Technical data

China kills its technological goose that lays golden eggs


US politicians from both parties in Congress fear that China will overtake America as a world leader in science and technology. In a rare display of two-party politics, the normally blocked Senate passed a bill in early June that planned to spend nearly US $ 250 billion over the next decade to promote cutting-edge research. But lawmakers may worry needlessly, as the Chinese government appears to be doing everything it can to lose its technological race with America.

The latest example of China’s penchant for self-harm is the sudden and arbitrary regulatory action taken by the Cyberspace Administration of China (CAC) against Didi Chuxing, a ridesharing company that recently raised US $ 4.4 billion in a IPO on the New York Stock. Exchange. On July 2, just two days after Didi’s successful bid, which valued the company at more than $ 70 billion, the CAC, a department of the ruling Communist Party of China posing as a state agency, announced a review of the company’s data security. Two days later, the ACC brutally ordered Didi’s removal from app stores, a move that wiped out nearly a quarter of the company’s market value.

The CCP’s crackdown on Didi under the pretext of data security appears to be just the start of a larger campaign to assert control of China’s burgeoning tech sector. On July 9, the ACC further shocked tech entrepreneurs and their Western investors by officially announcing that all companies with data from more than one million users must pass its security exam before being listed on the stock exchange at abroad. Once fully implemented, the new policy could stifle Chinese tech companies‘ access to foreign capital.

Ironically, the hawks of the United States and China have long dreamed of accomplishing just that. In December last year, Congress passed a law allowing Chinese companies to be delisted from U.S. stock exchanges if they fail to meet U.S. auditing standards. Now it looks like Congress shouldn’t have cared. Its nemesis, the CCP, will now do the same job much more effectively and thoroughly.

Any so-called data security review conducted by a secret party agency with little technical expertise, no legal accountability, and accountability only to its political masters will erect another unpredictable regulatory hurdle deterring most, if not all, foreign investors. Since foreign backers of Chinese tech start-ups typically plan to withdraw their investment through an overseas listing, preferably in New York, the prospect of a CCP agency exercising a veto power. on future quotes can make them extremely reluctant to invest.

Foreign investors, usually well-established venture capital firms, provide not only much needed funding, but also valuable expertise and governance best practices that are critical to the success of tech start-ups. Almost all of China’s dominant tech giants, including Alibaba, Tencent, and Baidu, have relied on foreign funding to grow into spectacularly successful companies. If the CCP had demanded a similar review of data security two decades ago, none of them would have existed – and China’s tech landscape today would be bleak.

The CAC’s crackdown on China’s most successful tech companies is not motivated by concerns about data security. The Chinese surveillance state does not offer citizens any security or data privacy to speak of. And given that China’s data security law already requires all tech companies to store their data within the country’s borders, government concerns about a potential data leak from a ridesharing platform such as Didi hardly deserve radical rule changes and arbitrary restrictions. Minor regulatory adjustments would be more than sufficient to address the legitimate concerns of national security policy makers.

But foreign investors who hope the Chinese rulers realize their folly and back down should think again. Killing the proverbial goose that lays golden eggs seems to be a specialty of the CCP. In fact, neither Didi nor Alibaba, who in April received a record US $ 2.8 billion antitrust fine from the Chinese government, are not even close to being the largest such creature as China. recently felled. This unwanted distinction belongs to Hong Kong, whose autonomy and prosperity have been seriously threatened since the government imposed a draconian national security law last year.

Paranoia, intimidating instincts, and disregard for property rights run deep in the collective CCP psyche, predisposing the Chinese government to self-destructive policies, regardless of well-meaning advice or even evidence of their harmful consequences. And an excessive centralization of power under strong man rule in China today has made self-correction almost impossible.

For Chinese tech entrepreneurs, Didi’s struggles should serve as a rude awakening. Many may think they can prosper under a dictatorship as long as they stay out of politics and focus on money. However, to paraphrase Leon Trotsky, while they may not be interested in dictatorship, dictatorship is very interested in them.

A well-known Chinese proverb applies to the CCP. The party continues to “hurt his loved ones and delight the enemy” (qintong choukuai). China’s tech bosses are learning the hard way that they may have more to fear from their own government than from bipartisan American sinophobia.


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