Lessons for Other Countries from China’s Crackdown on Big Tech

What can low- and middle-income countries learn from China’s recent approach to regulation of big tech?

What Happened?

China’s digital economy can be categorised into three phases[1]: a more open phase starting in the 20th century that encouraged foreign investment and collaboration; a focus on state support to build national and then global digital champions; and most-recently some degree of state backlash against the monsters it had helped create.

The straw that broke the camel’s back and made the third phase explicit was a speech by Jack Ma, founder of Alibaba, on 24th Oct 2020 critical of recent attempts at financial regulation by agencies of the Chinese state.  However, plans for tighter regulation of big tech in China had been underway since 2018, and actions on the wider digital economy such as fintech lenders had begun even earlier.[2]  Call it “crackdown” or “rectification”, the Chinese state introduced during 2020 and, especially, 2021 a series of measures that ran alongside a new narrative asserting that action was required in the digital economy in order to “limit the disorderly expansion of capital” and to deliver “common prosperity”.[3]

There were new financial rules, ensuring large fintech firms had much greater funds to cover the loans they were making, and banning edtech firms from accepting foreign investment and, effectively, preventing them from making a profit.  Anti-monopoly guidelines included new legal rules on assets intended to force break-ups and sell-offs, and to open up e-commerce marketplaces for smaller enterprises.

Tighter data rules arose with both the Data Security Law and Personal Information Protection Law coming into effect during 2021 and being used to provide greater state oversight over localisation, export and privacy of data held by big tech. As part of this, more than 100 firms were investigated for claimed illegal collection of data.

Redistributive regulations encouraged or forced redistribution of big tech profits to workers or to other pro-equality projects.  Other actions included restrictions on the number of hours per week minors could spend gaming, bans on cryptocurrency, and tax investigation of online influencers.

What was the Impact?

Overt effects noted so far of the increased regulation have been manifold[4].

Direct impacts have included some delinking from foreign investment with, for example, the suspension of Ant Group’s and ByteDance’s US IPOs.  There has been a substantial loss in market value of China’s big tech firms – hundreds of billions of US dollars-worth of share price losses; particularly hitting foreign investors which, in turn, has led to a significant decrease in foreign investment in China’s digital economy. More specific direct impacts include Didi being blocked from adding new users and having its app removed from app stores; Meituan being made to raise wages and provide insurance for its workers, and Ant Group and others having to share data with public agencies.

Regulatory pressures have encouraged the break-up of big tech firms or their withdrawal from certain investments, the most recent being Alibaba’s March 2023 announcement of its separation into six different business units. While adhering to anti-monopoly rules and signalling a lack of intent to empire-build, these partitions have also hampered firms given “that a crucial aspect of the business model adopted by these tech giants is building an integrated ecosystem involving multiple complementary industries”[5]. Local investment in the digital economy has been reduced, with estimates of more than 200,000 job losses in internet companies in the nine months from mid-2021 to spring 2022, alongside less concrete or quantifiable outcomes in relation to reduced levels of digital innovation.

Other impacts were more notable for their symbolism: the heads of tech firms including Alibaba, Pinduoduo, ByteDance, Meituan and Didi stepping down and/or disappearing from public sight; huge, billion-dollar donations by tech firms to “common prosperity” funds and other philanthropic endeavours; fines costing hundreds of millions or even billions of dollars for many tech firms including Baidu, Alibaba, Tencent, Meituan, ByteDance and Didi for abuse of monopoly or breach of data regulations.

What’s so far unclear is whether the measures taken against big tech have reduced any of the four big inequalities in China: high concentration ratios and monopolies in key digital markets; income/wealth inequalities between rich and poor; geographical inequalities between regions and between urban and rural; distributive inequalities between capital and labour.  Recent papers[6] discuss the relation of digital to common prosperity but so far only show the potential for digitally-enabled reduction in geographical inequalities on the basis of historical data.

Given that a number of the listed impacts have not been in the national interest, some roll-back occurred from 2022 onwards[7]. Early in 2022 there were some more positive statements from government officials about the value of the platform economy, then more explicit support in May for tech firms seeking domestic and overseas listings. By 2023, Didi was allowed to register new users, new licences for gaming firms were being issued, Jack Ma reappeared in mainland China, and officials were explicitly reassuring tech firms about some easing of the earlier regulatory tightening; albeit making clear there would be no return to the pre-2020 situation.

Why did it Happen?

For sure, there may have been economic concerns at the highest levels of the Communist Party about financial instability and economic inequality, but the core rationale for the measures comes down to one word: control.

This came particularly with the run-up to the 20th Party Congress in 2022 that gave Xi Jinping an unprecedented third term, but more generally as part of Xi Jinping’s steady reversal since 2012 of the relatively decentralised and distributed model of power that had existed since the time of Deng Xiaoping[8].  Three different domains of centralisation of control can be identified[9].

Social control: seeking to maintain the legitimacy of the Party by giving at least the appearance, during a period of Covid disruption and slowing growth, of addressing social issues like inequality, digital exclusion, platform lock-in of consumers and small sellers, resentment of middle-class parents paying edtech platforms for education the state did not provide, and social ills like gaming addiction.  Alongside this, alternative, critical narratives were silenced with, for example, initial action against Jack Ma and Ant Group making clear that public dissent against Party policies would not be tolerated.

Economic control: growth of the private sector and the shrinking role of state-owned or -affiliated enterprises within the overall economy has left the state with fewer direct levers of economic control.  The state has thus taken direct stakes in a number of big tech firms and through this and other means, placed party members onto company boards in order to have a measure of direct control.  The financial and other measures have sought to stabilise and control markets.  Alongside this, the measures have sought to reduce the extent of foreign economic control over Chinese big tech, even where there are foreign investors.  They have also sought to help shift resources both within and between tech firms from digital activities with lower national priority (such as e-commerce and social media) to those with higher national priority (such as AI, chip production and quantum computing).

Political control: growth, profile and political connections of big tech leaders and firms in China had made them into new loci of power; something seen as a directly challenge to the Party.  In general, all of the regulatory actions were an assertion of state control over big tech, especially as data – named as a factor of production since April 2020 and a growing source of power – is now being harvested and analysed in huge quantities within these firms.  In parallel, there were even-more covert objectives with action against Ant Group seeking to deny windfall profits that political rivals of Xi Jinping would have gained had the company been listed overseas.  Punitive actions against Didi after it proceeded with an overseas IPO against state wishes also sent a symbolic message about who was in charge.

What are the Lessons?

China is a global digital superpower with unique features including the power and capacity of the state, the size of the national digital economy, and the size and reach of its digital firms.  So the idea that global South governments might replicate what China has done does not make sense.

However, a few lessons can be drawn.

1. Politics Trumps Economics in Policy-Making.  China’s recent policies have damaged its digital multinationals and its digital economy.  But digital policy has been made – as policy often is – for political much more than economic reasons.  Digital policy advice and digital policy research needs to recognise the primacy of politics.

2. Policy Responsiveness is Good; Policy Uncertainty is Bad.  Likely recognising that it had gone too far, the Chinese state reversed direction a bit from 2022.  Changing policy direction in response to the negative impacts of policy is highly recommended.  What is not recommended is the uncertainty created by what can be perceived as two significant changes in direction in three years including a partial backtrack.  That uncertainty is heightened when policy-making is highly-centralised and without transparency.

3. Policy Structures Matter.  Digital policy advice and analysis focuses a lot on the content of policy but much less on policy structures.  China’s experience shows how structures matter[10].  It is not a specific feature of recent policy but China’s digital policy is fragmented across a large number of agencies. This has been partly organic as digital constantly raises new issues that different traditional agencies may try to deal with but which also encourage formation of new agencies.  It has also been partly deliberate to avoid creating a single state agency powerbase for digital policy that could challenge central authority.  But this complicates policy-making and raises the likelihood of policy contradictions that harm the digital economy with, for instance, mixed messages having been given by different agencies during the clampdown.  Likewise, heavy centralisation of policy can give a strong sense of direction if chosen correctly, but it may also amplify policy errors and lead to policy inertia if all decisions have to run through a central point.  Whatever the rights and wrongs, it means that policy needs to be built on appropriate structures as much as appropriate content.

4. Targeted Regulation Works Better than Blanket Regulation.  China’s recent policy initiatives have been somewhat targeted[11].  For example, while cracking down on e-commerce or data issues within the BAT big three of Baidu, Alibaba and Tencent, there has been “little regulatory interference” and, indeed, state support for these companies’ work on the “deep tech” priorities of the state such as AI and high-end chip production.  That differentiated approach to digital policy has helped more than an indiscriminate crackdown would have.

[1] To, Y. (2023) Friends and foes: rethinking the party and Chinese big techNew Political Economy, 28(2), 299-314

[2] Creemers, R. (2023) The Great Rectification: A New Paradigm for China’s Online Platform Economy. Available at SSRN

[3] Economist (2021) China’s government is cracking down on fintech. What does it want?, Economist, 13 Mar; Economist (2021) China’s rulers want more control of big tech, Economist, 8 Apr; Economist (2021) Didi’s removal from China’s app stores marks a growing crackdown, Economist, 5 Jul; Poswal, V. (2022) Xi Jinping’s Crackdown on Big Tech-CompaniesInternational Journal of Multidisciplinary Educational Research, 11(5), 67-70; Wu, Y. (2022) Understanding China’s Digital Economy: Policies, Opportunities, and Challenges, China Briefing, 11 Aug; Collier, A. (2022) China’s Technology War: Why Beijing Took Down Its Tech Giants. Springer Nature; Creemers (2023)

[4] Economist (2021, 8 Apr); Economist (2021, 5 Jul); Pathak, S. (2021) China’s Tech Crackdown: Why Now. Science, Technology and Security Forum, Manipal University, Karnataka; Poswal (2022); Sun, X. (2022) Decoding China’s” Common Prosperity” Drive, LSE Ideas, April; Collier (2022); Interesse, G. (2023) Is China’s ‘Tech Crackdown’ Over? Our 2023 Regulatory Outlook for the Sector, China Briefing, 22 Feb; Economist (2023) Alibaba breaks itself up in six, Economist, 30 Mar

[5] Sun (2022)

[6] E.g. Jiechang, X., & Cheng, L. (2022) Empowerment of Common Prosperity through Digital Economy: Pathways and Policy Design. China Economic Transition5(1), 41-61; Zhao, T., Jiao, F., & Wang, Z. (2023) Digital economy, entrepreneurial activity, and common prosperity: Evidence from China. Journal of Information Economics1(1), 59-71

[7] To (2023); Interesse (2023)

[8] Sun (2022)

[9] Economist (2021, 8 Apr); Economist (2021) What tech does China want?, Economist, 9 Aug; Pathak (2021); Economist (2021) China’s communist authorities are tightening their grip on the private sector, Economist, 20 Nov; Poswal (2022); Sun (2022); To (2023)

[10] Sun (2022)

[11] To (2023)


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.