(Drivebycuriosity) - China`s government has a conflict of interest. Recently Beijing announced to build a “Digital China” (scmp seetao). The government intends to increase added value in the digital economy to 10% of gross domestic product (GDP) by 2025, up from 7.8% in 2020. The new five-year plan (the 14th in history) nurtures new digital industries, including artificial intelligence, big data, blockchain and cloud computing, along with expanding the use of 5G technologies to more industries such as smart transport and logistics. But on the other side Beijing
started a crackdown of China`s leading tech companies and imposed new sharp regulations on China`s big technology corporations which is throwing sand into the gears of the digital sector (reuters ).
China`s phenomenal growth in the recent decades was fueled by (partly) opening the economy and allowing more capitalism. China`s rise was also driven by internet-focused technology companies like Alibaba (e-commerce, cloud) & Tencent (entertainment, WeChat with over 1.2 billion users ) & Baidu (search, artificial intelligence). Beijing had accepted that these companies grew fast and reached market capitalizations of hundred billion dollars and more on the stock market. Alibaba & Co. became the engines of China`s growth and modernization because they are are driving e-commerce, AI, digital communication and much more, reducing costs and are making China`s economy more efficient. Without their services the Chinese would suffer even more in the ongoing Covid-19 pandemic with lockdowns and quarantines.
But it looks like that Beijing´s attitude has changed and the government started to sabotage their own growth engines for ideological reasons. Apparently Alibaba & Co. got too big and too powerful for the communist government who wants to defend their monopoly power and is not happy with so much capitalism.
The government has been harassing Baidu for years, accusing them to spread false news. They forced the search engine operator to restructure and to give up business fields. Last November, regulators called off the IPO (dual listing in Shanghai and Hong Kong) of the online payment platform Ant Group, an affiliate of Alibaba. In April, China hit Alibaba with a $2.8 billion fine after antitrust regulators concluded the company was behaving like a monopoly by preventing third-party retailers from selling their products on competitor platforms. Regulators also forced Tencent, operator of the messaging platform WeChat, to suspend all new user registrations temporary. Recently Beijing restricted businesses of online food deliverer Meituan and ride-hailing firm Did and they also turned the booming online education firms into nonprofits, allegedly protecting the interests of low income families who cannot afford their services.
Bejing`s assault on China´s Big Tech does not only slow down their growth considerably, the attack creates also enormous headwinds for China`s economy. The crackdown leads to more bureaucracy which " is the death of any achievement” according to Einstein. New regulations and restrictions reduce the productivity & efficiency of Big Tech companies; they shrink their abilities to further innovate, making business more complicated and costly. Many services will not be available any more or for much higher prices.
The new crack down looks like a soft version of the cultural revolution in the 1960s when the Red Guards, followers of Mao`s widow, attacked anybody who could be accused being a "capitalist", which threw the country into a deep depression. Since then there has been a tug of war between pro-business thinkers and old guard communists, who don`t care about the economy and don`t understand it. It looks like that the stone age communists have been gaining ground in the recent months.
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