On a very cold Beijing night in 2012, a man failed to book a taxi, he subsequently built China’s largest ride-hailing company which has grown to hold 90 percent of the domestic market share. To put Didi Chuxing’s immense size into perspective, Uber holds a meagre 75 percent of the UK market. Another Chinese tech giant, Ant Group, services over a billion users, making it the world’s largest fintech (financial technology) company. Recently, these tech behemoths have both been knocked for six by China’s recent regulatory crackdowns, panicking many investors and entrepreneurs, and dramatically shrinking the market. Many are claiming that Big Tech will meet its breaking point in 2022. As we endeavour to resolve this as a society, it might prove valuable to contemplate the downfalls of these two monopolies and their government’s brazen attempts to regulate them.
The pace of tech developments in the 21st century has been unprecedented, with lucrative services such as ride-hailing, food delivery, and online microlending (OM) establishing themselves as major industries in just under a decade. While this expansion has been a godsend for innovators and entrepreneurs alike, it seems that states have now decided, to varying extents: what has gone up, must now come down.
Many governments have attempted to dampen growth in the tech industry, reducing risks and discouraging anti-competitive behaviour. Arguably, none of these regulators have hit the target with as much precision and force as China’s. These sweeping crackdowns have come following a 15-year period of relatively unfettered growth. During this time, Chinese tech companies were able to innovate in areas that could not yet be properly regulated due to their newness and the government’s lack of familiarity with them. This era is, unfortunately for some, all but over. Incredibly lucrative tech companies like Didi and Ant Group, which have previously been afforded the liberty of exponential expansion, are now having to exist in a quasi-regulatory limbo as the government dictates how they can and cannot operate.
The end of 2020 saw Ant Group, an Alibaba subsidiary, disastrously fail to go public on both the Hong Kong Stock Exchange (HKSE) and the Shanghai Stock Exchange (SSE). Investors expected the public offering to confirm the company’s status as one of the world’s largest. Valued at more than USD$310bn (£229.3bn), it is difficult to convey the sheer size and scope of these tech conglomerates. Headed by CEO, Jack Ma, Alibaba houses China’s answer to Amazon, PayPal, Google, and an eBay-Instagram hybrid to boot.
At the minute to midnight of the biggest IPO (Initial Public Offering) in history, regulators pulled the rug out from under Ma’s company by altering the fintech regulatory environment drastically. They mandated that Alipay, the company’s payment platform, be delineated from its riskier OM service. Led by the government, the company has since made laboured advances in restructuring over the past year, and Ma has, for the most part, disappeared from the public view.
Flash-forward to mid 2021. Ride-hailing company, Didi, is now aspiring to a public listing on the HKSE but faces many obstacles that have been strategically placed by Chinese regulators, who were also responsible for sabotaging their public offering at the New York Stock Exchange (NYSE). Sound familiar? To describe Didi’s US IPO as unfortunate would be a vast understatement. The company rerouted their IPO to the NYSE to avoid the regulatory restrictions posed by their own government, prompting Chinese regulators to crash their business by mandating that all apps be deleted from stores as well as launching investigations into its data handling, just days after the listing. Didi’s shares have plummeted more than USD$40bn (£29.5bn) since then.
The investigations into Didi remain unresolved as it stands. Jean Liu, the company’s current president, has made attempts to bring in state-supported groups. These kinds of politically-motivated strategies have become a new normal for Chinese tech companies.
From the myopic western perspective, it is easy to criticise China’s regulatory crackdown on the basis that, economically, they’ve cut off their nose to spite their face. While limiting the activities of their most valuable companies has, without question, been harmful for the second-largest economy in the world, there is a valuable lesson to be gained here: governments will no longer be able to argue that no regulation is good regulation. To avoid being regulated too heavily in the past, western tech giants have leveraged the fact that Chinese companies pose a major threat to Big Tech in the west due to their government’s full support.
In light of global calls for increased antitrust regulation, the crackdowns in Beijing serve as a potential pivot point, providing concrete evidence that these companies do not need their government’s active support to survive. Encouraging smarter and more conscious regulation might prevent companies like Meta (formerly Facebook) from profiting from the spread of disinformation and hateful content in the future. Maybe we should start asking ourselves what it is that we are sacrificing when we fail to regulate, and whether we’re willing to wait long enough to see the consequences.
