The once sleeping giant is now roaring to an affluent economy. But its war against tech firms might create a disincentive to innovate.
The 1980s were curious times in China. The country had just re-emerged from years of political turmoil, hopefully peeping out from the ashes of a turbulent past, while slowly but steadily taking its first steps towards capitalist reforms.
After the death of Mao, Deng Xiaoping introduced sweeping new policies aimed at reviving the country’s depleted economy. Years of economic prosperity soon followed, and China joined the globalising world with its accession to the WTO in 2001. The 2000s saw reduced tariffs, trade barriers, and regulations. The banking system was reformed, dismantling much of the Mao-era social welfare system. A new financial and cultural powerhouse was unveiled.
Nowadays, China has its very own powerhouses.
Every evening, the bright lights of ultra-modern Chinese cities twinkle while the occasional roar of super cars pierce through the chatter of groups of wealthy middle-class shoppers. Tech companies beckon excited customers who voraciously engage in social and financial interactions online.
And therein lies the problem.
Individuals and private companies are rapidly rising to power and gaining access and control to crucial data uploaded by the country’s 1.4 billion strong population. It’s estimated that nearly 1 billion people transact through fintech platforms provided by Tencent and Alibaba every year, with the former amassing a total of 1.2 billion active users on its messaging app WeChat.
Beijing has never rejected innovation. The country’s exponential growth is a testament to its rapid adoption of technologies. It’s simply becoming wary of an increasingly autonomous society bolstered by years of capitalism, free trade, and technological advancements.
I’m a fervent admirer of disruptive innovations like blockchain technology. I believe that they can displace many of our current practices in business and society. But while Beijing has consistently discouraged the use of public blockchains and cryptocurrencies, they’re quietly embracing the technology’s utility.
The country has introduced a CBDC (central bank digital currency) – a digital yuan based on elements of the distributed ledger technology (DLT) similar to blockchains. Instead of a public network, only government agencies can access the system, creating a centralised digital ledger where every financial transaction can be recorded and scrutinised without risk of tampering.
It’s terrifying, but ironically brilliant. There is no better way to monitor the people and economy.
This proves Beijing’s desire to be at the forefront of emerging technologies. Yet, it’s afraid of a population it cannot control – an open market where individuals can seemingly become more powerful than the government. Beijing is aware of the importance of technology, but also apprehensive about its potential in the private sector.
As Metternich characterised the Middle Kingdom’s role in the global economy, when China sneezes, the whole world catches a cold. And we’re already seeing symptoms in the financial markets.
Beijing has aggressively reined in tech giants in recent months, sending shockwaves across the global financial markets.
Tencent and Alibaba have both been accused of breaching Beijing’s antitrust laws. Ant Group’s IPO was unceremoniously suspended because Jack Ma openly criticised the country’s party-backed financial institutions. DiDi might become a state-run firm, just months after its IPO on the NYSE because the government wants to “ensure the safety of the personal information of users”.
The message is glaringly obvious: Data is power. And only Beijing can be in possession of it. Under no circumstances should it be accessed by an individual, let alone by a foreign government.
As a result of regulatory crackdowns, investor confidence has plummeted. More than $560 billion have been erased from Hong Kong and mainland Chinese exchanges in recent weeks, with a further $840 billion wiped off from US exchanges back in July. The perpetual political tug-of-war between the two mammoth economies will only exacerbate uncertainty, with Chinese firms already on US exchanges facing increasing regulation from both countries.
Beijing has since moved to overhaul its education and entertainment industries, extending its influence into the bowels of society.
It’s not just about conglomerates and their technology, or artists and teachers who supposedly promote foreign culture. Realise that contemporary China is gradually insulating itself from the world, creating an extremely controlled and centralised market that might be discouraged to innovate for fear of regulatory backlashes.
“Common prosperity”? It’s disturbingly familiar. A technological revolution based on society’s well-being must occur, but it should never be used as an excuse for radical interventions from a government fearful of ceding control to talented individuals and private corporations.
Regulation should only mitigate a technology’s risk and complement its development. An iron grip on creative capitalism stifles innovation and growth. It implies regression, especially in a global economy essentially powered by new ideas everyday.
Understand disruptive and foundational innovations. Invest in technology. But beware of a turbulent political landscape, one that’s worryingly akin to the ideological China of old.