CEOs Feel The Pinch As Regulators Come Down On Big Tech

After decades of a nearly laissez-faire approach to tech regulation—stringent censorship measures aside—Chinese authorities have stepped up their scrutiny of the country’s internet giants. Regulators have cast a wide net searching for monopolistic practices, privacy violations, and labor abuses. Despite this, the state continues to crack down on independent labor activism and champion overwork. At The Wall Street Journal, Stephanie Yang covered regulators’ increasingly aggressive posture:

Not a week seems to go by without Chinese regulators calling out tech companies for alleged offenses ranging from inconsistent pricing to imperiling user privacy to difficult working conditions. In May, China’s cyber regulator accused 105 apps, including short-video and job-recruitment apps, of illegally collecting and using personal data. It ordered the companies to fix their problems within three weeks or risk legal action.

[…] “The government would like to send a very clear message to all of these tech conglomerates that it’s the government who is in charge,” said Mark Natkin, managing director of Beijing-based industry research firm Marbridge Consulting. “Any notion otherwise ultimately won’t be tolerated.”

[…] Chinese regulators have also called on the nation’s citizens to help supervise the behavior of tech companies. Many of the recent warnings have been based on user complaints, according to the regulators’ announcements. [Source]

The regulatory shock-and-awe campaign appears motivated, at least in part, by the Party’s desire to control user data. At The Wall Street Journal, Lingling Wei reported on the battle for tech companies abundant data:

“You have the most sufficient data, then you can make the most objective and accurate analysis,” [Xi Jinping told Pony Ma], according to state media accounts. “The suggestions to the government in this regard are very valuable.”

More than eight years later, those suggestions are becoming demands. The government is now calling on big tech companies like , online retailing giant Alibaba Group Holding Ltd. and TikTok owner ByteDance Ltd. to open up the data they collect from social media, e-commerce and other businesses, according to official documents and interviews with people involved in policy-making.

[…] “Public data is a new type of state-owned asset, and its data rights belong to the state,” said a draft regulation released by Shenzhen’s government last year. [Source]

Social media has become a minefield for tech companies. On June 4, the anniversary of the PLA’s violent repression of the 1989 pro-democracy movement, e-commerce site Xiaohongshu, apparently clueless about the date’s significance, posted on : “Tell me loudly, what is the date today?” Regulators launched an investigation into the company soon after.

Meituan’s founder Wang Xing ran into similar trouble after posting a poem written over 1,000 years ago on Fanfou, a nearly defunct social media site he founded 14-years ago. He shared Tang Dynasty-era poet Zhang Jie’s “The Book Burning Pit,” in which Zhang raged against the Qin emperors’ despotism and intimated that it might trigger the empire’s : “Before the ashes in the burning pit turned cold, a riot had already started in Shandong Province.” Many interpreted the poem as a criticism of Xi Jinping, although Wang insisted he was referring to his competitors in the food delivery industry. The poem has a recent history as an allegory for regime change; Mao gifted his calligraphic rendering of it to a scholar visiting the Party’s war-time base in Yan’an.

Meituan lost $26 billion in value on the stock market after the post came to light. Wang Xing’s well-timed donation of $3 billion worth of stock to his charitable foundation for science education may well have helped him avert further penalties. Bloomberg News reported that authorities have stopped their investigation into Wang, as long as he agrees to eschew the limelight:

Beijing officials called Wang in after the food delivery mogul posted a millennium-old poem regarded by many as implicit of the government, according to people with knowledge of the matter. They warned him to refrain from courting the spotlight, at least temporarily, the people said, asking not to be identified as they weren’t authorized to discuss the matter.

[…] Officials refrained from taking more severe action against Wang because they didn’t want to convey the impression that every minor transgression could result in dire consequences, one of the people said. The incident transpired less than two months before the Chinese Communist Party is poised to celebrate the 100th anniversary of its founding on July 1, a politically sensitive period in the country.

The entrepreneur has since stayed under the radar. Since Wang posted the statement clarifying his intentions on May 9, he’s abruptly stopped posting to his account on Fanfou, the social media platform he created before Meituan. Prior to the controversy, he updated his account at least several times a week. [Source]

Rather than meet the fate of Jack Ma—the formerly high-flying founder has been literally grounded—or risk the troubles plaguing Wang Xing, some CEOs have retired. Colin Huang, one of China’s richest people, unexpectedly stepped down as Pinduoduo’s chairman in March. Zhang Yiming, the founder of Bytedance, followed suit in May. In 2018, Zhang was forced to issue a public apology after falling afoul of party authorities. Steve Tsang, the director of the SOAS China Institute, told CNN: “The leaders of the tech firms that have become too powerful for the comfort of Xi and the Communist Party are put under pressure, as the of power across the board by the Party cannot be allowed to be challenged …. Hence, they individually take actions to reassure the Party and Xi that they will not do so, by handing over the corporate leadership to protégés."

One company appears to have avoided incurring regulator’s wrath, at least so far. Tencent is worth $776 billion dollars and dominates China’s tech landscape. Although Reuters reported in April that it faces “a penalty of at least 10 billion yuan ($1.54 billion)” for unspecified antitrust violations, the fine has not yet been levied. At The New York Times, Li Yuan examined how the company, once China’s “Public Enemy Number One,” has escaped punishment:

But one reason may be that the industry is no longer clamoring for somebody to take Tencent down. In fact, it has in many ways become the industry’s biggest and most deep-pocketed cheerleader. The company has managed to revamp its image by throwing money at the little guys and buying off competitors rather than driving them out of business.

[…] Some of that niceness comes from business necessity. Cozy relationships help cement Tencent’s power in China.

[…] Tencent doesn’t just court the industry. It has also long tried to get close to the government. Compared with the sometimes defiant Alibaba, Tencent has long publicly underscored its willingness to comply fully with rules and regulations.

[…] In April, the company said it would spend $7.8 billion on green energy, education, village revitalization and other pet topics of President Xi Jinping. In the view of Hong Bo, an internet commentator, Tencent is acting for self-preservation. [Source]

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