Shanghai, China—Tighter regulations, billions in lost overseas share value and government pledges to get even tougher—Chinese tech giants are reeling under what looks like a sustained Big Brother assault on innovation and enterprise.
But there’s a reason why the escalating crackdown is largely drawing shrugs from Chinese consumers: it is widely seen as necessary.
Concern is rising in China over chaotic online lending and accusations of powerful platforms squeezing merchants and misusing consumer data, reflecting global unease with Big Tech that has Facebook, Google and others also facing scrutiny at home and abroad.
“With China, it immediately becomes about the Communist Party. But if the UK government were doing this, people would probably be OK with it,” said Jeffrey Towson, head of research at Asia Tech Strategy.
“These actions look quite reasonable.”
Companies such as e-commerce giants Alibaba and JD.com, along with messaging-and-gaming colossus Tencent, are among the world’s most valuable businesses, feasting on growing Chinese digital lifestyles and a government ban on major US competitors.
But they have become victims of their own success.
The troubles burst into public view last October when Alibaba co-founder Jack Ma committed the cardinal sin of publicly criticizing China’s regulators for their increasingly dire warnings concerning his company’s financial arm, Ant Group.
Ant Group’s Alipay platform is ubiquitous in China, used to buy everything from meals to ride-hailing, groceries and travel tickets.
Slow-footed regulatory oversight also allowed Ant to expand into loans, wealth management, even insurance. Tencent’s fintech profile also has risen.
Consequently, they have become “overly powerful actors capable of pushing regulatory boundaries without regard for systemic risks,” Eurasia Group consultancy said in a research note.
These ambitions have collided with Beijing’s years-long campaign to purge its chaotic financial system of a dangerous debt build-up.
Chinese debt spiraled to 335 percent of gross domestic product by the end of 2020, according to the Institute of International Finance. Previous lower levels had already prompted International Monetary Fund concern.
The official response to Ma’s unusual outburst has been uncompromising: Ant’s record-breaking $35-billion Hong Kong-Shanghai IPO was abruptly suspended, Ma disappeared from public view for weeks, and regulatory screws have been tightened.
China is expected to force Ant and Tencent to begin running their lending operations like banks, with resulting higher scrutiny and financial liability—things the fintech leaders had largely avoided.
“They’ll have to meet capital requirements and set up financial holding companies. They can’t escape it,” said Ke Yan, lead analyst at DZT Research.