July 27, 2021geopoliticsinformation age

Why China is attacking its consumer internet companies

Because size, reach and control of consumer data gives them narrative power. Xi is pre-empting threats to the Communist Party's monopoly on political power.

At first glance it does not make sense. Why is the Chinese government deliberately attacking some of its biggest and most successful internet companies?

Jack Ma — despite his reinvention into a cheerleader of the Chinese Communist Party — was the first big name to fall. Beijing’s attack on Didi soon after its US IPO came next. This seemed doubly inexplicable because the political risk on investments in Chinese companies went up, putting a dampener on the terms on the money Chinese firms could raise from Western capital markets. The list goes on: Tencent, Baidu, ByteDance and a host of other companies have been targeted for various infractions and violations by Chinese regulators. At a time when China is engaged in a tech war with the United States, why is Beijing shooting the strongest players on its own side?

Noah Smith attempts to explain this puzzle in his newsletter. His answer: Xi Jinping believes Chinese intellectual capacity is being wasted on frivolous consumer service companies while it really ought to be invested in strategic technology such as semiconductors, hardware and core stuff like artificial intelligence.

Now, it’s unclear if the opportunity costs of talent are so stark in China that the government must crack down on consumer internet companies in order to incentivise people to get into hardware. But Smith’s explanation is consistent with the popular view that China’s leaders are astute and inscrutable strategists who think really long term.

I first wrote about this issue in The Intersection, my fortnightly Mint column in April 2019.

Well, I don’t think they are any more astute or strategic-minded than politicians in other countries, although they project themselves that way, using inscrutability to their advantage. Their foreign policy and, as I recently noted, their recklessness in cyber attacks gives us cause to invoke Cipolla’s laws.

I spent a couple of weeks trying to answer this question until I realised that I had already answered it a couple of years ago.

The political power of technology platforms comes from their narrative power more than their market power; from mindshare more than market share.

My answer is simple: it’s about political power. In fact, if we frame the question differently, the answer becomes readily apparent: Why is the autocratic leader of the Chinese Communist Party attacking media companies that directly reach almost everyone in the country?” Because size, reach and control of consumer data gives them narrative power comparable to what the Party has. Further, the ability to tap foreign capital gives them more freedom, albeit of the kind with Chinese characteristics. The Party doesn’t like that. And Xi likes it even less. That is why he moved aggressively to pre-empt a challenge to the Party’s narrative dominance and preserve its monopoly on power.

China has been cracking down on prominent social media voices since before Xi became General Secretary. He just took it to a different level. Now that it has become clear that internet companies can use insights from customer data to manipulate what people think, believe and do, the Party is reining them in. It’s consistent with what it has been doing since Mao Zedong’s time: ruthlessly cutting down challenges to its hold on Chinese minds.

That’s it, folks. Nothing more to see here.

My colleagues at Takshashila are working on governance of transnational technology platforms. Check out our work.

PS. Beyond China, there is a legitimate case for liberal democracies to prevent any firm or entity from acquiring dominant narrative power. Governments are throwing anti-trust, national security and crime prevention statutes at transnational technology companies, but that is using an axe to drink soup. Sure, you’ve got to use the cutlery you have and you’ll probably taste some ministrone. But you might hurt yourself. And you’ll certainly look stupid.



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