Are Big Chinese Tech Firms in Trouble?

Commentary When Icarus flew too close to the sun, he got burned, tumbled out of the sky, and fell into the ocean. China’s technology giants have certainly been flying high. The cohort of Alibaba, Tencent, Baidu, and other platform companies have become household names, made their founders billionaires, run apps that Chinese people use on a daily basis, and altogether hold immense power—economically, politically, and socially. We’re not predicting their demise here. But recent developments suggest that the Chinese Communist Party (CCP) may be gunning for these companies, their executives, and their business dealings. The official communique issued after the recent Central Commission for Discipline Inspection (CCDI)’s 6th Plenum had some strong words, vowing “to investigate and punish any corruption behind the runaway expansion of capital and the monopoly of platform enterprises in order to sever the connections between power and capital,” according to the English version of Xinhua Press, China’s state-run news agency.  Those word choices from China’s top anti-graft organization, specifically around “runaway expansion of capital” and “monopoly of platform enterprises,” suggest that investigations on the big technology firms are underway. Regarding the expansion of capital and alleged monopoly activities, CCP regulators fined Alibaba and Tencent in January for failing to disclose a series of acquisitions that date back several years. The new round of fines follows several fines already extended to Alibaba, Tencent, and Baidu last year.  And investigations are extending beyond the corporate level. Concurrent to the CCDI announcement in January, CCTV aired a series of documentaries detailing cases of former local officials ensnared for corruption. One such example was that of Zhou Jiangyong, the former party secretary in Zhejiang Province—home to Jack Ma’s Alibaba—who allegedly gave certain companies preferential treatment in exchange for financial and economic assistance for his family. While no specific companies were named by the CCTV documentaries, the Financial Times noted that Jack Ma’s Ant Group was one of the companies which purchased land at a discount in Hangzhou after buying ownership stakes in a company run by Zhou’s brother. On Jan. 26, Zhou was officially expelled from the CCP by the CCDI for corruption. These ongoing investigations could spell more headaches for Ma, who has already come under intense CCP scrutiny over the last two years. More to come on this front, but CCP’s crackdown machines are revving their engines. After decades of allowing Chinese entrepreneurs free rein to build their businesses with minimal oversight—by Chinese standards—Beijing’s regulatory winds are shifting. In a series of regulatory actions which began last year, the CCP has made it clear that technology companies must work for the Party and directly support the Party’s goals. The CCP’s favors appear to be shifting away from the giants and toward smaller technology companies.  Premier Li Keqiang recently called for more Beijing support for the country’s smaller technology companies and retailers. It has been a recurring policy theme for China, with small to medium-sized businesses increasingly being prioritized by Beijing. CCP regime boss Xi Jinping has touted so-called China’s “little giants” for over two years. Beijing even created a national program to divert funding to small- to medium-sized enterprises involved in the science and technology sectors. The Ministry of Industry and Information Technology has identified almost 5,000 so-called “little giants” across the country, granting them financial incentives and tax cuts. Many of these companies align directly with the CCP’s goals of dominating in semiconductors, healthcare, and automation/robotics. It is a way to support China’s ambitions of growing an independent, domestic technology sector, which was severely crippled by the Trump Administration’s sanctions on firms such as Huawei. With major technology giants falling out of favor, the hope of CCP’s global technology dominance increasingly rests upon these small companies. Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times. Follow Fan Yu is an expert in finance and economics and has contributed analyses on China's economy since 2015.

Are Big Chinese Tech Firms in Trouble?

Commentary

When Icarus flew too close to the sun, he got burned, tumbled out of the sky, and fell into the ocean.

China’s technology giants have certainly been flying high. The cohort of Alibaba, Tencent, Baidu, and other platform companies have become household names, made their founders billionaires, run apps that Chinese people use on a daily basis, and altogether hold immense power—economically, politically, and socially.

We’re not predicting their demise here. But recent developments suggest that the Chinese Communist Party (CCP) may be gunning for these companies, their executives, and their business dealings.

The official communique issued after the recent Central Commission for Discipline Inspection (CCDI)’s 6th Plenum had some strong words, vowing “to investigate and punish any corruption behind the runaway expansion of capital and the monopoly of platform enterprises in order to sever the connections between power and capital,” according to the English version of Xinhua Press, China’s state-run news agency. 

Those word choices from China’s top anti-graft organization, specifically around “runaway expansion of capital” and “monopoly of platform enterprises,” suggest that investigations on the big technology firms are underway.

Regarding the expansion of capital and alleged monopoly activities, CCP regulators fined Alibaba and Tencent in January for failing to disclose a series of acquisitions that date back several years. The new round of fines follows several fines already extended to Alibaba, Tencent, and Baidu last year. 

And investigations are extending beyond the corporate level.

Concurrent to the CCDI announcement in January, CCTV aired a series of documentaries detailing cases of former local officials ensnared for corruption. One such example was that of Zhou Jiangyong, the former party secretary in Zhejiang Province—home to Jack Ma’s Alibaba—who allegedly gave certain companies preferential treatment in exchange for financial and economic assistance for his family.

While no specific companies were named by the CCTV documentaries, the Financial Times noted that Jack Ma’s Ant Group was one of the companies which purchased land at a discount in Hangzhou after buying ownership stakes in a company run by Zhou’s brother.

On Jan. 26, Zhou was officially expelled from the CCP by the CCDI for corruption.

These ongoing investigations could spell more headaches for Ma, who has already come under intense CCP scrutiny over the last two years.

More to come on this front, but CCP’s crackdown machines are revving their engines.

After decades of allowing Chinese entrepreneurs free rein to build their businesses with minimal oversight—by Chinese standards—Beijing’s regulatory winds are shifting. In a series of regulatory actions which began last year, the CCP has made it clear that technology companies must work for the Party and directly support the Party’s goals.

The CCP’s favors appear to be shifting away from the giants and toward smaller technology companies. 

Premier Li Keqiang recently called for more Beijing support for the country’s smaller technology companies and retailers. It has been a recurring policy theme for China, with small to medium-sized businesses increasingly being prioritized by Beijing.

CCP regime boss Xi Jinping has touted so-called China’s “little giants” for over two years. Beijing even created a national program to divert funding to small- to medium-sized enterprises involved in the science and technology sectors.

The Ministry of Industry and Information Technology has identified almost 5,000 so-called “little giants” across the country, granting them financial incentives and tax cuts. Many of these companies align directly with the CCP’s goals of dominating in semiconductors, healthcare, and automation/robotics.

It is a way to support China’s ambitions of growing an independent, domestic technology sector, which was severely crippled by the Trump Administration’s sanctions on firms such as Huawei.

With major technology giants falling out of favor, the hope of CCP’s global technology dominance increasingly rests upon these small companies.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.

Fan Yu

Follow

Fan Yu is an expert in finance and economics and has contributed analyses on China's economy since 2015.