Why is China tightening the noose for tech companies?

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Why is China tightening the noose for tech companies?

 Why is China tightening the noose for tech companies?
Image source: Representative Image. © Casimirokt | Megapixl.com

The crackdown by the Chinese government on its tech companies has been making headlines for about 10 months now.

In the latest bout of crackdown, the Chinese anti-trust regulator – State Administration for Market Regulation (SAMR) – imposed a fine of CNY500,000 (US$77,141) on Tencent Holdings Ltd, a homegrown multinational technology conglomerate holding company. Tencent has come under the scanner on allegations of violations in its acquisition of China Music in 2016. According to the statement by the anti-trust body, after acquisition, the company had cornered “80% of the exclusive music library resources”.


Why is China tightening the noose for tech companies?


The anti-trust body also ordered Tencent – which is the most valued Chinese company, as on date – and its affiliates to surrender its exclusive music rights within 30 days. Along with it, Tencent has also been asked to put an end to the requirement for copyright holders to grant the company better treatment than its competitors.

Is Tencent the first one to be cracked down upon?

Obviously not. Earlier this month, regulators in the world’s most populous country launched a cybersecurity probe on domestic ride-hailing service Didi. The app was, meanwhile removed from the app stores, in accordance with the order. The probe was started just days after its successful IPO in the US. Before this, during late 2020, the Chinese government had also imposed a US$2.8 billion antitrust fine on ecommerce giant Alibaba, a move after which the company’s shares tanked, losing its ‘most valuable Chinese firm’ tag to Tencent. The country had also suspended Ant Group’s US$34.5 billion IPO, in what was seen as an abrupt move – days before the IPO was supposed to go live. The Chinese government has also gone after the online grocery units of companies including Meituan and Pinduoduo Inc. for improper pricing.

Are there more penal actions on the way?

Prima facie, it seems that the Chinese Government is in no mood to relent. In a mid-March meeting of Chinese Communist Party (CCP), the country’s President Xi Jinping – the man who has been dealing with any dissent with iron fist – declared that he will go after “platform” companies that amass data and market power.  “Some platform companies are developing in non-standardised ways and that presents risks,” Chinese state-controlled broadcaster CCTV had said, citing minutes of the meeting. “It is necessary to accelerate the improvement of laws governing platform economies in order to fill in gaps and loopholes in a timely fashion.”

Now the word ‘platform’ in the above statement is a sweeping term that includes just about all of China’s largest firms.

In April, as part of Mr Jinping’s purge of “platforms”, the anti-trust regulator had summoned 34 companies – including Tencent and ByteDance – and ordered them to conduct self-inspections in a bid to comply with anti-monopoly rules.

But why are they cracking down?

Well, like most of the actions by the communist government in the world’s second largest economy, this is also a mystery. The officials have been tight-lipped about the underlying intentions apart from the goody-goody talk about protecting consumers and maintaining financial stability. But that is expected of a country, which has successfully turned the origin of the COVID-19 pandemic into a geo-political slugfest. So, like every other time, this time as well, market watchers are floating theories about the probable reasons behind the crackdown. Perhaps regulators are simply doing their jobs when it comes to oversight power, or maybe the powerful government has grown agitated with the swag of tech billionaires and wants to school them. But there is a plausible theory as well: last year, Alibaba, Tencent and Ant had a combined market cap of nearly US$2 trillion – way more than state-owned giants like Bank of China Ltd. In a country where the government wants to control every other thing, this may well be a cardinal sin. But that said, all this is surprising. For years, the Chinese government had supported the tech companies. At times, it was also alleged to have turned a  blind eye to wrongdoings of these companies. And it happened during the leadership of Mr Jinping as well. So, what happened after the pandemic, that triggered this iron-fisted approach, would probably remain a mystery.


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