Why Beijing Is Bringing Big Tech to Heel
(By Josh Freedman - February 4, 2021 – Foreign Affairs Magazine)
JOSH FREEDMAN is a Ph.D. candidate in the Department of Government at Harvard University.
It was supposed to be the world’s largest initial public offering. Ant Group, the Internet finance firm affiliated with Chinese tech giant Alibaba, planned to list on the Shanghai and Hong Kong stock exchanges in early November. But just days before the company’s highly anticipated market debut, Chinese regulators intervened to block the offering. Then, in December, the Chinese government fined several homegrown technology behemoths—including Alibaba and the Tencent subsidiary China Literature—for violating anti-monopoly laws, and top leaders pledged to further strengthen anti-monopoly efforts in 2021. In less than six weeks, the unexpected crackdown had decisively upended the conventional wisdom about Beijing’s attitude toward domestic corporate monopolies, which had long held that major Chinese technology companies were “immune” from antitrust rules.
Many observers have interpreted China’s sudden zeal for trust-busting as a belated attempt to join a growing global push to limit the power of Big Tech. Analysts in both China and the West have drawn explicit comparisons between China’s confrontation with Alibaba and recent U.S. and European efforts to rein in Google, Facebook, Amazon, and Apple, which share a concern about the abusive practices of “platform monopolies.” But China’s anti-monopoly actions have very different intellectual foundations than those underway in the West. Beijing’s recent antitrust efforts are motivated less by worries about the tyrannical nature of monopoly power than by the belief that China’s tech giants are insufficiently committed to promoting the goal advanced by the Chinese Communist Party (CCP) of transformative technological innovation—and thus may be undermining the effectiveness of Chinese industrial policy.
Historically, one major inspiration for anti-monopoly efforts in the United States is the idea that concentrated economic power endangers individual freedom. Thomas Jefferson argued that monopolies were incompatible with American self-governance and the ideal of the property-owning yeoman farmer and suggested that they be restricted by the U.S. Constitution. Although other framers, most notably Alexander Hamilton, saw centralized economic power as a necessary tool for powering the national economy, the idea that monopolies are detrimental to innovation, entrepreneurship, and democratic debate persisted in the United States—and formed the basis of antitrust legislation in the late nineteenth and early twentieth centuries. The introduction to last year’s report by the House Judiciary Committee on digital monopolies alludes to this long tradition of skepticism by highlighting a quotation attributed to U.S. Supreme Court Justice Louis Brandeis: “We may have democracy, or we may have wealth concentrated in the hands of a few, but we cannot have both.”
The CCP has embraced private entrepreneurs and tried to support small businesses in recent years, but there is little evidence that Chinese officials view monopoly power as inherently tyrannical. Marxist doctrine, which remains key to understanding political power in contemporary China, argues that true freedom requires the abolition of private property and can only be found collectively. Privatization policies in the 1990s still aimed to preserve the largest state-owned enterprises, which account for about a quarter of the total economy today. With the rise of the Internet, massive private tech companies, such as Alibaba and Tencent, were encouraged to grow because they were seen as internationally competitive and easier to monitor than endlessly proliferating small firms.
China’s policymakers and state-run media outlets have repeatedly described Beijing’s crackdown on Big Tech as “strengthening antimonopoly and preventing the disorderly expansion of capital.” The second half of this phrase, “preventing the disorderly expansion of capital,” stands out from other countries’ anti-monopoly efforts. It reveals the major source of the CCP’s concerns: the need to assert control over the direction of innovation and to find ways to channel the power of large private enterprises toward the party’s industrial policy goals.
In a recent interview with Economic Daily, Tian Lihui, a professor of finance at Nankai University, described the growth of large private businesses in the economy as a double-edged sword. “If capital expansion is orderly, it brings about economic growth and social progress; if capital expansion is disorderly . . . it will necessarily bring about monopolization that hinders economic development.” Zhu Ning, a researcher at Tsinghua University, made a similar point in an article promoted by the state newswire Xinhua, claiming that disorderly capital expansion threatens the economy, consumers, and society at large. Unchecked capital expansion, he explained, will naturally push society off the course of social and technological progress and toward the seductive power of easy profit. As Tang Jianwei, chief researcher of the Bank of Communications Financial Research Center, told the press, the problem is that domestic tech companies are using their capital to boost traffic and their user bases “without paying attention to originality and basic innovation”—the lagging elements of China’s tech strategy.
Chinese state media have held up the phenomenon of online “community group buying” for groceries as the paradigmatic example of disorderly expansion of capital. Alibaba, Tencent, food delivery giant Meituan, and even car-hailing app DiDi have all poured into community group buying, in which local communities can pool their grocery orders to procure supplies directly from wholesalers at rock-bottom prices. Though bypassing local sellers (often poor migrants from other parts of China) and ordering on digital platforms may be convenient, it threatens to upend migrant employment and disrupt broader food supply chains. A recent editorial in People’s Daily, the main party mouthpiece, chided Chinese tech giants for being concerned with “some cabbages and a few pounds of fruit” when there were great discoveries to be made. “Internet giants with access to big data and advanced computing should have a greater responsibility, greater pursuits, and a greater role in scientific and technological innovation,” it admonished.
The official pushback against online grocery shopping reflects Beijing’s concern that large Chinese tech companies are deploying their accumulated capital to take a larger share of the existing pie, rather than investing in the kind of research that could advance society as a whole. On December 22, China’s State Administration for Market Regulation (SAMR) brought leading tech companies together in a meeting and gave them the same message: stop focusing on short-term profits and do more to help China’s efforts to become a scientific and technological leader. The head of SAMR further pointed out that one of the priorities of his office in 2021 is to “promote the coordination of industrial policy and competition policy.”
The CCP has always emphasized large-scale investment in technology. And now that China faces slowing economic growth and rising geopolitical tensions with numerous countries around the world, Chinese leaders are more concerned than ever about boosting original innovation to meet the need for technological independence from other countries. In a speech in late January, Jiang Jinquan, the head of the CCP’s top policy office, appealed to private businesses to be a part of the “whole of country” effort to overcome China’s innovation shortcomings, saying the country would purchase successful results of private-sector R & D. Preventing the disorderly expansion of capital, then, does not mean opposing any accumulation of capital or monopoly power. It just means opposing capital accumulation that occurs outside the CCP’s planned innovation agenda.
Even though China’s anti-monopoly actions appear similar to those in liberal democracies, they may ultimately help the CCP to justify its system of authoritarian governance. Another recent article in People’s Daily argues that cracking down on monopolistic companies is “good governance” in the Confucian tradition. The author cites a line from Mencius: “Without a compass and a square, [skilled masters] cannot form squares and circles.” The implication is that even virtuous rulers cannot rule by virtue alone; they need tools, including laws and regulations, to govern. In this way, Beijing is just upholding its virtuous duty to use the tools at its disposal—in this case, antitrust actions aimed at reining in wayward monopolistic tech firms—to make the state as strong and powerful as possible. Actions against monopolistic tech firms in the United States that are viewed as essential to preserving democracy are, in the Chinese case, considered part and parcel of effective nondemocratic rule.
China’s recent antitrust moves are best understood less as a sudden ideological shift toward fearing monopolies than as a warning shot across the bow of Big Tech. As top leaders reiterated since the crackdown on Ant Group and others in November, the party does not want to stop the development of platform companies or the growth of globally competitive private brands as long as they are expanding in an “orderly” direction. This could mean that the more obvious first target of Beijing’s antitrust efforts is to change companies’ behavior or implement a few regulatory safeguards against financial or systemic risks, rather than fundamentally breaking up their institutional structure.
Under the CCP, the enemy is not capital but its disorderly expansion. Because the CCP’s monopoly on political power gives it sole authority to define the public good, there is no reason why companies ought to be able to pursue private gains rather than the party’s goals. The recent antimonopoly actions in China are a forceful reminder to any large company that may have forgotten its proper place in the nation’s economic system: to follow the innovation direction of the party, not to use its own power to make money by navigating a different course.