🔌🇨🇳🇮🇳CIN #20 Is China’s “tech-clash” moment here?🦄🧨
A turn in public opinion and shifting economic priorities presents a window of opportunity to regulating big tech
ChinaIndia Networked is a newsletter by me, Dev Lewis, highlighting the networked relationship between the two regions at the intersection of technology, society, and politics. Find me on Twitter @devlewis18 or write to me at email@example.com.
China’s technology companies are rocking and it has nothing to do with the US.
The State Administration of Market Regulation issued a draft law to clamp down on monopolies and anti-competitive behavior by China’s tech platform companies. Alibaba, Tencent, Meituan, and JD.com collectively lost USD 280 billion in market value in two days. A reflection of the fear when the Chinese state threatens to bring its scalpel but also a tacit admission that platforms take advantage of network effects, opaque algorithms, and consumer behaviour prediction to drive profits and undercut each other, especially in one of the most fiercely competetive technology market in the world.
In the past few years, we’ve seen the emergence of the tag ‘big tech’ in the US thanks to moments like Cambridge Analytica. Few anticipated these draft laws to drop this week but a tech-clash in China has been coming.
Ride-hailing giant Didi came under intense public opinion scrutiny and strict penalties from the state after two high-profile rape cases in 2017 ( covered in depth in issue #1 of this newsletter) exposed its lax practices and attention to safety.
Bytedance’s news aggregation app Toutiao came under scrutiny for being seen to promote ‘vulgar content’ in 2018.
Protests from food delivery workers over pay cuts and unfair labor practises have been growing since 2018. A few months ago a piece of investigative reporting People Magazine人物 exposed the inhumane policies governing (via algorithms) food delivery workers attracting the ire of millions.
Big Data Family Swindle’ 大数据杀熟 becoming a hot topic of discussion: a practice by which e-commerce platforms offer different prices of the same product depending on the user—with the older user, with a longer purchase history whose preferences and habits are known to the platform showed a higher price.
It’s hard to pinpoint when exactly public opinion definitively turned against tech companies in China. From being seen as a force to live more comfortably and better connect in uniquely exciting ways, to exploitative machines gaming attention and wallets; or rather more appropriately, exploitative dragons, as one commentator put it in a viral commentary on 智谷趋势 on Wednesday:
From the era of Lenovo, to Netease, Sohu, and Sina, then to BAT, and finally to today's superpowers Bytedance, Meituan, Pinduoduo, JD.com and others.
The dragon-slaying teenagers have become giant dragons. They have creatively destroyed many traditional rules and solidified a new system for themselves. The umbilical cord giving them by blood transfusion can turn into a chain around the neck in an instant.
But it’s always nice to pin-point moments because they make for good stories that sit easier in our brains. So perhaps that moment will be Jack Ma’s speech at the Bund Summit on October 24 that will go down in the history of cautionary tales for entrepreneurs in China.
One night on the Bund
On that Shanghai night the poster-boy of innovation and tech, Jack Ma, took to the stage. Facing the whose-who of China finance, including a certain Wang Qishan, former Standing Committee member and a key architect of the country’s modern financial system, chanelled his inner Rage Against the Machine mode. Here are some of the noteworthy riffs.
On China’s financial system (or lack thereof):
Basel, more like a seniors club, is about solving the problem of an aging financial system that has been operating for decades, and Europe’s aging system is extremely complex. But the problem in China is the opposite: it is not a problem of systemic financial risk, because China's financial sector basically doesn’t have a system. Its risk is actually a "lack of financial system."
On regulations and innovation:
Good innovation is not afraid of regulation, but is afraid of being subjected to yesterday's way to regulate. We cannot use the way to manage a railway station to manage an airport. We cannot use yesterday's way to manage the future.
"Supervision" and "management" are not the same, “policies” and “documents” are also not the same. This isn’t allowed, that isn’t allowed, those are all called “documents”. Policy is institution-building to incentivize development. Today, the entire world and especially China needs more "policy experts", not “document experts.”
Today's banks continue to have a pawnshop mentality. Collaterals and warranties are pawnshops. This was very advanced once upon a time. Without innovations like collaterals and warranties, there would be no today's financial institutions, and the development of the Chinese economy over the past 40 years could not have continued until now.
But the reliance on assets and collateral qualifications can be taken to the extremes. I am the chairman of the China Entrepreneur Club and also the president of the Zhejiang General Chamber of Commerce. I talk to many entrepreneurs. China's pawnshop mentality is severe, and it also affects many entrepreneurs, especially entrepreneurs who have collateralized all their assets. The pressure they bear is very high, and when the pressure is high, your action gets deformed.
There is a lot of speculation around the true impact of that speech.
But what we do know is that Jack Ma’s Ant Financial, just a week before its world record breaking IPO in Hong Kong & Shanghai, was halted in its path. Jack was called in “for tea”, a euphemism for receiving a private dressing down from the party, and a new set of draft regulations on microlending was issued which may potentially have a significant impact on Ant Financial’s business model.
Most media reports suggested the speech angered and embarrassed Chinese officials and leaders into retribution. WSJ’s Lingling Wei reported today the decision to halt the IPO was made personally by Chairman Xi himself. Clearly they weren’t listening to Jack’s prelude to the main points of his speech 🙉:
They may be immature, incorrect, or laughable. Just give them a listen, if they make no sense, just forget about them.
Some also speculated that Jack knew the regulations were coming anyway and used this opportunity to share his opinions directly for the public to hear, perhaps counting on using public opinion to create a moat around himself in a way like only Jack could. I find this the most plausible scenario: halting such a high-profile IPO is not a good-look on anyone. But if that was Jack’s intention things didnt go that way. Instead public opinion largely swayed against Jack and in favour of the regulators. OnWeibo he was rediculed by many, while newspapers came out with a number of commentaries from senior figures from the regulator, all under pseudonyms as is custom from public officials.
I’ll admit that I was mildly surprised by the lack of support for Jack on social media and among most people I casually came into conversation with around the event.
I watched parts of the speech the day after the summit and I thought it was pretty great, he hit all the right notes on innovation that you think people want to hear. Plus, its Jack Ma!
But I didn’t truly appreciate the undercurrent of discontent among many young Chinese towards Ant Financial. Especially one of their products, Huabei, a credit application. In China, just like in India, getting a credit card from a bank is difficult and most Chinese people have never used a credit card. Ant Financial bridged this gap. Today, Huabei is used used by 500 million people. Its advertisement boards are plastered everywhere. Everytime you made a purchase using Alipay you get the the option to pay in instalments using Huabei, and most of my Chinese friends use it regularly (as a foreigner I am not eligible and have never used it). But somewhere along the way Huabei went from super handy app that helped you afford that phone or pair of shoes to a friend with all the bad habbits sucking you deeper into debt-fueled consumerism. It’s funny how Alibaba for years has been celebrated domestically for its world record feats on 11/11 can be quickly put down by the same gun. But it also speaks to the challenge of making generational cultural shifts within a handful of years as is the norm in today’s China and a sense of disillusionment among many.
Kevin Xu’s take on Jack Ma’s speech which captures all the nuance and more on what Jack said and why.
Ruima’s excellent explainer with all the context on Ant Financial and Huabei.
Dr. Hong Shen on the rise of Ant Financial as platform infrastructure.
Anyway, back to platforms and regulation. Why public opinion important is because this may present a window of opportunity for the Chinese state to bring in regulations.
A window of opportunity: shifting sands
For years prior the companies drove a dominant narrative of benevelant platforms participating in several state initatives from job creation to povery alleviation. Scholar Julie Chen characterised this as a mirage of participation tha conceals an emerging digital infrastructure of distribution to the disadvantage of the workers.
Something I wrote for Heinrich Boll earlier this year observing the role of platforms:
In their role as infrastructure providers, platforms should be subjected to public oversight and regulatory scrutiny, and a major change in public opinion against certain practices – as seen in the 2017 Didi case – may pressure Chinese regulators to take a more ambitious and invasive approach. The stronger platforms become, affecting more industries and people’s livelihoods, the more difficult it will be for the state and platforms to keep the mirage intact going forward.
At this moment the draft is in open-consultation until November 30 and has no legal effect yet. The draft itself identifies five types of behaviour in particular it wants to tackle all of these are linked to consumer choice which is at the heart of anti-monopoly law: customer behaviour based price manipulation, search manipulation, choice restriction平台二选一 , and traffic throttling of competition.
The consumer internet has been the main chapter of China’s internet story so far, from Alibaba to Douyin/Tik Tok. But what if China wants to take its tech sector in a different direction for its next chapter?
Industrial Internet and New Infrastructure
A friend of this newsletter, Matt Sheehan of Macropolo, put together a foresight analyses on China’s technology industry in 2025 which I highly reccommend reading in full. In it he writes the locus of innovation will shift from the consumer internet to what China calls the Industrial internet, focussed on industrial applications such as smart grids, 5G, autonomous vehicles, etc. All part of a shift to what the government refers to as ‘new infrastructure 新基础’.
China still needs its tech platforms as key engines of innovation and growth but if the focus shifts away from e-commerce and consumer internet it presents room to be more bold in bringing in rules that could curb some excesses. Its worth pointing out that legeslation on personal data protection is also currently open for public consulation.
At this point its hard to say whether these rules will be future facing like Jack Ma says they need to be or ideas from the past. I personally would love to see a focus on bringing more transparency and personalisation around algorithms, and data portability across platforms. Its clear that around the world platforms are the center of attention now. In India, Google is being investigated by Competition Commission of India (CCI) on whether Android and Google Play store promote Google Pay over other payment apps. The payment space is closely watched in India where the key driver for UPI was to prevent a monopoly or duopoly in payments. The companies themselves are pumping millions into lobbying and academic research towards what they see as an existential battle. They are trying to sumultaniously maintain the status-quo while over-turning it in their favour, while states fight back with mostly blunt tools and half-baked understanding of how the game works, and not enough considersation for end users themselves.
🧠🎛Ears & Minds Networked
One album from the independent music scene around the region—because if you’re interested in China and not listening to music coming out of here you’re not doing it right.
Omnipotent Youth Society - Xijiazhuang, Hebei
A 90’s band from a time and place far, far away from tech platforms and algorithms. Exactly what the doctor ordered. Thanks for sticking to the end, have a great weekend!