The Future Of Technology Innovation Looks Bleak In China
Joshua Fernandez on Unsplash

The Future Of Technology Innovation Looks Bleak In China

19th November 2021 | 3 min read

The Chinese government’s approach to regulating and reorganising its technology sectors will yield both unique and unintended outcomes. Depending on how authorities want to redefine Chinese innovation, creation and entrepreneurship, it could change the balance of power over technology. 

It is unusual for founders and leaders of a successful tech company to resign from their positions once they have achieved success through a liquidity event like a huge IPO. 

Contrast this to the long history of US tech companies where founders celebrate every accomplishment, especially an IPO or new product launch. It’s hard to imagine a young Steve Jobs, Bill Gates or Mark Zuckerberg surrendering their power even when under government investigation. Indeed, Bill Gates and Microsoft fought the US government’s antitrust charges for years. And Mark Zuckerberg defiantly testifies in front of serial Congressional and Senate hearings. Young tech companies need strong, vibrant leadership and visible leaders.

Image credit: Mohammad Rezaie

Three CEOs of leading Chinese tech companies have resigned their positions this year, as Beijing continues its crackdown on internet firms. First internet technology company ByteDance Ltd, then social e-commerce pioneer Pinduoduo, and the latest departure being the Su Hua, 39, CEO of Kuaishou Technology, parent of an eponymous short-video app that rivals TikTok in China, leaving cofounder Cheng Yixiao to replace him in running the app’s day-to-day operations.

None of them have specifically elaborated why they resigned yet they allude they remain as some sort of influential consultant. Explanations like being unable to handle “challenges” of the “shifting regulatory environment” were offered. It sets a hazardous precedent for technology development in China as private enterprises become nationalised into a tech version of state-owned companies. 

The symbolic importance of founders and co-founders in Western companies is well established as Silicon Valley. Venture capitalists in tech companies prefer to remain in the background and that a company founder becomes the most visible point of leadership for as long as possible.

However, as technology spawned its own socio-political problems in China it appears easier for the government to regulate a company by controlling management. And that is ideally achieved by seizing control from executives and owners. Or even worse, stripping assets and functions in an economic reorganisation will impact the network effects of co-dependent algorithms. 

Image credit: Carles Rabada on Unsplash

Since cancelling fintech firm Ant Group’s IPO last year, Chinese regulators have dramatically increased their scrutiny and enforcement of internet companies. They have fundamentally disintermediated and reorganised the operating environment for certain industries, such as online tutoring, which Beijing essentially banned in July as well as video games.

Beijing’s unpredictable wave of crackdowns mean company executives must spend more time cooperating with government officials to ensure their business complies with the shifting regulatory environment. And President Xi Jinping’s “common prosperity” campaign to address China’s societal inequality has signalled to billionaire executives that their personal and corporate wealth is subject to complex and arbitrary redistribution. Not every CEO appears to be suitable for those challenges. Presently, analysts have difficulty revaluing these reconstituted tech companies due to a lack of transparency and murky rules.

For example, ByteDance is currently one of the most valuable non-listed companies in the world. Its latest valuation has exceeded USD 400 billion. However, its listing plans are uncertain. It recently announced in April that it has no plans for an IPO anytime soon. ByteDance is trying to diversify into e-sports, e-commerce, and online education to diversify its product offerings. Its most popular international product – TikTok, also faces regulatory threats from different governments that are proving difficult to sort out.

Image credit: Solen Feyissa on Unsplash

Chinese policymakers have been pushing their internet companies to improve integration with the real economy and to support agriculture and manufacturing sectors to improve efficiency and save costs. The People’s Bank of China has been directing banks to make it easier for small and medium enterprises to open bank accounts, transfer funds and make credit more readily available. 

If China’s big tech companies are converted into the modern day version of state-owned companies where founders and the boldest and most creative managers become disenfranchised from the dynamic economics of inventing new technology, then they risk snuffing out innovation. 

China’s policies are highly likely to fix current economic and social problems yet it will prohibit innovation. You need to innovate ahead of what the market or governments allow, and this is only possible through freedom of expression and open discourse. 

Written by Peter Guy

Peter Guy is an award-winning business and financial opinion columnist, and is the Greater China Editor for Bread News. He brings decades of experience as an alternative asset investment manager and development banker.

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