Beijing cuts China’s Big Tech down to size

Security risks and anti-trust investigations send a shudder through the nation’s major technology players

China is tightening its grip on Big Tech.

President Xi Jinping’s ruling Communist Party has taken a chainsaw to these data-rich behemoths in the world’s second-largest economy.

Since overhauling Alibaba affiliate Ant under new “systematic risk” protocols, Beijing has turned its attention to the massive amount of information collected and stored by China’s leading technology groups.

Tough anti-trust laws have also been used to cut them down to size while tech companies planning to list face intensive government scrutiny.

“The security review will put a focus on risks of data being affected, controlled or manipulated by foreign governments after overseas listings,” the Cyberspace Administration of China reported on its website at the weekend about the proposed rule changes.

On Monday, the Ministry of Industry and Information Technology announced it had issued a draft three-year action plan. 

The blueprint will develop the cyber-security sector, which is projected to be worth more than 250 billion yuan or US$38.6 billion by 2023.

Analysts see this as the latest move to curb the power of the country’s tech giants just days after launching a crackdown on Didi, the ride-hailing juggernaut.

The key points:

  • Last week, Didi listed on the New York Stock Exchange, raising $4.4 billion.
  • Days later, the Cyberspace Administration removed 25 mobile apps operated by the group.
  • It is part of a concerted campaign by the Communist Party to increase oversight on domestic tech firms and companies listed overseas.
  • There are also concerns within Xi’s government that China’s Big Tech is too big.
  • The State Administration of Market Regulation has already blocked Tencent’s plans to merge two video game streaming sites, Huya and DouYu, on anti-trust grounds.
  • They have a combined market share of up to 80% in the video game live streaming sector, according to data from MobTech.
  • In China, the industry is worth more than $3 billion and is expanding rapidly.

What was said: “Considering factors such as revenue, active users, live streaming resources and other key indices, we can expect that a merger would eliminate or restrict fair competition,” Zhang Chenying, a member of the State Council’s anti-trust committee, said in a memo published by the regulator as reported by the Reuters news agency.

Big picture: “Many small businesses in traditional sectors have been decimated [by these] tech giants with their deep pockets. Without intervention from market regulators, there is no chance of survival, and free-market competition will be destroyed,” Tian Yun, the deputy director of the Beijing Economic Operation Association, told the state-run Global Times

Delve deeper: China has rolled out tough, new policies on big players such as Baidu, Alibaba and Tencent or the BAT grouping. Financial regulators have also turned their attention to these mega-companies after blocking the record $35 billion IPO of Ant Group last year. 

Financial risk: The China Banking and Insurance Regulatory Commission had become alarmed at the sheer scale of Ant’s online loan operation, fearing it was a “financial risk.”

Warning shot: “It isn’t the only company where monopolistic behavior exists. We will use the measures we adopted for Ant Group for other payment services market players,” Fan Yifei, the deputy governor of the People’s Bank of China, told a media briefing after Ant was ordered to cut its links with another Alibaba affiliate, Alipay.

China Factor comment: Along with “systematic risks” to the financial and economic systems, Beijing is also unhappy at the mountains of data held by Big Tech. Only the Party should have such information, the Xi administration has argued. Expect moves to tighten regulations to accelerate.