internal inspections.
Tech companies are trying to quickly comply with new regulations. Tencent suspended new registrations to WeChat while improving its security to comply with “relevant laws and regulations.” Both Alibaba and Tencent have tried to anticipate regulatory scrutiny by reducing lockdowns on each other’s products. TikTok owner ByteDance said it would improve conditions for workers by reducing employment on Sundays.
Some experts have viewed China’s new regulations as a show of force against a strong tech sector, but others see regulations as a necessary part of a competitive economy. The argument is that China’s data security rules are justified due to China’s expanding digital economy, while trust regulations prevent a handful of companies from dominating the market. In addition, Chinese regulations are not as strong as those proposed in the United States, where the regulations aimed to end platform monopolies, create rules to facilitate the portability of user data, prevent certain acquisitions, etc. .
To me, it seems likely that the wave of tech industry regulations will follow China’s typical pattern of regulatory crackdown on a sector that has been allowed to develop over time. This has happened with shadow banking, as well as, more recently, fintech. Having innovated and developed over time, the shadow banking and fintech sectors were (separately) subject to a series of regulations that put an end to risky practices. This limited the activities that regulators saw as a threat to the common good.
This is what is happening in the tech industry now. What’s different about cracking down on the tech industry is that regulations come from multiple regulators, rather than a single regulator headed by a senior official. In the case of the crackdown on shadow banking and fintech, many new regulations have been implemented by Guo Shuqing of the China Banking and Insurance Regulatory Commission. While the initial suppression of Ant Financial was indeed carried out by the powerful Guo, other regulators including the Cyberspace Administration of China, the Ministry of Industry and Information Technology, the State Administration for market regulation and the China Securities Regulatory Commission, played a role participate in the broad regulatory rollout.
In the case of the shadow banking system, the deployment of Guo Shuqing’s rules succeeded in curbing riskier practices in the sector, although implementation took a few years. Small businesses that could not meet the more stringent requirements were phased out, while large companies were forced to change some of their business practices to accommodate the new regulations. As a result, regulations impose new costs on the industry, especially in the short term, and curb risky innovations. This is likely to happen in the tech sector as well.
In terms of timing, the crackdown is not too surprising, as China’s tech industry has been highlighted by the Sino-US rivalry, which has targeted technology and intellectual property security in particular. Coupled with Guo’s mastery of the fintech industry, which includes companies like Ant Group and Tencent, other government officials have focused on data privacy, cybersecurity, and corporate market share. Although there is a lack of transparency in China’s regulatory decision-making process, government agencies appear to be united in mastering the technology.
New regulations will limit the activities of technology companies in the future. While large companies such as Ant Group and Tencent are expected to continue to perform best, there will be costs. Already, the two companies have had to pay fines and give up part of their business: Ant has had to give up the link between Alipay and its credit card and consumer loan services, and Tencent has had to give up exclusive music licenses. .