Loans, taxis, education: what’s next in China’s tech crackdown?

We are all too familiar with how power is claimed and retained in a multi-party democracy. But how does one retain power and legitimacy in a single-party system? For starters, you can purge your enemies after coming to power. Then you can amend the Constitution to abolish term limits. You can also announce the end of poverty. What next? What do people who will soon be moderately prosperous want from life? This is the Chinese Communist Party’s dilemma in the 100th year of its existence.
The party wants to be the sole provider or guarantor of life’s necessities. And this is causing untold misery to capitalists and entrepreneurs who want to make money while improving people’s lives. They truly believed China had abandoned socialism and the party would never sacrifice China’s vibrant internet ecosystem. Alas, the pandemic bestowed more power in the hands of technology companies than they ever wanted.

Last autumn, just days after Jack Ma criticised the state-owned banking system, the IPO of Ant Financial, which provided easy loans to unbanked individuals, was cancelled at the last minute. A few months earlier, for the first time in China’s history, banks had been ordered to open dedicated credit lines for small businesses and individuals to mitigate effects of the pandemic. Affordable loans had become a form of public goods, and it was important that the party was seen as prioritising the common people’s needs.

Winter brought new challenges. The Biden administration, which was expected to dial down Trump’s rhetoric and go soft on China, disappointed. US-China tensions were promoted into the institutional realm and lengthy blacklists of Chinese companies were published to shame the Chinese Communist Party. Trade between the world’s two largest economies is worth more than $600 billion so a trade embargo as retaliation was not feasible.

The only option to inflict economic pain was to stymie capital flows. In a move akin to chopping one’s finger to spill blood on a neighbour’s doorstep, the party decided to order the removal of ride-hailing app DiDi from app stores immediately after it listed on Wall Street. Socialism had struck the shrine of capitalism. The monopolist Didi’s alleged crime was that it had outdone the party in hoarding data on the movements of Chinese people.

The pandemic amply demonstrated the untrammeled power of data, an area where the party had an early-mover advantage. It had already launched experiments on social credit, digital currency and monitored people at a scale that was unmatched by any government in the world. No technology company could be allowed to breach such an advantage. The party’s stranglehold on the media made it easy to convince ordinary citizens that monopoly over data was a public good that could not be entrusted to a private technology company that sought a foreign listing. A Tarantino-esque sequence that coalesced domestic politics and foreign policy into a state-led war against private technology was truly underway.

In a bid to mitigate problems caused by China’s rapidly ageing population, the party first relaxed its one-child policy in 2015. Then, shocked by the results of the Seventh National Census, it announced a three-child policy in May 2021. In other words, a single child born in the 1990s could now dream of having up to nine grandchildren. This certainly made the Chinese Dream more attractive but there was a small wrinkle. Educating three children in today’s China is simply unaffordable, even for upper-middle class couples with two incomes. While public schools provide primary education that is patriotic and affordable, they are woefully inadequate for students aspiring for jobs in multinationals or a life abroad.

A few nimble technology entrepreneurs from Zhong Guan Cun, China’s Silicon Valley, had sought to bridge the gap by operating virtual classrooms that enabled one single teacher to simultaneously engage with more than a thousand students.

This edtech business model brought them untold riches on Wall Street but also increased inequality at home, where mounting costs of online classes had made a three-child policy untenable.

Last week, the edtech giants lost their superpowers and market capitalisation when the party put core curriculum off limits, thus reducing them to mere hobby-class providers. The Chinese premier himself stepped in through a video conference to gather brownie points from parents who bore three burdens—maternity, parenting and education. One of his deputies chimed in with words that translate into predictions about more state supervision over medical, education and housing sectors to lower costs and encourage larger families.

Indian technology entrepreneurs and VC influencers have been quick to claim that China’s crusade against tech giants will boost the standing and valuation of homegrown startups. There could be some truth in this prophecy, owing to the scarcity of large untapped markets worldwide.

However, foreign investors looking at India will need more than Zomato’s listing to be convinced. They still worry about the absence of a comprehensive data protection law, an ad hoc national security screening process, unpredictable outcomes of the Atmanirbhar Bharat initiative that could promote crony capitalism, the government’s clashes with Twitter, and so on. When manufacturing investments started moving away from China, it was Vietnam, Bangladesh and others that reaped immediate benefits. If the Indian tech ecosystem is to consolidate gains from China’s loss, a lot more introspection is required. Merely contrasting ourselves against a power grab in a single-party system will not suffice.

Santosh Pai is Honorary Fellow at the Institute of Chinese Studies.