China has curbed antitrust abuses and unnecessary risk-taking by downsizing global tech companies, including Alibaba. But experts have warned that the government’s harsh approach could backfire, destroying the entrepreneurial spirit vital to the country’s rapid economic rise. After investigations opened with the approval of President Xi Jinping, giant companies lost more than $ 600 billion in value, and some of China’s most successful entrepreneurs gave up their senior positions.
Many Chinese tech companies, including Alibaba, have continued to be investigated over the past few months for monopolistic behavior or other consumer rights violations.
The investigation, which President Xi Jinping says is necessary to maintain “social stability,” has led to record fines for some tech giants and major overhauls for others. Then, in recent months, more than $600 billion was wiped from the value of the largest tech stocks. A few of China’s most successful entrepreneurs left senior positions amid the turmoil.
Zhang Yiming, founder of TikTok’s parent company ByteDance, recently announced that he will be stepping down from his CEO position to take on a less important role at the company. Colin Huang, 41, said in March that he would step down as chairman of Pinduoduo, a startup e-commerce company that competes with companies like Alibaba. Meanwhile, Alibaba co-founder Jack Ma has largely fallen out of public favor.
On the other hand, Zhang and Huang said they set out to try new things, and neither of them referred to the government’s focus on the technology sector in their announcements. A ByteDance spokesperson said Zhang’s decision to resign is not related to regulatory moves in China.
According to analysis by CNN International’s Laura He and Jill Disis, it’s hard to separate the departure of company leaders from the government’s expanding pressure on technology. “The atmosphere has become increasingly toxic for Chinese tech giants,” said Alex Capri, visiting senior researcher at the National University of Singapore, adding that Zhang’s move is “proof that fear trumps greed if public humiliation or a worse form of punishment awaits those who challenge the system.” ‘ he described.
But challenging the system is crucial for private enterprise, which has played a key role in China’s transition from a poor country to one of the world’s largest economic and technical powers over the past few decades. Losing this dynamic will not only undermine some of these achievements, but will also make it harder for China to achieve its ambitious goals of leading the world in future technologies, experts say.
Alibaba founder Jack Ma disappeared last fall after criticizing China’s state-controlled banking system for having a “pawnshop mentality” and accusing the government of using cumbersome and outdated tools to regulate a modern financial system.
However, not only did Ma’s personal reputation suffer, but his companies as well. Beijing blocked Alibaba’s financial subsidiary Ant Group from going public before forcing it to restructure and subject it to heavy regulation. Alibaba was handed a record fine in April for antitrust issues.
“Some of the pressure on internet technology companies stems from Ant’s desire to reduce financial risk, as it does in reducing its lending activities,” said Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics (PIIE) who studies the Chinese economy. At this time last year, Ant had approximately 2.15 trillion yuan ($333 billion) worth of consumer and small business loans. However, Lardy said, “This may ultimately be due to Xi’s desire to cut off alternative sources of power that could challenge the dominance of the ruling Chinese Communist Party.”
Steve Tsang, head of the China Institute of the School of Oriental and African Studies at the University of London, said: “The leaders of Xi and the tech firms, which have become too powerful relative to the Communist Party, are being put under pressure because the monopoly of power on the Party’s board cannot be allowed to be challenged. “By handing over institutional leadership, they are acting individually to reassure the Party and Xi that they will not do that.”