China tightens political control over internet giants

BEIJING (AP) – The ruling Communist Party is tightening political control over China’s internet giants and tapping into its wealth to pay for its ambitions to reduce reliance on US and European technology.

Anti-monopoly and data security crackdowns beginning in late 2020 have shaken the industry that flourished with little regulation for two decades. Investor nervousness has brought the total market value of e-commerce platform Alibaba, game and social media operator Tencent, and other tech giants down by more than $ 1.3 trillion.

The party says enforcing antimonopoly will be a priority through 2025. Competition will help create jobs and raise living standards.

President Xi Jinping’s administration is likely to stay on course even if economic growth suffers, say businessmen, lawyers and economists. “These companies are global leaders in their innovation sectors, and yet the leadership is poised to crush them all,” said Mark Williams, chief economist, Asia, Capital Economics.

The crackdown reflects Xi’s public emphasis on reviving the party’s “original mission” of promoting economic and social development, said Steve Tsang, a Chinese policy expert at the School of Oriental and African Studies in London. He said it could also help Xi politically if, as expected, he sought a third five-year term as party leader.

According to Lester Ross, head of the Beijing office of WilmerHale law firm, the Chinese leaders do not want to regain direct control of the economy but want private companies to follow the plans of the ruling party.

“What they fear is that companies will become too big and too independent of the party,” said Ross.

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

But party plans emphasize robots, chips, and other hardware, so these companies are rushing to show their loyalty by investing billions of dollars in them.

The ruling party’s campaign raises warnings that the world may decouple or split into separate markets with incompatible technology. Products from China would not work in the USA or Europe and vice versa. Innovation and efficiency would suffer.

US restrictions on Chinese access to telecommunications and other technologies did not help.

Alibaba said it will invest $ 28 billion in operating system software, processor chips and network technology development. The company has pledged $ 1 billion to fund 100,000 developers and technology startups over the next three years.

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

Chinese officials acknowledge that the campaign has an economic cost but are unwilling to comment, Tsang said. “Who will stand up and tell Xi Jinping that your policies will harm China?”

Investors, many of whom have been burned by the decline in technology stocks, are keeping their money on the sidelines. Tencent’s $ 575 billion market cap is down $ 350 billion from its February high, a drop more than the combined value of Nike Inc. or Pfizer Inc.

Japanese Softbank Group’s CEO Masayoshi Son – an early investor in Alibaba – said on Aug. 11 that he would postpone new China deals. Softbank invested $ 11 billion in the Didi Global driver service, which has fallen a third since its debut in the US on July 30th.

The crackdown began in November when Beijing ordered the Ant Group, which had emerged from Alibaba’s Alipay online payment service, to postpone its stock market debuts in Hong Kong and Shanghai. The company, which provides online savings and investment services, has been ordered to downsize its plans and install banking-like systems to screen borrowers and manage credit risk. Industry analysts curtail the forecasts of Ant’s expected market value.

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

A law that goes into effect November 1 sets security standards, bans companies from disclosing information without customer permission, and requires them to limit the amount of information they collect. In contrast to the data protection laws in western countries, the Chinese regulations say nothing about restricting the access of governments or ruling parties to personal data.

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

“Very lax” until a few months ago, China “has become one of the most active and strongest legal systems in regulating the digital economy,” wrote Angela Zhang, an anti-monopoly expert at the law school of Hong Kong University, in a paper this month.

In April, Alibaba was fined $ 18.3 billion.

Units from Alibaba, Tencent, the live streaming site Kuaishou, the microblogging platform Sina Weibo, and the social media site Xiaohongshu were also fined for distributing sexually suggestive stickers or short videos of children. Tencent’s music service has been instructed to terminate exclusive contracts with providers.

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

Didi, Meituan and other delivery and ridesharing companies were instructed in May to reduce the fees billed to drivers and improve their benefits and safety. Meituan CEO Wang Xing pledged to donate $ 2.3 billion to environmental and social initiatives. Tencent’s Ma has pledged $ 2 billion to charity.

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

Such plans for income redistribution “are reminiscent of the mass mobilization and populist strategies” of the 1950s and 60s under the then leader Mao Zedong, wrote Zhang.

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Soo reports from Singapore.

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