A Blog by Jonathan Low


Aug 2, 2021

How China Is Doing What the US Can't: Regulating Tech

China has many of the same concerns that US and EU governments - and citizens - have about the dominance of big tech. 

But while politicians and regulators battle with lobbyists and fail to act in the west, China is demonstrating the power and ruthlessness to address these threats. JL 

Will Oremus reports in the Washington Post:

China has instituted new protections for gig workers; imposed interoperability requirements for online platforms; driven out cryptocurrency exchanges; barred its leading ride-hailing app from app stores; and banned the entire industry of for-profit online tutoring services. Antitrust investigations and penalties have  targeted digital giants Alibaba and Tencent. The crackdown shows that Chinas government harbors many of the same concerns as tech critics in the United States and the European Union, and is intent on constructing the ground rules for an ever more digital economy.

While a slow-burning movement to rein in the U.S. tech industry plods through a gridlocked Congress and various agencies, China’s one-party government is acting swiftly  and harshly  to rein in its own tech titans. 

This month alone, the country has instituted sweeping new protections for gig workers; imposed new interoperability requirements for online platforms; driven out cryptocurrency exchanges; barred its leading ride-hailing app from app stores; and essentially banned the entire industry of for-profit online tutoring services. Antitrust investigations and penalties have already targeted digital giants Alibaba and Tencent, among others, in recent months.

The shakeout continued Tuesday as Tencent’s WeChat, China’s dominant social and messaging platform, stopped registering new users, saying it needs to upgrade certain security systems to comply with unspecified laws and regulations. The company expects registrations to resume in early August. 

The WeChat news comes a day after Chinese regulators issued tough new worker protection rules for food delivery services, including industry leader Meituan, and weeks after ride-hailing giant Didi was removed from app stores as part of a cybersecurity investigation, widely viewed as punishment for the company going public in the United States

The government’s hard line has sent Chinese tech stocks plummeting and rippled across the financial world. Shares of Chinese companies listed in the United States this week saw their steepest two-day drop since the 2008 financial crisis, according to BBC News.

Some observers see the moves as part of a political power play against an industry that has grown too wealthy, powerful and independent for the comfort of President Xi Jinping’s regime. In a Substack newsletter, economics commentator Noah Smith argued that it represents a broader shift in national priorities from consumer-facing online platforms and apps to harder, more cutting-edge tech, such as artificial intelligence and chip-making, that supports the country’s geopolitical objectives. There may be truth to both views.

But there’s another way of looking at these developments, in which China’s goals for its tech industry are not so different from those of its Western counterparts. It just has fewer checks and restraints on the use of state power to achieve them. 

Rui Ma, an investor and analyst of Chinas tech industry and founder of Tech Buzz China, the country isn’t “smashing its tech industry,” as Smith put it. Rather, the crackdown shows that Chinas government harbors many of the same concerns as tech critics in the United States and the European Union, and is intent on constructing the ground rules for an ever more digital economy. 

Protections for gig workers in China, for example, followed years of reports of such workers being overworked, underpaid and abused by unaccountable management algorithms. The tightening of data security laws, focusing on firms with a significant presence outside China, mirrors U.S. fears about data privacy and spying, notably by Chinese firms such as Huawei and ByteDance. The antitrust push draws on the arguments advanced by U.S. Federal Trade Commission Chair Lina Khan and others that dominant digital platforms lend themselves to new forms of monopolization and anticompetitive behavior. 

“The headlines are virtually the same as what I read in the U.S.,” Rui said. 

One big difference: Tech regulation in China faces fewer political hurdles than it does in the United States, where a gridlocked two-party Congress and intense lobbying by Silicon Valley firms have so far thwarted meaningful legislation. Despite broad agreement that tech giants are too powerful, both major U.S. parties are divided on how to address issues of competition, consumer protection and online speech. 

Of course, China’s approach comes with its own big downsides: The lack of democratic process and transparent debate means its regulations can come across as arbitrary, vindictive and unpredictable  traits that tend to spook investors and risk chilling innovation

There is one argument against U.S. regulation, however, that might be crumbling before our eyes: the specter of global domination by an unfettered Chinese Internet sector.

In congressional hearings and media interviews, U.S. tech executives have repeatedly warned that onerous regulations, including new antitrust and privacy laws, would hamper their ability to compete with China’s tech gladiators on the world stage. The implication, often unspoken but sometimes explicit, was that China understood that having powerful tech giants was in its national interest, and wouldnt dare sacrifice that power in the name of values such as privacy, competition or consumer protection.

China does see value in its tech giants competing globally, Rui said, and the current regulatory wave is not a sign that it wants to destroy the industry’s ambitions abroad. But it does signal an abrupt end to the countrys hands-off approach to the tech sector, and demonstrates a new willingness to impose its own priorities  even at the cost of their profitability and international standing.

There’s been a narrative for years that the United States, the E.U. and China are competing in global races in realms such as artificial intelligence; Rui suggests China sees itself as racing to establish a world-class regulatory regime to guide the sector’s future. 

China wants to be world-leading in regulations, Rui said. They dont just want to follow the E.U. and the U.S.

From its censorship of the Internet to its surveillance of vulnerable groups, many aspects of the Chinese government’s approach to are cautionary tales for the West. But its aggressive stance toward anticompetitive practices, speculative and carbon-intensive cryptocurrencies, and gig worker exploitation aren’t necessarily the destructive moves they might seem to U.S. observers and investors. On the contrary, they may be laying the foundation for a more sustainable and vibrant Chinese Internet sector in the decades to come.


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