The following is an interview by Project Syndicate with Angela Huyue Zhang, author of High Wire: how China regulates Big Tech and governs its economy (Oxford University Press, 2024).
Project union: In 2020, Chinese regulators launched a repression on technology companies – a process that costs companies more than $1 trillion in market value. How has the crackdown changed the culture of innovation and entrepreneurship in China? Has this had any positive effects?
Angela Huyue Zhang: The crackdown appears to have yielded few, if any, positive results. Beyond its inability to encourage new entrants to the market, it appears to have consolidated the dominance of incumbent operators. Furthermore, this has seriously undermined investor confidence, leading to a substantial reduction in capital flows to the consumer technology sector.
As private entities retreat, the state advances. For example, government-backed funds or companies acquire stakes in key subsidiaries of tech giants; These “golden shares” allow the government to exert more control over content moderation and other business decisions. Finally, the crackdown allowed the state to direct investments in the technology sector, leading private and state-backed investors to increasingly focus on so-called technology sector investments . hard technology.
PS: China has “good reasons to regulate”, you write in your next book: High Wire: how China regulates Big Tech and governs its economy, notably because its platform economy has “become very undisciplined”. If Alibaba’s “forced restructuring” last year was not in the right way To control a company that had become too big, how should the authorities have responded to monopoly problems?
AHZ: Chinese antitrust authorities should have intervened much earlier to curb the rapid expansion of leading technology companies like Alibaba and Tencent. Instead, they allowed these giants’ acquisitions to proceed without any regulatory oversight, let alone constraints, for more than a decade.
For Chinese companies, the key to circumventing government investment restrictions was the “variable interest entity” (VIE) structure, which allowed them to raise capital overseas. Given the uncertainty surrounding the legitimacy and applicability of the VIE structure, administrative authorities such as the Ministry of Commerce have avoided reviewing merger transactions involving companies that have adopted it. This has worked for China’s big tech companies, which have amassed significant market power – so much power, in fact, that it will now be extremely difficult to change the competitive landscape.
PS: Chinese regulators have recently relaxed their policies. For example, you notice that they rather take a lax approach has artificial intelligence, in order to give Chinese companies a “competitive advantage over their American and European counterparts”. But this approach also carries risks. In High wire, you compare China’s regulatory system to a particularly difficult balancing act, characterized by “hierarchy, volatility and fragility.” What are the implications of this “dynamic pyramid model”, as you call it, for Chinese regulation?
AHZ: Chinese regulation is characterized by repeated cycles of policy easing and tightening. Chinese regulators’ lax approach to AI today could sow the seeds of a regulatory crisis tomorrow. And because China’s regulatory structure is rigidly hierarchical, the transmission of information within the bureaucracy is sometimes very inefficient, so regulators often fail to respond to problems as they arise. Instead, they tend to wait until the problem becomes quite serious, so the costs of changing course are high.
PS: In your book, you note that “Chinese technology companies self-regulate” with the participation of the judiciary. How do Chinese tech companies act as “quasi-regulators” and how has the judiciary facilitated the growth of the platform economy?
AHZ: The vast majority of disputes arising from large online platforms are primarily decided by the platforms themselves. This is because these complaints tend to be very small, so rather than going to the trouble of filing lawsuits, most consumers and merchants rely on the platforms themselves to resolve their complaints. But platforms sometimes need support from the legal system, particularly when enforcing claims proves difficult. Chinese courts have devoted enormous resources to resolving disputes involving technology companies and, in doing so, bolstered the credibility of corporate “self-regulation.” The government is thus effectively giving a helping hand to technology companies.
PS: A number of “seemingly random policies” implemented by the Chinese government since 2020, you write in High wire, “are all linked by a common desire to fight against inequalities”. Which of these policies have been – or are likely to be – particularly effective, and which are misguided?
AHZ: All of these policies seem well-intentioned, but the way the government has implemented them has led to serious unintended consequences. Due to the power imbalance between business and government in China, any negative political signals can cause tech stocks to fall. Investors lack confidence in the ability of technology companies to thwart government intervention. Ultimately, the market’s deep distrust of China’s legal system is the main cause of investor pessimity.
PS: How might regulatory trends in the United States and the European Union affect the trajectory of technology governance in China?
AHZ: Regulatory trends in the United States and the European Union are poised to influence Chinese technology governance in three ways. First, Chinese policymakers could emulate their Western counterparts by increasing oversight of big tech companies. Second, the expansion of U.S. surveillance abroad and aggressive assertion of jurisdiction over foreign data will likely prompt China to enforce stricter rules on cross-border data transfers. Finally, China could use its control over data outflows as a bargaining chip in negotiations with the EU and other countries that are tightening their data outflow regulations.
