Take Alibaba and Tencent as examples. Since the 2000s, the two tech giants have made hundreds of mergers and investments, as a result of which their business empires expanded to include almost every aspect of digital life in China. This insatiable expansion came at the expense of users, who faced higher prices and less choice, but Chinese regulators let it slide. Then, suddenly, the government started a tech crackdown in 2020. All of a sudden, past mergers and acquisitions were under investigation, and hefty fines were meted out to punish the companies for antitrust violations, including a $2.8 billion fine for Alibaba.
MIT Technology Review recently spoke with Zhang about her new book and how to apply her insights to China’s tech industry, including significant new sectors like artificial intelligence.
The pendulum swing
“There’s this saying I also cited in my book: 一放就乱, 一抓就死 (loosening causes chaos; tightening up causes death),” Zhang says. The Chinese expression perfectly captures how the regulators dramatically yet predictably oscillate between doing too little to police the tech sector and doing too much.
In the book, Zhang argues that Chinese tech platforms have long been accused of obstructing competition, infringing on privacy, and violating the labor rights of gig workers—but regulators accommodated them in all three areas until suddenly putting the companies under scrutiny in late 2020. And after the peak of enforcement in 2022, the regulators slowed down on all three fronts and reached a compromise with Chinese companies.
Outside the examples in the book, “I think [the pattern] fits almost every sector,” Zhang says. From financial innovations like peer-to-peer loans in the mid-2010s to online tutoring, which exploded in popularity during the pandemic, they all went through similar shifts in experience with the regulators.
The government can be a helping hand
Western observers of Chinese policies often focus on the crackdown phase. Historically, it’s involved some dramatic moments—for example, the government forcing the ride-hail giant Didi to delist from the New York Stock Exchange or slapping antitrust fines on Alibaba after its former head, Jack Ma, made a public speech against regulation.
But Zhang warns that these high-profile crackdowns mask the symbiotic relationship between tech companies and the government. “We tend to see [Chinese tech regulations] as very predatory,” she says, but “regulations actually give a helping hand to these firms.”
COURTESY OF ANGELA HUYUE ZHANG
For many government officials, especially at the provincial and local levels, tech companies are the most important contributors to tax revenues and employment. They are often referred to as “local champions” or “little giants,” and their business interests are directly tied to the interests of local governments. In turn, the governments often go to great lengths to protect these companies.