Big Tech taken hostage by CPC

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Big Tech taken hostage by CPC

 Choi Ji-young
The author is the economic news editor of the JoongAng Ilbo.

Big-tech multinationals have become a common headache for governments around the world. Despite the early “Don’t be evil” mantra in its code of conduct, Google has evolved way beyond an entity paving the way in innovation and social advances. Governments, including the United States and European Union, are carefully studying the impact on investors and industry from the way multinational platforms process a plethora of user data or properly compensate their employees.

Beijing has been coarser and aggressive in its regulatory actions. It has been whipping ruthlessly at China-based tech darlings like Didi Chuxing, Tencent and Alibaba that have grown to be international.

On the surface, the crackdown seems to be motivated by President Xi Jinping’s goal of achieving “common prosperity” by correcting data intrusions and the danger of monopolization by big-tech names. Bloomberg reported that Xi has little care how much foreign investors lose from the crackdown on publicly-trading Chinese companies. Instead, it is more important for him to tame them to comply with the government and address social inequalities, Bloomberg reported.

The crackdown has been arbitrary. According to the five-year regulatory guidelines on much of its economy jointly released by China’s State Council and the Central Committee of the Communist Party of China (CPC), regulations will primarily fall on a threat to data security (targeting Didi Chuxing), monoploy (targeting Alibaba), and private education, real estate enterprises and carbon emission.

Industries that will instead receive state support over the next five years are in high tech, distribution and manufacturing; farming and food; defense, space and national security enterprises; and green vehicles on electric and hydrogen fuel and environmental processing.

Alibaba is China’s top e-commerce player leading innovations, distribution and logistics. Ride-sharing platform Didi Chuxing is strong in future mobility and Tencent. which started as a gaming company, is active in artificial and chip investments.

The tech companies are under tough regulatory scrutiny and yet can be promoted at the same time. Therefore, many analysts see the bout of regulatory measures aimed at punishing and taming those companies for defying Beijing and going public in the United States, and at penalizing its founders for provoking the government with anti-government comments drawing large-scale foreign investment.

Any company recalcitrant toward the CPC and government could be the next target for crackdown. The threat has worked. Tycoons and their rich tech companies have started giving. The Tencent founder pledged donation of $7.7 billion and the Pinduoduo founder gave up $1.5 billion. Over the last year, donations from China’ six largest tech giants — including Alibaba, Tencent, ByteDance and Xiaomi — totaled $25.6 billion. The Fortune magazine cynically wrote, “Chinese billionaires are feeling generous these days.” But they have no other choice to sustain their business under the Chinese regime.

Chinese big tech serving as a hostage by the CPC poses a risk for their investors, including retail investors from Korea who have invested in the companies trading in New York, Hong Kong and Shanghai. In the long term, Beijing’s taming of companies to the state policy can undermine the growth potential of China’s tech economy. The private sector responsible for 60 percent of China’s gross domestic product — and 80 percent of jobs — could weaken.

The turmoil in China could be an opportunity for Korean start-ups. Investors are shunning Chinese ventures at the risk of Chinese regulatory actions. Softbank Group Chairman Masayoshi Son said he was cautious about investing in China due to tighter regulations and uncertainties. He pledged to suspend new investments until regulatory risk becomes clearer. Softbank runs the world’s biggest venture fund —$100 billion “Vision Fund” — along with Saudi Arabia’s sovereign wealth fund. Vision Fund made 23 percent of its investment in China, the largest after 34 percent in America.

A shift of attention to Korean start-ups can put them in a more favorable light. While 291 unicorns, each valued over $1 billion, were created in the first half of the year, only one Korean name — Market Kurly — was included. But that could change if more Korean ventures can appeal with an innovative business model and global competitiveness.
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