Chinas Technology War Why Beijing Took Down Its Tech Giants Andrew Collier Full Chapter
Chinas Technology War Why Beijing Took Down Its Tech Giants Andrew Collier Full Chapter
China’s Technology
War
Why Beijing Took Down Its Tech Giants
Andrew Collier
Pine Court
Pokfulam, Hong Kong
© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022
This work is subject to copyright. All rights are solely and exclusively licensed by the
Publisher, whether the whole or part of the material is concerned, specifically the rights
of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on
microfilms or in any other physical way, and transmission or information storage and
retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology
now known or hereafter developed.
The use of general descriptive names, registered names, trademarks, service marks, etc.
in this publication does not imply, even in the absence of a specific statement, that such
names are exempt from the relevant protective laws and regulations and therefore free for
general use.
The publisher, the authors, and the editors are safe to assume that the advice and informa-
tion in this book are believed to be true and accurate at the date of publication. Neither
the publisher nor the authors or the editors give a warranty, expressed or implied, with
respect to the material contained herein or for any errors or omissions that may have been
made. The publisher remains neutral with regard to jurisdictional claims in published maps
and institutional affiliations.
This Palgrave Macmillan imprint is published by the registered company Springer Nature
Singapore Pte Ltd.
The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore
189721, Singapore
I dedicate this book to my two children, Alex and Abigail.
I wish them the best of luck.
Preface
vii
Contents
1 The Setting 1
2 Common Prosperity: Vision or Campaign? 11
3 The Bureaucracy Strikes Back 27
4 The Party and Common Prosperity 47
5 Can China Innovate Without the Platform Economy? 69
6 Xi Jinping’s End Game 87
Bibliography 105
Index 117
ix
CHAPTER 1
The Setting
regulatory chat. “Views regarding the health and stability of the finan-
cial sector were exchanged,” Ant said (Yang 2020). The government’s
bland summary said the parties “conducted regulatory interviews with
Ant Group’s actual controller Jack Ma, chairman Eric Jing, and chief
executive Simon Hu.”
But to outsiders, the peremptory summons to meet the regulators and
Beijing was ominous. Jack was in trouble. The next day, in a move that
shocked the world’s investors, the Shanghai Stock Exchange suspended
Ant’s $34 billion Shanghai listing—just a day before the launch. The Wall
Street Journal reported that Xi Jinping personally intervened (Wei 2020).
It was a clear sign that the world in which giant, privately held companies
could operate independently in China had forever changed. “The Party
has once again reminded all private entrepreneurs that no matter how rich
and successful you are it can pull the rug out from under your feet at any
time,” said one western observer (Bishop 2020).
The cancellation of the IPO of one of China’s most successful compa-
nies took observers by surprise. Few senior leaders would appreciate a
billionaire telling them in front of a public audience how to manage the
economy. But the reaction was excessive—canceling a billion-dollar IPO
just days before its launch because the chairman was a bit too outspoken
is not an appropriate reaction by any government. Something else was
afoot in Beijing.
The world soon discovered that Ant was just one chapter in a much
larger book. The crackdown on one company soon broadened to include
other technology firms. Over the succeeding months, the regulators in
Beijing imposed a series of draconian rules on Alibaba and other tech-
nology firms. Alibaba was fined $2.8 billion for monopolistic practices.
Didi Chuxing, the Chinese equivalent of Uber, was accused of going
public before completing a review by the country’s internet watchdog,
the Cybersecurity Administration of China (CAC). Didi was forced to
take down more than 25 applications from its online store, and remove
the “super-apps” that were the main interface for tens of millions of users,
badly harming its business (Caiping 2021). The app removal program
came four days after Didi’s US$4.4 billion initial public offering, one
of the biggest American stock market debuts of the past decade. With
the share price falling like a stone, chagrined American fund managers
launched a lawsuit accusing Didi of misleading investors. The online
gaming industry was the next target. Regulators summoned the top
gaming companies to a joint meeting with the CAC and the Ministry of
4 A. COLLIER
What was it about that speech that was a catalyst for officials in Beijing,
from Xi Jinping on down, to react so strongly?
6 A. COLLIER
The policy reaction was the result of two forces, one economic and
one political. On the economic side, there had been growing concern
that the platform companies were detrimental to China’s growth. They
were accumulating monopoly power at the expense of other companies
and were seen as excessively wealthy in a country that prides itself on
equality. For example, the People’s Daily said China’s goal was to “first
make the ‘cake’ bigger and better through the joint efforts of the people
of the whole country, and then divide the ‘cake’ well and distribute it well
through reasonable institutional arrangements.” (People’s Daily 2022).
The “divide” part of the equation was viewed as missing. In addition,
it was felt in Beijing that the dominant size of the platform companies
posed a risk to the stability of the financial system. All those transactions,
loans, and payments, were controlled by a handful of large companies and
were lightly regulated by the government. Regulators felt it was time to
step in more forcefully.
Many of the proposals that have been enacted had been long in the
making. The country’s antitrust system had been improving for several
years as concerns grew about the size of some of the platform compa-
nies like Alibaba and Tencent. In addition, China had been attempting to
foster the growth of its own home-grown technology for several decades,
and had been eager to reduce the power and influence of foreign capital
and technology, particularly from the United States. Many of these issues
came to a head.
However, there was more to this policy shift than simple regulation or
economics.
Politically, whether they had a regulatory function, all of the poli-
cies were designed to reinforce the power of the Communist Party
and the State. This occurred through several transmission methods. The
new policies would shrink the power of the platform economy, increase
government ownership or control of a number of economic functions,
and heighten the involvement of the Communist Party in the technology
sector and the lives of the Chinese people in general. The leadership was
clearly convinced that the Party is central to the future existence of the
Chinese State. The Party viewed the size, power, and large capital base
of the platform companies as a potential threat to the Party’s monopoly
dominance of political power. Jack Ma’s speech was a highly visible
symbol of this threat.
1 THE SETTING 7
The bigger question among many people was how far would this go?
Were these new policies a return to the dark days of the Cultural Revo-
lution when ideology ruled? Would China become completely isolated,
gradually retreating from the economic integration that it has pursued
for four decades? Was the tech crackdown a one-time action designed to
rein in a few unruly upstart capitalists? Or was it part of a long-range
plan to insert the political system even further into the heart of China’s
burgeoning capitalists? “Is this a new cultural revolution?,” a Bloomberg
columnist asked in an opinion piece (Brown 2021).
One of the main points of this book is to stress that, apart from
strengthening Party control and reducing the size of the platform
economy, these policies would not have much impact on China. That may
be a bold statement considering the precipitous fall in the market capi-
talization of the technology firms and the quick takedown of powerful
entrepreneurs like Jack Ma. But the fact remains that in general, the new
rules have done little more than tinker around the edges of China’s vast
political and economic system. For example, although it was trumpeted
as heralding a new age of equality, the “Common Prosperity” program
is likely to do very little to improve China’s highly unequal distribution
of income. That would require a far great effort through reform of the
state sector and China’s woefully inadequate tax system. The charity dona-
tions from large companies in line with Common Prosperity amount to
1 THE SETTING 9
References
Bishop, Bill. Quoted in Guo, Lily. Jack Ma Is Tamed: How Beijing Showed Tech
Entrepreneur Who Is Boss. November 4, 2020. The Guardian.
Brown, Malcolm. Could China’s Crackdown be Another Cultural Revolution.
September 4, 2021. Bloomberg News.
Caiping, Liu. The Ministry of Transport Threatened a Review of the Company
in Tandem with the CAC. July 6, 2021. SCMP.
Godemont, Francois. Killing Several Birds With One Stone: China’s New Digital
Policies. July 26, 2021. Institut Montaigne.
Hancock, Tom. Tech Crackdown Is a Cloud Over China Economy, ex-WTO
Chief Says. September 7, 2021. Techexplore.
People’s Daily. Correctly Understand and Grasp the Strategic Goals and Practical
Ways to Achieve common prosperity (people’s point of view). , February 7,
2022.
Salidjanova, Nargiza. China Pathfinder: Quarter 3 2021 Update. November
2021. Atlantic Council, Geoeconomics Center and Rhodium Group.
Thurston, Anne. Engaging China. 2021. Columbia University Press. Location
1625, Kindle edition.
Wei, Lingling. China’s President Xi Jinping Personally Scuttled Jack Ma’s Ant
IPO. November 12, 2020. Wall Street Journal.
Yang, Jing. Chinese Regulators Summon Ant Leaders Ahead of Gigantic IPO.
November 2, 2020. Wall Street Journal.
Zhai, Keith. How Billionaire Jack Ma Fell to Earth and took Ant’s mega IPO
with him. November 6, 2020. Reuters.
CHAPTER 2
Abstract Common Prosperity was the social program that was a twin to
the policies restricting the growth of the platform companies. It was a
“soft” slogan that would corral a collection of policies around a common
theme, one that would appeal to both the government bureaucracy and
the ordinary Chinese citizen. However, it was widely perceived as having
a historical relationship to the Cultural Revolution when ideology domi-
nated private life. This chapter discusses the historical roots of common
prosperity, its political function as a populist campaign for Xi Jinping, and
why it was unlikely to have much of an impact on the lives of Chinese
citizens. However, precisely because it is relatively costless and relies on
the power of the Party for implementation it is likely to continue for the
foreseeable future.
If the cancellation of the Didi Chuxing IPO was the cutting edge of the
Communist Party’s sword, “Common Prosperity” was designed to be the
blunt end; a “soft” slogan that would corral a collection of policies around
a common theme, one that would appeal to both to the government
bureaucracy and the ordinary Chinese citizen. However, the term had a
dual meaning. It could be viewed as a cheerful phrase calling for greater
equality for all Chinese citizens under a government determined to assist
the common man. Or, more nefariously, it could be seen as a vague
catchphrase harkening back to the unstable era of the Cultural Revolu-
tion when ideology dominated political life. What exactly was common
prosperity? Was it a new era for China, a return to the past, or merely an
ad campaign?
The phrase “common prosperity” first appeared in the People’s Daily
on September 25, 1953, when the paper published a list of 65 slogans
honoring the fourth anniversary of the founding of the People’s Republic
of China (Bandursky 2021). Subsequent uses of the term referred to a
choice between capitalism and socialism—and Common Prosperity was
key to the success of the latter. It was aimed primarily at China’s peasants
and was a call for common ownership and use of the land to achieve
economic success. Starting in 1979 after former leader Deng Xiaoping
asked the Chinese people to “get rich first,” the phrase fell out of favor. It
was still referred to by the ideologically pure who were worried about the
adverse impact of Deng’s capitalist policies in what had been a communal
society. However, within the mainstream, the idea was as people became
rich they would enjoy the fruits of Common Prosperity.
While Common Prosperity ideally could benefit the average citizen,
it was also tied to the strengthening of the Party that Xi Jinping holds
so dear. One thread running through his policies is a belief that many
of the liberties, and cultural freedoms, that come with wealth in a
consumer-driven society threaten the Party’s stability and control. “What
is important about culture is that it allows political systems to harness
social energy and use that energy for the good of the national interest for
building a more economically dynamic society,” said Matthew Johnson,
an independent scholar of modern China (Johnson 2021). Anthony
Saich, a professor of international affairs at the Harvard Kennedy School,
said Xi’s politics in general “fuses with … key elements of Communist
Party practice historically,” including “a deep strain of paternalism.” The
party, he said, “sees itself as the moral arbiter of state and society.”
(Shulman 2021).
Many point to the influence on Xi of the Party’s intellectual eminence
grise: Wang Huning. Wang is a member of the Politburo Standing
Committee and is widely known as the Party’s ideology czar. He is Xi’s
intellectual braintrust. Wang is also a survivor, as he played a similar role
2 COMMON PROSPERITY: VISION OR CAMPAIGN? 13
under former leaders Jiang Zemin (with his policy of “three represents”)
and Hu Jintao (“scientific outlook on development). After visiting the
U.S., in 1992 Wang published a book, “America Against America,” that
included a number of statements in favor of the American economy and
the workforce. But he’s also an orthodox Marxist with a strong moral
streak.
The moralism reflects Xi Jinping’s own background. Xi had had his
mettle tested through difficult years in the countryside as a youth “sent
down” during the Cultural Revolution to live with the peasants. His
father, revolutionary veteran Xi Zhongxun, was purged in 1962 for
betraying the Party. In Shaanxi Province in 1969, Xi lived in a cave
plagued by fleas, labored in the fields with the farmers, pulling coal and
picking up manure for heat (Ou 2016). By all accounts this period hard-
ened him into a revolutionary who believed in the moral greatness of
the Communist Party. This is a trait shared by other leaders. University
of Glasgow scholar Holly Snape notes the frequent desire among Chinese
leaders, starting with Mao, to create a “new Chinese man” who embodies
Party values. This drastic reshaping of Chinese citizens had fallen out of
favor until Xi Jinping rose to power (Snape 2021).
However, to some degree, Xi Jinping’s character, and the technology
crackdown, reflected longstanding attitudes within China. The opening to
the west, initiated by Deng Xiaoping and solidified by China’s 2001 entry
into the World Trade Organization, may have fooled westerns that China
was becoming a liberal democracy “just like us.” But the hardening of the
political arteries was sitting below the surface. Economist Barry Naughton
has noted that western observers “got it wrong” understanding China’s
politics. “We were far too slow to understand the policy changes that
took place after 2003 as China entered the global economy” (Naughton
2021a).
Xi’s revival of the term “Common Prosperity” very much reflected the
mindset of building a “new Chinese man” who would embody values that
would strengthen both the Communist Party and the Chinese state. But
there was debate about how China would go about educating its citizens.
Wang Dan, a famous Chinese dissident who was one of the leaders during
the protests at Tiananmen Square in 1989, was convinced that Common
Prosperity under Xi Jinping was a return to Maoist campaigns. “The idea
of common prosperity is purely utopian…it may lead to another Great
Leap Forward,” he told Radio Free Asia. That was a disastrous 1958
14 A. COLLIER
Xi’s speech covered quite a bit of ground, leaving room for a variety
of interpretations. He said the policies to be pursued under Common
Prosperity included:
• Improve distribution of income. and make society more fair for rural
and urban workers.
• Maintain the priority of public ownership of the economy as the
“main body.”
• Encourage workers to get rich and act “according to your abil-
ity” (which sounds a lot like the free-market economist Milton
Friedman).
• Expand the middle class.
• Promote economic improvements in less developed parts of China.
(Xi 2021b)
One of the most important sections—in light of the furor over the
strict regulation of the technology sector—concerned the fate of private
industry. Was the cancellation of the Didi IPO and other regulations the
end of the private economy? Xi’s speech was surprisingly encouraging. “It
is necessary to improve the business environment, reduce the tax burden,
provide more market-oriented financial services, and help them operate
steadily and continuously increase their income,” Xi noted. But he did
call for opposing the “disorderly expansion of capital” and “strengthen
anti-monopoly supervision.”
In a statement on Common Prosperity issued by the Xinhua News
Agency following an August 17, 2021 meeting of the Central Finance
and Economics Commission chaired by Xi, a couple of additional points
leapt out:
• The key paragraph was this: “We must clean up and standardize
unreasonable income, rectify the order of income distribution, and
resolutely ban illegal income.” (Xinhua News, August 2021).
the men looked too effeminate. Soon, music stars were altering their rene-
gade images by taking off ear rings and other feminine adornment in favor
of baggy jeans. The Hong Kong newspaper South China Morning Post
said a crackdown on celebrity culture would “protect consumer rights
and rein in an unruly multibillion-dollar fan industry prone to fraud, tax
avoidance and doxxing” (Nulimaimaiti 2022).
During a symposium on professional ethics, the Party group secretary
of the China Federation of Literary and Art Circles noted:
“For some time now, the entertainment industry — of which practi-
tioners in literature and the arts is an important component — has seen
some chaos. We have seen the disorderly development of capital in the
entertainment industry, the lack of responsibility from media platforms,
and the lack of rigor in industry and market supervision. We have also
seen a very small number of celebrity actors constantly breaking through
the bottom line of social morality and the red line of national law with
bad behaviour, including charging sky-high fees for appearance in films,
tax evasion, pornography and drugs, false endorsements, and other moral
misconducts and deplorable practices. These have triggered a high degree
of social and public concern, strong criticism, and affected the literature
and arts world in an extremely negative way” (Quoted in Ni 2021a).
Apart from a political drive to create a new kind of citizen, the cultural
campaigns had the added advantage of distracting attention from China’s
problems—particularly the economy. Attacking “unorthodox masculin-
ity” shifted the focus from the country’s slowing economic growth, the
Party’s failure to address the growing inequality in society, including
a lack of upward mobility, dismal career opportunities, and expensive
housing. After all, many of these cross-dressing figures were well known
pop stars and were easy targets for illustrating the extremes of Chinese
society (Gao 2021).
The platform economy was also considered part of the cultural
problem. The gaming industry, in particular, was accused of harming chil-
dren’s education by seducing them into playing games for hours instead of
studying. As a result, on August 30, 2021, the government instituted stiff
new regulations on the entire gaming industry. These included requiring
verification of registered names, and limiting people to just one hour
of gaming on weekends and holidays and none at all during the week.
These rules were highly difficult to enforce and were, of course, wildly
unpopular among China’s millions of young gamers.
22 A. COLLIER
More seriously, for parents desperate to get their children into China’s
highly competitive schools, the government told the large tutoring
industry that they could no longer offer classes on weekends or during
summer and winter breaks. The logic of this draconian cutback on the
tutoring industry was that huge sums of money and endless hours were
devoted to the desperate effort to obtain a coveted slot at a top school.
China’s vaunted “gaokao” entrance exam was highly competitive. As in
other countries such as the U.S., the benefits of entry into a top school
were significant. However, Beijing felt that the tutoring industry was an
excessive use of valuable time and money that could be better spent on
more valuable contributions to society as a whole.
Permits for the opening of new schools were halted and education
companies, which had raised billions of dollars on the Nasdaq, were
forbidden from raising capital through public listings. Publicly listed busi-
nesses had to re-register as non-profits. One company, Dashan Education,
said it would close nearly half of its 102 tutoring locations. Aside from the
disastrous impact on the share prices of the listed companies, parents were
outraged that their one avenue to help their children score well on the
exams had been blocked. Overnight, a “shadow industry” of tutors sprang
up, arranging private tutoring in secret locations, as desperate parents
sought to get their children into competitive universities (Fan 2022). By
some estimates, more than 3 million jobs tied to the education industry
were under threat (Shin 2021).
As with distribution of income, in all the attacks on the tutors and the
educational system, there was no discussion of reforming the decades-old
system of granting education and other benefits tied to one’s birth-
place, or hukou (individual household). That policy has forced millions of
migrants to leave their agricultural homeland for a better paying industrial
job in the cities—without gaining access to schools, housing, or medical
benefits because they had no residency permit. The system suited China
well when low-cost labor was its primary advantage. But moving up the
value chain means that China needs to better educate its workforce. In
2015, only 30% of the labor force had any high schooling, compared
with 31% in Indonesia, 34% in Mexico, 36% in Turkey, 42% in Argentina,
and 46% in Brazil, also compared with 76% in OECD countries (Whyte
2019). Thus, once again, the actual policies of Common Prosperity failed
to do more than simply tinker around the edges of fundamental reform.
The theme of Common Prosperity also came to include a broader
refashioning of the character of the Chinese people. Whether these
2 COMMON PROSPERITY: VISION OR CAMPAIGN? 23
References
Bandursky, David. A History of Common Prosperity. August 27, 2021. China
Media Project.
Batke, Jessica. A Vast Network of ‘New Era Civilization Practice Centers’
Is Beijing’s Latest Bid to Reclaim Hearts and Minds. January 31, 2022.
Chinafile.com
24 A. COLLIER
Ou, Jason. President Xi Jinping and Other Sent-Down Youths Who are Now Big
Names in China. November 26, 2016. The Straits Times.
Rogoff et al. Peak China Housing. August 2020. Working paper, NBER.
Shijia, Ouyang. NDRC to Promote Common Prosperity. February 18, 2022.
China Daily.
Shin, Watanabe. China’s Tutoring Crackdown Puts over 3 Million Jobs at Risk.
November 3, 2021. Nikkei Asia.
Shulman, Michael. Xi Jinping’s Terrifying New China. November 15, 2021.
Atlantic Magazine.
Sina Finance. Invest 1000 Billion! Tencent Actively Helps “Common Prosperity”,
Ma Huateng Takes the Lead Again. August 19, 2021.
Snape, Holly. University of Glasgow. Interview November 2021.
US-China Economic and Security Review Commission (USCESCR (a)).
Economics and Trade Bulletin. July 13, 2021.
US-China Economic and Security Review Commission (USCESCR (b)).
Economics and Trade Bulletin. September 14, 2021.
US-China Economic and Security Review Commission (USCESCR (c)).
Economics and Trade Bulletin. December 16, 2021.
Wang, Maya. Tightening Up. October 21, 2021. Chinafile. https://www.chinaf
ile.com/conversation/china-regulatory-crackdown.
White et al. Jack Ma and the Chinese Tech Titans’ Mission to Give Away Billions.
August 29, 2021. Financial Times.
Whyte, Martin. China’s Hukou System: How an Engine of Development Has
Become a Major Obstacle. April 24, 2019. China-U.S. Focus.
Whyte, Martin. Xi Jinping Confronts Inequality: Bold Leadership or Modest
Steps? In Ashley Esarey and Rongbin Han, eds., The Xi Jinping Era: Assessing
Political Leadership in Contemporary China, Seattle: University of Washington
Press, forthcoming, 2022.
Wong, Christine. Plus ça Change: Three Decades of Fiscal Policy and Central–
Local Relations in China. November 2021. CIJ Volume 19 Number 4.
Xi (a), Jinping. Understanding the New Development Stage, Applying the New
Development Philosophy, and Creating a New Development Dynamic. July
8, 2021. English edition of Qiushi.
Xi (b), Jinping. Solidly Promote Common Prosperity. Qiushi. September 2021.
Xinhua News. Xi Jinping Presided Over the Tenth Meeting of the Central
Finance and Economics Committee, August 17, 2021.
Yang, Anne-Stevenson. “Common Prosperity”: The Graft That Is Actually
Powering China’s Politics. November 11, 2021. Forbes.
Zhang, Weiying. Market Economy and Common Prosperity. 2021. Blog-
post. Accessed at https://freewechat.com/a/MjM5Nzg5OTcxMg==/265
0733149/1?raw.
CHAPTER 3
After the fateful speech by Jack Ma, a wave of regulations swept over
the country’s technology sector. Many of these had been long in the
making as the regulators had watched with suspicion as the technology
companies had become financially powerful with millions of customers
supporting them. Agencies that had watched the growth of companies
like Alibaba and Tencent from startups to global giants had done little to
interfere. Now was their chance to impose regulations that would reduce
the companies’ market power—and also make them more beholden to
Beijing. This was what has become known as “regulatory catch-up”—
imposing rules in a regime that had been relatively relaxed. Regulators
were also taking advantage of the political environment to increase their
market share against each other, which we can think of as “bureaucratic
opportunism.” Since it was clear that the technology companies were fair
game for a revised legal framework the many regulatory bodies respon-
sible were now moving with alacrity to define the new regime. There was
another key factor that was crucial to the response, particularly by the
financial regulators, including the PBOC and the CBIRC. This was finan-
cial risk. The financial regulators had legitimate worries about the impact
of the explosive growth of online financial firms. Of particular concern
was Ant Financial, which had entered into the politically sensitive area of
bank loans. Thus, there were a mix of motives behind this mission creep
by the regulators in Beijing.
Regulators across the world are struggling to devise rules to control the
rising power of the internet industry. Anti-monopoly provisions regarding
companies like Amazon and Google are frequently debated in the U.S. It
is no surprise that China also struggles with these issues. In China, the
political directives from the State Council and the Politburo hold much
sway over ministries, and the agency ministers must spend much of their
time paying attention to the changing political winds, and ensuring they
have support from the Politburo. But the size of the Chinese ministries,
and the sudden increase in their status, lent this episode particular power.
Instead of a concerted effort by the central government to outline a clear
set of regulations governing the platform economy, the bureaucracies in
Beijing indulged in a free-for-all competition for market share. As legal
scholar Angela Zhang of the University of Hong Kong noted, “At the
central level, different ministries with overlapping functions and divergent
missions are relentlessly competing with each other for power, influence,
and prestige” (Zhang 2020).
3 THE BUREAUCRACY STRIKES BACK 29
stated that a firm is dominant if it has more than 50% share, two firms
with 66%, and three firms with 75%, but this had been loosely enforced
(Zhang 2020). The antitrust authorities imposed 12 penalties relating to
market dominance in 2018, 16 in 2019, 25 in 2020, and imposed a fine of
18.2 billion yuan on Alibaba—three times the size of the largest previous
penalty on Qualcomm. Alibaba and Tencent accounted for 60% of the
fines imposed on the industry.
The most aggressive among the host of agencies responsible for the
renewed focus on regulating the platform economy was the State Admin-
istration for Market Regulation (SAMR). To solidify the state’s approach
to market competition, in 2018 SAMR was carved out of three other
agencies. The agencies previously responsible had been the General
Administration of Quality Supervision, Inspection and Quarantine; the
China Food and Drug Administration; and the State Administration
of Industry and Commerce (SAIC). But other bureaucracies had indi-
rectly participated in market regulation, including the powerful NDRC,
and the Ministry of Commerce (Mofcom). Mofcom was responsible
for overseeing mergers while the NDRC and the SAIC investigated
problems relating to state planning, corporate registration and other
matters. SAMR’s power was further enlarged in November 2021 when
the Chinese government established the State Anti-Monopoly Bureau
directly under the State Council in the same building as SAMR itself.
SAMR Deputy Director Gan Lin was promoted to chief, giving SAMR
a direct line to the State Council (USCESCR December 2021). The
creation of SAMR set the stage for stronger anti-monopoly regulation
in China.
In 2020, the 60-year-old Beijing native who was promoted to be
Governor of SAMR, Zhang Gong, had good political connections in a
time of regulatory strength. The agency’s power—as with many—was in
part a function of its relationship to the senior leadership rather than to
its bureaucratic structure and institutional function. Although Zhang’s
background was in electrical engineering, he had cultivated management
skills by earning a Master’s Degree in economics with a focus on enter-
prise management at the Capital University of Economics and Business in
Beijing. This is a solid career path for a technocrat trying to broaden his
reach into management. Later in his career, he served on the standing
committee of the Communist Party in Beijing, which meant that he
had spent time with leaders in Politburo just by virtue of geographic
proximity.
32 A. COLLIER
that was proprietary to its own computer servers. All of these functions
touched a number of hot buttons in Beijing.
So, the regulators become more aggressive. In September 2021, Ant
agreed to share credit data from its Huabei consumer lending business
with the PBOC. This included everything from when the account was
established, how big the credit line was, and the status of repayment of
the loans. There were certainly risks to the Chinese economy from the
Ant business model, but these and related regulations were quite a signifi-
cant retrenchment of Ant’s operations. It was not clear that the credit data
really was necessary from a regulatory standpoint. The PBOC could easily
require an overall snapshot of Ant’s business model, and make regulatory
changes regarding its lending practices, without demanding wholesale
transfer of customer specific data. This spelled more of a power grab than
a regulatory discussion of risk parameters. It could be that the two finan-
cial bodies were sending signals to the rest of the online industry that
data would no longer be proprietary to private firms but would have to
be handed over en masse to the government. Whether it was bureaucratic
“mission creep” or a slap in the face of private financial intermediation, it
has slowed the growth of one of China’s most dynamic industries.
Online finance, particularly in bank lending, is one area where Beijing
may have had legitimate concerns about the rapid growth of financial
technology. Ant Financial more or less invented the industry of online
financial intermediation. Where the banks failed to innovate, Ant quickly
stepped in and became a major force, arranging billions of yuans in loans
to companies across China. In addition, Ant’s parent, Alibaba, along with
competitor Tencent, had dominant market shares of the online payments
industry, which they had created.
The stability of the financial system is a central part of China’s growth
and there were growing concerns about Ant’s lending methods. But the
measures taken—essentially banning Ant from the banking industry—
were extreme as online finance offers substantial advantages over bricks-
and-mortar banking. It is worth examining the risks of Ant’s business
model in detail to judge whether the crackdown on the company was
regulatory oversight or regulatory overkill.
One of the most important ministries in Beijing is the central bank—
the PBOC. It is the beating heart of the financial system. Not only is it
in charge of the country’s money supply, but it is the paramount finan-
cial regulator (Until 2003, it was the only regulator, and after then has
36 A. COLLIER
shared many duties with the China Banking and Insurance Regulatory
Commission).
For much of 2010s, the PBOC had been struggling to control the
giant pool of capital that flowed into the financial system as the result of
the 2009 financial stimulus. That capital had created a host of shadow
banks and shadow banking products that had been lending money
without much oversight. Although this capital was crucial in helping
China avoid a financial meltdown similar to the U.S. financial crisis, it
also left the country with a significant debt burden and an unregulated
shadow banking system. Thus, for much of the latter part of the decade,
the PBOC struggled to convince the leadership to cut back on lending,
both from the banks and the shadow banks. These policies were known
within China as “deleveraging” the financial system. The lower debt load
would have the added advantage of “de-risking” the banks. When Xi
Jinping launched the technology crackdown, the PBOC already had a
lot on its plate.
The sudden rise to importance of the technology companies added a
new responsibility to the PBOC’s job description. These service compa-
nies were responsible for billions in payments and loans to private
customers and small businesses. The online world had become an impor-
tant part of China’s financial system. In 2021, mobile transactions
accounted for 66% of all monetary transactions in China, with 23% in
cash and 7% for the credit card business. By 2020, Alipay and WeChat
Pay performed 94% of mobile transactions. In e-commerce, Alibaba and
JD.com together handled three-quarters of all online market distribution
(Godemont July 2021). The PBOC had to devise regulations on Ant
Financial’s loans to the regional banks, payment systems from Alipay and
WeChat Pay, and proposals for digital currencies.
There were concerns about unconstrained money flows in the era
of big tech—whether through payments, loans or digital currencies.
For example, even before Jack Ma’s speech, there had growing oppo-
sition to Ant’s influence in the economy, and proposals for new ways to
control capital flows. At one conference just a day after Jack’s speech,
Huang Qifan, Chongqing Mayor and Vice-chair of the National People’s
Congress Financial and Economic Affairs Committee, accused Ant of
promoting the company at the expense of the country’s financial stability,
and added that Ant had encouraged investors to take on too much debt.
On top of the lack of regulatory controls, the growth of the private
sector’s payments and lending through Ant, Wechat Pay, and Alipay,
3 THE BUREAUCRACY STRIKES BACK 37