A Stigler Center discussion between Ling Chen (Johns Hopkins) and Matt Sheehan (Carnegie Endowment for International Peace), moderated by Wall Street Journal journalist Lingling Wei, explores questions regarding the interplay between the tech sector and the state in present-day China and how the recent regulatory push might impact innovation. 

Earlier this month, the Wall Street Journal reported that Alibaba and Tencent—two of China’s largest tech firms—plan to lay off thousands of employees as both companies continue to grapple with regulatory pressures following the government crackdown that caused Chinese tech firms to lose hundreds of billions of their market value. 

China’s sweeping regulatory crackdown on the country’s tech sector, launched over a year ago, has upended an industry that until relatively recently was seen as virtually immune from government scrutiny. The crackdown has raised many questions regarding the relationship between China’s government and the private sector and, despite signs of slowing, there are also signs it may not be going away just yet. 

What is the current relationship between the Chinese tech industry and the state? And where is it headed? A recent Stigler Center panel, part of the Center’s “China’s Political Economy: A New Era?webinar series, explores these questions and more. The panel featured a discussion between Ling Chen, an assistant professor at the School of Advanced International Studies (SAIS) at Johns Hopkins University, and Matt Sheehan, a fellow at the Carnegie Endowment for International Peace. The conversation was moderated by the Wall Street Journal’s Lingling Wei, co-author of the 2020 book Superpower Showdown: How the Battle Between Trump and Xi Threatens a New Cold War

At the start of the panel, Sheehan provided a brief overview of how the relationship between the Chinese government and the tech sector evolved over the past decade. “First, the Great Firewall set the parameters for competition. They basically blocked most of the big foreign information platforms—Google, Facebook, Twitter, etc.—and by doing that, they cleared space in the Chinese tech scene for homegrown giants and shaped how the tech industry grew.” 

The second big way the Chinese government helped shape its tech sector, Sheehan said, was how it “set the parameters” for online speech. “By 2013, China built the tools and the bureaucratic mechanisms with which to control how information is shared online,” which also served as “a kind of a catalyst” for the tech sector. “Historically, Chinese tech is very private-sector driven; that’s where a lot of the first activity happens, where a lot of the momentum starts, but the government could weigh in and be a big stimulant to the growth of an industry. I saw this firsthand in the way that the AI industry grew. In 2017, when the government came out with its big national AI plan, that was a big marker that stimulated so much more investment in the industry, so much more public sector adoption and company formation.” But even then, he said, “it wasn’t like the government was always in the day-to-day operations of all the companies.”

The relationship began changing two years ago, in late 2020, when regulators canceled Ant Group’s IPO, Sheehan said. Since then, there has been a “tidal wave” of new regulations that are “fundamentally changing the shape and the nature of those interactions.” 

“Asked about the ‘seeming contradiction’ between China’s goal to become a world leader in AI and its regulatory push against the industry, Sheehan said that “In the US, we often describe these things as in conflict with each other—the Chinese government sees it differently.”

Drawing on her research, Chen noted the differences between China’s understanding of its tech sector and that of the US. In China, she said, “the terms ‘tech sector’ and ‘high-tech sector’ sometimes get blended. Their understanding of Alibaba and DiDi and Tencent is different from the typical US way of understanding the tech sector.” 

In China’s perspective, Chen added, online platforms are “associated with bubbles because their success is not necessarily traced to hardcore technology. Rather, they are viewed as having a first-mover advantage and that may create monopolies and rents and can easily become the target of antimonopoly law and antitrust law. These online platforms are also sometimes linked to financial platforms, such as the Ant Group. The Ant Group, in the state’s view, is creating shadow-banking almost—and that’s part of the reason the state is going after it.”

“These online platforms also control sensitive data and user data. Even though they have operated for a couple of decades already, the regulators seem to be just waking up to realize how important it is to regulate these data and algorithms. But the state has a lot of experience or know-how about semiconductor chips, not necessarily enough experience about data management and regulation,” Chen said. 

Asked about the “seeming contradiction” between China’s goal to become a world leader in AI and its regulatory push against the industry, Sheehan said that “in the US, we often describe these things as in conflict with each other—the Chinese government sees it differently. The fundamental bedrock of China being a productive leading power, in the Chinese Communist Party’s mind, is maintaining Chinese Communist Party control. You can’t let these companies run too far ahead if it’s going to create social problems, or financial and economic risk that undermines the party’s control. Honestly, I think they looked at what happened in the US between 2015 and the present day, at the role of social media platforms in division, political influence, and stuff like that, and said, ‘Not for us.’”

Asked about the impact of the new regulations on the tech sector on Chinese innovation, Chen emphasized the gradual change in the Chinese government’s thinking regarding semiconductor manufacturing, from joint ventures with other countries toward the development of indigenous technologies. “I don’t think there’s really a final answer as to whether China can succeed or not—the only thing I know is they seem to be doubling down on their effort.”

You can watch the webinar here:

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