China’s tech policy in 2021. What will change in the country?

Recently I told you a three-part story about the government and Ant working with Tencent on the digital yuan. We came to the conclusion that the tech giants found themselves in a desperate situation, somewhere even forced. So today I would like to continue the topic of that blog and write about the shapes that the state policy of China is taking regarding the technological future of the country. This directly applies to the fintech industry.

The road map of the Communist Party’s plan for the tech industry is taking shape today. In about 10 years, China, if the Communist Party succeeds, will become a techno-utopia with Chinese “deep tech”: cloud computing, artificial intelligence (AI), self-driving cars, etc. Existing tech giants like Alibaba in e-commerce or Tencent in payments and entertainment will continue to operate but will become less profitable and successful. A policy of limiting their market power will redistribute some of the profits among smaller merchants and app developers.

Party plan #1. In China, there are minor cities — provincial administrative centers and coastal settlements. They will have their own technology industries with localized services, competing with smaller companies. Data will be transferred through a system accessible to firms of all sizes, under the scrutiny of the government in Beijing, and the Internet will reinforce its authoritarian design.

Xi Jinping wants to make this vision a reality today. Over the past 9 months, China’s regulators have taken tough action against the country’s booming technology scene, which, while driving global innovation and astounding shareholder value, is no longer considered fit for government purposes. The authorities have already said that in the next 5 years, the rules for all types of technology business will be strengthened. Against this backdrop, the country’s most popular tech groups have lost at least $1 trillion in aggregate market capitalization.

List of first victims:

- Ant Group, a subsidiary of Alibaba, whose initial public offering (IPO) of $37 billion was suspended for several days;

- Didi Global, whose taxi app was dropped from Chinese app stores just days after its $4.4 billion IPO in New York;

- Tencent, fined by regulators for sexually explicit content and fraud and ordered to terminate exclusive music licensing deals; an online learning industry that was banned from making a profit last month.

Party plan #2. The feeling that China is entering a new phase of development, which puts national security at the top of the table, and not the principle of growth at any cost that was over the past 30 years. China’s new data policy is still under development. But there are speculations that the data from giants like Tencent and Alibaba will eventually be traded on government-backed and private exchanges. For example, authorities are already pushing Ant to open its private financial data vaults to state-owned companies and smaller tech competitors.

Party plan #3. Another direction of the state’s strategy is the redistribution of wealth and power accumulated by large technology platforms over the past decade. E-commerce groups such as Alibaba, jd.com, and Pinduoduo have been targeted by the State Market Regulatory Administration (samr), China’s new antitrust regulator, which accuses them of monopolistic behavior. Businesses on these platforms do often pay high commissions and have to choose between selling on one or the other. Payment systems run by Tencent and Alibaba prevented the exchange of information between each other, leading to a split in the market.

The giants are now being forced to move towards more open models in which payments and purchases are no longer exclusive to the same platform, allowing merchants to regain some control over the prices of their goods. Analysts believe these changes will lead to higher margins for sellers and lower prices for consumers but will slow the rise of tech titans. Alibaba warned investors in early August that long-term tax breaks could soon end, driving up costs by billions of dollars.

This policy, of course, has its pros and cons. However, the rapid technological growth that China has given to the world could slow down significantly. Well, let’s follow along!

Генеральный директор ФК "Леогейминг Пей" Основатель компании LeoGaming