China ‘Smashes’ Its Technology Sector to Build a New Commercial Paradigm

Beijing has been cracking down on China’s homegrown technology companies, and this has accelerated the past few months. It has, unsurprisingly, prompted speculation of China’s motives. But the explanations proffered so far by experts betray a palpable lack of sophistication. The crackdown is monumental and potentially paradigm-shifting, and will fundamentally redefine what progress in the technology sphere means. Its ramifications will ripple across the global tech community. Middle East economies hoping both to elevate their tech sector and partner with Chinese firms, should take note.

In recent months, the Chinese government has forced several leading companies to make decisions that severely affect their operating models. The most visible example was when Beijing essentially canceled the IPO of Ant Financial and drove its founder, Jack Ma, into hiding for several weeks. The government has also targeted fintech companies and started antitrust inquiries into companies such as Tencent and Baidu.

Billions of dollars in market value were lost across the Chinese tech sector in July, as investors tried to make sense of the waves of regulatory pressure. Alibaba, Kuaishou, and Tencent — often called the Chinese versions of Amazon, Google, and Facebook — lost $344 billion in market capitalization.

On the surface, it looks like China is dismantling its tech sector. But why would it do such a thing? Isn’t China supposed to be the world’s biggest technology copycat? So why is it taking down successful versions of the West’s most successful tech firms?

The Bloomberg analyst, Noah Smith, thinks it might have something to do with China’s military-technology sector. (He isn’t alone.) So many resources (including the talent of China’s gifted engineers and programmers) have been pouring into the consumer tech sector. Beijing might instead prefer to redirect that talent toward nationalist aims, the thinking goes. In Smith’s view, the link between geopolitical power and the consumer internet sector has become “too tenuous to keep throwing capital and high-skilled labor” at the latter. So, the decision was made to curtail its power and ability to access resources.