What China Expects From Businesses: Total Surrender

Unlike regulators in Europe and the U.S., Beijing is using the guise of antitrust to bring powerful tech companies into line with its priorities. From a report: When Pony Ma, head of the Chinese internet powerhouse Tencent, attended a group meeting with Premier Li Keqiang in 2014, he complained that many local governments had banned ride-sharing apps installed on smartphones. Mr. Li immediately told a few ministers to investigate the matter and report back to him. He then turned to Mr. Ma and said, 'Your example vividly demonstrates the need to improve the relationship between the government and the market.' By then Tencent had invested $45 million in a ride-sharing start-up called Didi Chuxing, which later became a model in the government's push to digitize and modernize traditional industries. When President Xi Jinping met with global tech leaders in Seattle in 2015, Didi's founder, Cheng Wei, then 32 years old, joined Jeff Bezos of Amazon, Apple's Tim Cook and Mr. Ma at the gathering. But the relationship between Beijing and the tech sector has splintered badly in the past year. Didi is now a target of the government's regulatory wrath. Days after the company's initial public offering in New York last month, Chinese regulators pulled its apps from app stores on the grounds of protecting national data security and public interests.

At the heart of the Didi fiasco, and to a large extent China's increasingly aggressive antitrust campaign, is the question of what Beijing expects from private enterprises. The answer is a lot more complicated than in the United States or Europe. China's Big Tech wields as much power as the American tech giants in the national economy. Like their American counterparts, the Chinese companies have appeared to engage in anticompetitive practices that hurt consumers, merchants and smaller businesses. That deserves scrutiny and regulation to prevent any abuse of power. But it's important to keep in mind that the Chinese tech companies operate in a country ruled by an increasingly autocratic government that demands the private sector surrender with absolute loyalty. So unlike the antitrust campaigns that European and American officials are pursuing in their regions, China is using the guise of antitrust to cement the Communist Party's monopoly of power, with private enterprises likely to lose what's left of their independence and become a mere appendage of the state. The developments at Didi amount to 'a shock-therapy type of enforcement,' said Benjamin Qiu, a partner at the law firm Loeb & Loeb in Hong Kong. 'We could see more control by the state, with in-effect data nationalization as the end result.'

The Communist Party made it clear last year that it needs 'politically sensible people' in the private sector who will 'firmly listen to the party and follow the party.' They should contribute more to the longevity of the Communist Party and help make China great again, the party said. The message, people in the tech industry said, is that businesses need to prove that they're useful and helpful in advancing the government's goals while avoiding causing trouble. Didi didn't heed the message, these people said. They were surprised that Didi defied some regulators' objections and rushed its I.P.O. through in the current regulatory environment. For some government officials, Didi's U.S. listing was 'yang feng yin wei' -- to comply publicly, but defy privately. The word choice is revealing because the phrase is often used to describe a subordinate's betrayal of a superior.

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