The ruling Communist Party is tightening political control over China’s internet giants and tapping their wealth to pay for its ambitions to reduce reliance on U.S. and European technology.
Anti-monopoly and data security crackdowns starting in late 2020 have shaken the industry, which flourished for two decades with little regulation. Investor jitters have knocked more than $1.3 trillion off the total market value of e-commerce platform Alibaba, games and social media operator Tencent and other tech giants.
The party says anti-monopoly enforcement will be a priority through 2025. It says competition will help create jobs and raise living standards.
President Xi Jinping’s government seems likely to stay the course even if economic growth suffers, say businesspeople, lawyers and economists. “These companies are world leaders in their sectors in innovation, and yet the leadership is willing to squash them all,” said Mark Williams, chief Asia economist for Capital Economics.
The crackdown reflects Xi’s public emphasis on reviving the party’s “original mission” of leading economic and social development, said Steve Tsang, a Chinese politics specialist at the School of Oriental and African Studies in London. He said it could also help Xi politically if, as expected, he pursues a third five-year term as party leader.
Chinese leaders don’t want to reimpose direct control of the economy but want private sector companies to align with ruling party plans, said Lester Ross, head of the Beijing office of law firm WilmerHale.
“What they are worried about is companies getting too big and too independent of the party,” said Ross.
Chinese internet companies and their billionaire founders, including Alibaba Group’s Jack Ma and Tencent Holdings’ Pony Ma, are among the biggest global success stories of the past two decades. Alibaba is the biggest e-commerce company, while Tencent operates the popular WeChat messaging service.
But party plans emphasize robots, chips and other hardware, so these companies are rushing to show their loyalty by shifting billions of dollars into those.
The ruling party’s campaign is prompting warnings the world might decouple, or split into separate markets with incompatible technology. Products from China wouldn’t function in the United States or Europe, and vice versa. Innovation and efficiency would suffer.
U.S. curbs on Chinese access to telecom and other technology haven’t helped.
Alibaba said it will invest $28 billion to develop operating system software, processor chips and network technology. The company has pledged $1 billion to nurture 100,000 developers and tech startups over the next three years.
Last year, Tencent promised to invest $70 billion in digital infrastructure. Meituan, an e-commerce, delivery and service platform, raised $10 billion to develop self-driving vehicles and robots.
Chinese officials recognize the campaign imposes an economic cost but are unwilling to speak up, said Tsang. “Who is going to stand up and say to Xi Jinping, your policy is going to be harmful to China?”
Investors, many burned by the drop in technology shares, are keeping their money on the sidelines. Tencent’s market capitalization of $575 billion is down $350 billion from its February peak, a decline equal to more than the total value of Nike Inc. or Pfizer Inc.
CEO Masayoshi Son of Japan’s Softbank Group — an early investor in Alibaba — said on Aug. 11 he will put off new China deals. Softbank invested $11 billion in ride-hailing service Didi Global, whose share price has fallen by one-third since its U.S. stock market debut on July 30.
The crackdown began in November when Beijing ordered Ant Group, which grew out of Alibaba’s Alipay online payments service, to postpone its stock market debut in Hong Kong and Shanghai. The company, which offers online savings and investment services, was told to scale back its plans and to install bank-style systems to vet borrowers and manage lending risks. Industry analysts cut forecasts of Ant’s expected stock market value.
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