China’s various tech giants have been feeling the pressure from government regulators as of late. By 16th March; Tencent, the payments giant had lost over $60 billion in value from its market cap. The reason: regulator scrutiny.
Over the next week, Tencent failed to assure investors about the clampdown from Beijing. Following that, threats from US regulators to toss both Alibaba and Tencent from US bourses compounded concerns. As a result, the Hang Seng Technology index slid by 5%, its lowest since November 2020.
What is the China’s Crackdown on Tech Giant’s About?
China’s State Administration for Market Regulation (SAMR) has fined 12 companies over 10 deals which violated anti-monopoly rules. These companies included some of the world’s most well-known Chinese tech giants. Tencent, Baidu (China’s version of Google), SoftBank and Didi Chuxing were all fined.
The crackdown isn’t altogether new. The voices for cracking down on these tech giants had begun last year. An antitrust policy was introduced in November which signaled a change in government attitude towards monopolies.
Up until now, China’s tech giants had received almost unconditional support from Beijing. Alibaba, Tencent, Baidu, Huawei, etc. were, if not tools for the government, not exactly free agents. Now, it seems like the Chinese government sees these companies as threats to its own supremacy and iron grip.
How it All Began
The fears of greater regulatory oversight began when a $35 billion mega-listing for the Ant Group was impeded. Chinese authorities suddenly slapped new rules on consumer lending. Ant Financial, being the largest player in that field, was forced to back off. The listing remains suspended as of 5th November, 2020.
The following week, regulators proposed further rules to curb monopolistic practices. This scared investors and $290 billion was wiped off the value of several market leaders including Alibaba and Tencent.
What’s more, it was found that the rules were finalized in 3 months. This showed the conviction of the Chinese government to crack down on monopolies.
Why is China’s Crackdown on Tech Giants Happening Now?
While it’s speculated that the Chinese government is putting the tech industry in its place, no one knows for sure. Some said it was to teach Jack Ma, the founder of Alibaba, a lesson. However, it’s more likely about teaching the rest of the industry to respect the Chinese government; more likely fear it.
Perhaps the GDPR inspired this change. Though one thing’s for sure, while the EU introduced rules to protect its citizens, the Chinese government probably didn’t. The regulatory oversight is more about keeping the tech giants beholden to the government rather than to the people.
The tech giants in China are already forced to hand over all their data to the government. That data is subsequently used to monitor their people. In return, the tech giants were ostensibly given free rein to amass wealth and power. While this seemed like a mutually beneficial partnership, the Chinese government probably doesn’t think so anymore.