China Cracks Down On Its Tech Giants. Sound Familiar? | WIRED https://www.wired.

com/story/china-cracks-down-tech-giants-sound-familiar/

Get WIRED for just $10 $5. SUBSCRIBE NOW

JENNIFER CONRAD BUSINESS 07.29.2021 07:00 AM

China Cracks Down On Its Tech Giants.

Sound Familiar?
Companies like Alibaba, Baidu, and Tencent were once regarded with
national pride. Now they’re being slapped with fines and other penalties.

1 of 13 7/30/2021, 4:11 PM
China Cracks Down On Its Tech Giants. Sound Familiar? | WIRED https://www.wired.com/story/china-cracks-down-tech-giants-sound-familiar/

PHOTOGRAPH: BLOOMBERG/GETTY IMAGES

C H I N A’ S M I N I S T RY O F Industry and Information Technology announced a six-month

campaign on Monday to regulate internet companies, particularly practices that “disrupt
market order, damage consumer rights, or threaten data security.” That followed repeated
fines against tech giants including Alibaba, Baidu, and Tencent for violating antitrust laws,
and a new plan to restrict overseas listings by Chinese companies.

The crackdown has extended to successes once viewed as home-grown champions. Ride-
hail company Didi Chuxing beat out Uber in China and made inroads in Latin America and
Africa. On June 30, the company raised $4.4 billion in an IPO on the New York Stock
Exchange—the largest for a Chinese company since Alibaba in 2014.

Two days later, Chinese authorities launched an investigation into the company. Citing
“serious violations of laws and regulations in collecting and using personal information,”

2 of 13 7/30/2021, 4:11 PM
China Cracks Down On Its Tech Giants. Sound Familiar? | WIRED https://www.wired.com/story/china-cracks-down-tech-giants-sound-familiar/

Didi was pulled from Chinese app stores and barred from registering new users. According
to Bloomberg, the penalties could range from fines to a forced delisting. Soon after, another
agency levied antimonopoly fines against Didi and other tech companies over mergers and
acquisitions over the past decade.

Reportedly, Didi had been warned by Chinese regulators to delay its IPO but chose to move
ahead with the listing. Other Chinese giants seemed to get the memo: ByteDance, owner of
TikTok, which had reportedly been considering an overseas IPO, put those plans on hold
after meetings with regulators, sources told The Wall Street Journal. On Tuesday, Tencent
told Reuters it was temporarily suspending new China registrations on the ubiquitous
WeChat app “to align with all relevant laws and regulations.”

The reasons for the seemingly sudden crackdown are unclear, but it comes amid moves by
president Xi Jinping to assert more authority over every aspect of life. Observers say the
government, empowered by a raft of new legislation, wants to regain control of tech
companies that have become too big, too powerful, and all too willing to abuse their
market share. At the same time, Xi seems to be realigning the country’s tech sector to favor
state-led development in the areas he cares about, such as creating breakthrough
technologies in artificial intelligence. And there’s growing fear that exposure to foreign
markets—and foreign regulators—is too risky in an increasingly hostile international
environment.

“Xi Jinping is always worried about political loyalty: to him, the Communist Party, the
party’s ideology,” says Susan Shirk, chair of the 21st Century China Center at UC San Diego.
She says Xi can’t be sure of the loyalty of China’s private tech titans, who’ve become rich
and famous—and sit on large stores of data. “It just makes him very nervous because he
doesn’t know what they’ll do with all of these resources. And at some point they could
perhaps use them to organize a challenge to Xi Jinping or even party rule.”

Didi’s June 30 IPO, one day before the 100th anniversary of the Communist Party,
prompted suggestions that the timing and US listing were unpatriotic. A July 5 editorial in
the state-run Global Times said Didi, with 80 percent of the ride-hail market in China,
holds sensitive information about personal travel and habits. It said the government won’t
let internet giants “become rules-makers of data collection and usage,” adding that ”the
standards must be in the hands of the government.” Rumors circulated on Chinese social

3 of 13 7/30/2021, 4:11 PM
China Cracks Down On Its Tech Giants. Sound Familiar? | WIRED https://www.wired.com/story/china-cracks-down-tech-giants-sound-familiar/

media that Didi turned over user data to US regulators. The murmurings by online
nationalists got loud enough that the company posted a denial to its official Weibo account.

“Xi Jinping is always worried about political loyalty: to him, the Communist Party, the
party’s ideology.”

— SUSAN SHIRK, CHAIR, 21ST CENTURY CHINA CENTER, UC SAN DIEGO

After the IPO, a 2015 report by the company’s research arm recirculated on the internet.
The paper detailed the comings and goings of government employees, including which
agencies worked the longest hours, based on its trove of user data. That sort of visibility
—combined with Didi’s highly detailed maps—can make authorities nervous.

“Clearly, the data that Didi holds is considered sensitive from a national security
standpoint,” says Samm Sacks, senior fellow at Yale Law School Paul Tsai China Center.
Didi has also faced criticism in the past over how it handled murder investigations, for
failing to protect user data, and for using personal information it gathered to charge riders
different prices.

The real issue may not be what data is held but who holds it. Government officials aren’t
“hyper-concerned and vigilant on behalf of Chinese consumers and wanting just to protect
them,” says Scott Kennedy, senior adviser at the Center for Strategic and International
Studies, a Washington, DC, think tank. “But they're worried about the power of Chinese
industry itself having this data and it not being accessible to Chinese authorities.”

Online businesses have grown swiftly over the past two decades, along with their access to
a wide range of user data. Tencent’s ecosystem alone spans social media, gaming, maps,
mobile payments, and investing—with many companies and even some government
agencies hosting services within the WeChat app.

The Chinese government sees data as critical to its efforts to become a leader in emerging
technologies, especially in AI, which is enshrined in China’s most recent Five-Year Plan,
released earlier this year. “Personal data, corporate data, government data—they want
access to everything,” says Jeremy Mark, a senior fellow at the Geoeconomics Center of the
Atlantic Council. The government plans to apply that data to everything from blockchain-

4 of 13 7/30/2021, 4:11 PM
China Cracks Down On Its Tech Giants. Sound Familiar? | WIRED https://www.wired.com/story/china-cracks-down-tech-giants-sound-familiar/

based financial services to medical research to the surveillance state.

Sacks says that Chinese regulators are following a familiar pattern of giving companies
room to experiment but then regulating them. “I think there are genuine concerns about
abuse of market power and predatory pricing” that harms Chinese consumers, she says. A
new draft policy would force education startups to go nonprofit, a measure meant to ease
the pressure on poorer students and their parents. New guidelines would improve pay and
other protections for food-delivery drivers. One measure in Monday’s announcement on
regulating internet companies would prohibit tech companies from blocking links to other
companies’ services, a common practice in China.

This level of intervention in the tech industry would have seemed unthinkable until
recently. In his book AI Superpowers, Kai-Fu Lee describes a Wild West era in which tech
companies were free to battle for dominance with little government intervention. Starting
in the late 1990s, Chinese companies were encouraged to list on foreign exchanges to get
access to capital, new investors, and new technology, says Kennedy. The companies
learned from exposure to international reporting standards, and foreign investors had a
stake in China’s rise.

“What we've seen now is that the Chinese authorities have basically given up on that
project,” Kennedy says, adding that the government now sees mostly risks and
vulnerabilities to foreign engagement. Investors seem to agree. Didi’s shares have fallen by
roughly half from their peak a day after the IPO. In all, as of Monday, US-listed Chinese
stocks had lost $769 billion in value in the past five months according to Bloomberg.

See What’s Next in Tech With the Fast Forward Newsletter

From artificial intelligence and self-driving cars to transformed cities and new startups, sign up for the
latest news.
Your email

Enter your email

SUBMIT

By signing up you agree to our User Agreement and Privacy Policy & Cookie Statement

When China joined the World Trade Organization in 2001, the prevailing view was that

5 of 13 7/30/2021, 4:11 PM
China Cracks Down On Its Tech Giants. Sound Familiar? | WIRED https://www.wired.com/story/china-cracks-down-tech-giants-sound-familiar/

China would become more like Western, capitalist countries. To a certain extent, that
happened, but the past few years should dispel the notion that China would transform itself
to fit the Western model.

“They're worried about the power of Chinese industry itself having this data and it not
being accessible to Chinese authorities.”

— SCOTT KENNEDY, SENIOR ADVISER, CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES

China’s leadership is still steeped in Marxist thought and is willing to put the needs of the
state over the dictates of a free market. Should we really be surprised that a country that
will clamp down on ethnic minorities in the name of public safety would sacrifice
corporate profits for national goals? In fact, Xi spoke of aligning the tech sector with his
goals for national development in 2016 and again in 2018, when he laid out a vision to
“move forward the construction of China as a cyber superpower through indigenous
innovation,” and a tech sector that’s highly controlled and harnessed for state priorities.

The Chinese government has been steadily ramping up its control of cyberspace since the
passage of the National Security Law in 2015. A 2018 reorganization empowered and gave
new resources to China’s cyberspace regulators. Regulations released in 2020 call for
cybersecurity reviews of Chinese companies in the name of national security, and a new
data security law, effective September 1, broadly regulates the data practices of Chinese
companies.

The friction between the government and tech came to a head in October, when Alibaba
founder Jack Ma gave a speech in which he warned that overregulation could stifle
innovation.

“Xi Jinping saw this as a sign that, broadly speaking, these companies forgot who’s boss,”
says Kennedy. “Every element of the bureaucracy is now aligned with this broader mission
of bringing private high tech Chinese companies to heel to serve the party's broader
mission.” Soon after, Alibaba’s financial arm Ant Group canceled a planned IPO in Shanghai
and Hong Kong; in December, regulators opened an antitrust investigation into Alibaba,
resulting in a $2.8 billion fine in April.

6 of 13 7/30/2021, 4:11 PM
China Cracks Down On Its Tech Giants. Sound Familiar? | WIRED https://www.wired.com/story/china-cracks-down-tech-giants-sound-familiar/

The crackdown comes amid rising tensions between China and the US, including moves by
American officials to push these companies back to China. A US law enacted last year
requires foreign companies to delist from American exchanges if they don’t allow their
audits to be reviewed by American regulators—which is prohibited under Chinese law.
Other American regulations have taken aim at investment in Chinese surveillance
companies and exporting technology for microchips to China.

The move to a more independent, state-directed model has risks. “The most vibrant part of
China's economy is the private sector,” says Kennedy, noting that Chinese bureaucrats
couldn’t have envisioned tech companies’ innovations in ecommerce and services. Despite
rapid development, large swaths of the population still lack a high school education, and
the country is still dependent on imported chips. China may have overestimated its
strengths, Kennedy says, and risks slowing economic growth in its drive for self-sufficiency.

It’s a gamble the Chinese government may be willing to take. Mark says China’s leaders
appear to be ready to “make sacrifices in order to mold or shape a future structure of
governance, a future financial system, that is much more controllable and controlled.”

“What is driving that is Xi Jinping pushing his own government and ruling party to assert
unprecedented control over the Chinese people,” he adds. “It has existed in the past, but
never with the means of technology, the means of surveillance and the means of data
crunching that now exists in China.”

More Great WIRED Stories

� The latest on tech, science, and more: Get our newsletters!
A people's history of Black Twitter, part I
The latest twist in the life-on-Venus debate? Volcanoes
WhatsApp has a secure fix for one of its biggest drawbacks
Why some crimes increase when Airbnbs come to town
How to smarten up your home with Alexa routines
� Explore AI like never before with our new database
� WIRED Games: Get the latest tips, reviews, and more

7 of 13 7/30/2021, 4:11 PM
China Cracks Down On Its Tech Giants. Sound Familiar? | WIRED https://www.wired.com/story/china-cracks-down-tech-giants-sound-familiar/

� Want the best tools to get healthy? Check out our Gear team’s picks for
the best fitness trackers, running gear (including shoes and socks), and best
headphones

Jennifer Conrad is a writer in Brooklyn. She has written for Vogue, SupChina, and Newsweek.com. She
recently received an MA from Johns Hopkins School of Advanced International Studies.

STAFF WRITER

TOPICS CHINA REGULATION ALIBABA BAIDU TIKTOK

8 of 13 7/30/2021, 4:11 PM
China Cracks Down On Its Tech Giants. Sound Familiar? | WIRED https://www.wired.com/story/china-cracks-down-tech-giants-sound-familiar/

MORE FROM WIRED

TikTok a Year After Trump’s Ban: No Change, but New Threats

WILL KNIGHT

China's Nationalistic ‘Wolf Warriors’ Blast Foes on Twitter

9 of 13 7/30/2021, 4:11 PM
China Cracks Down On Its Tech Giants. Sound Familiar? | WIRED https://www.wired.com/story/china-cracks-down-tech-giants-sound-familiar/

A Global Smart-City Competition Highlights China’s Rise in AI

KHARI JOHNSON

A New Tool Shows How Google Results Vary Around the World

10 of 13 7/30/2021, 4:11 PM
China Cracks Down On Its Tech Giants. Sound Familiar? | WIRED https://www.wired.com/story/china-cracks-down-tech-giants-sound-familiar/

As the Use of AI Spreads, Congress Looks to Rein It In

TOM SIMONITE

Trucks Move Past Cars on the Road to Autonomy

11 of 13 7/30/2021, 4:11 PM
China Cracks Down On Its Tech Giants. Sound Familiar? | WIRED https://www.wired.com/story/china-cracks-down-tech-giants-sound-familiar/

The US Needs to Get Back in the Business of Making Chips

WILL KNIGHT

No, Facebook and Google Are Not Public Utilities

12 of 13 7/30/2021, 4:11 PM
China Cracks Down On Its Tech Giants. Sound Familiar? | WIRED https://www.wired.com/story/china-cracks-down-tech-giants-sound-familiar/

1 Year of WIRED for

$10 $5. SUBSCRIBE

SUMMER SALE

13 of 13 7/30/2021, 4:11 PM