China and US Tech Crackdowns Will Shape the Future

It’s not a good moment to be a technology giant. In the past, high-flying IT firms in China were among the few who could function independently.

Alibaba’s Jack Ma and Didi’s Jean Liu were regulars at Davos and became international symbols of Chinese innovation. No longer.

Tencent’s record IPO was halted in November 2018 after Ma gave a speech critical of Chinese authorities, and he was effectively “disappeared” for months. Tencent subsequently received numerous fines for antitrust breaches; since last year, the companies have lost around 20% of their value — a total worth over 300 billion.

Meanwhile, Didi’s stock plummeted 40% when the company was prohibited from Chinese app stores.

Chinese regulators have recently imposed new barriers on edtech and gaming — as well as completely banned cryptocurrency — to protect investors’ interests in accordance with the country’s laws and regulations.

The United States’ technology entrepreneurs might be free, but they are also becoming the object of state investigation.

Lina Khan, Tim Wu, and Jonathan Kanter are among the leading antitrust attorneys who have joined the Biden administration. Meanwhile, Congress is considering new legislation that would govern internet technologies on a number of issues including privacy and age restrictions.

The message is clear: In both Beijing and Washington (as well as Brussels, which has been battling tech giants for years), the general feeling is that Big Tech has gotten too powerful and unaccountable.

According to government officials across the political spectrum, democracy must now be protected in the name of public benefit. For founders, executives, and investors, political risk has never been higher.

While both policies appear similar on the surface, the consequences of China’s and the United States’ antitrust strategies couldn’t be more divergent. Antitrust enforcement in China is being utilized as the sharp end of the stick by the ruling Communist party.

However, while American advocates of antitrust might have different goals, Chinese authorities are using data privacy and restricting kids’ screen time as fig leaves to cover up their real intentions: total political and economic domination.

In a nation without its own independent civil society, the technology industry has been one of the few areas where power has been able to spread outside of the Communist Party.

In Xi Jinping’s increasingly authoritarian regime, such autonomous sources of power are harmful (see: Hong Kong). The message is clear: follow the party line or face the might of the Chinese state.

Influence in China grows even more. For years, China has sought to dominate the next generation of technology and has implemented standards for a range of essential industries and sectors, such as 5G and AI, as part of its China Standards 2035 project.

While controlling businesses that create these technologies is an important aspect of this strategy, Beijing also understands that dominating organizations involved in these developments is just as critical.

The growing popularity of Huawei, Xiaomi, and TikTok might not actively surveil Westerners, as many Western politicians believe, but the more popular their usage becomes, the more Chinese standards become standard worldwide. Although Jack Ma shares his name with an American internet entrepreneur, he is not connected to the same family.

In contrast, the founding family of Huawei, China’s 5G leader, has been discredited. Ma may be a Communist Party member, but Huawei’s success in making Chinese technology the standard 5G kit throughout much of the world burnishes Chinese technological credibility.

Of course, Huawei has capitalized on its proximity to Beijing — choosing Huawei has come to signify a vote of confidence in China — but it has also been prepared to take chances.

Huawei has been the subject of an American campaign against it, culminating in the arrest in Canada of CFO Meng Wanzhou, the daughter of the firm’s founder, on charges that she violated US sanctions against Iran.

Loyalty does not go unpunished, as two Canadians were recently arrested in Beijing and used their imprisonment to negotiate a settlement for Meng’s freedom.

Huawei was already beholden to Beijing before, but it is even more so now. For China’s other tech CEOs, the takeaway is clear: the party looks after its own.

China’s campaign has frightened investors, misdirected talent, and may very well have killed the entrepreneurial spirit that created its strong technology sector.

It has, without a doubt, succeeded in forcing its IT giants to submit to Beijing’s authority in the service of Chinese power.

Is Beijing demanding that its technology companies serve the country’s best interests, while the United States urges its own to do what exactly?

U.S. enforcement authorities might be concerned about excessive technological power, but they don’t have any practical plans for how a more competitive industry would work.

Although American technology firms have, on rare occasions, made the (ill-founded) case that their size is critical to America’s competitiveness, neither they nor the government consider them as instruments of US influence.

You’d be challenged to determine which body Congress regards as the bigger foe: tech giants or China. Antitrust supporters believe that breaking up or at least controlling the likes of Google and Apple would result in more competition, which would be beneficial to both the public and the US technology sector as a whole.

But while separating AWS from Amazon or Instagram from Facebook might benefit users, will it help America maintain technological dominance? It’s hard to tell.

The free-market, capitalist system that has been the envy of the world for centuries — open, flat, democratic — has produced the greatest innovators in history.

It has benefitted from government-sponsored R&D, but the sector has thrived regardless because Americans are regarded worldwide as trustworthy individuals who follow the rule of law rather than whatever government is in office.

And that’s been a positive thing: Because they are known to obey laws and notsides of power, American businesses (usually) have a good reputation among consumers throughout the world.

Can a decentralized, uncoordinated industry compete with one governed by a superpower and focused on efficiency? I am confident that American (and foreign) creativity will triumph where it has in the past.

Openness promotes innovation. Our academics and companies are among the best in the world. Furthermore, keeping an eye on competition may indicate a future rush.

But there is, at the very least, potential for a limited national strategy. I’m not suggesting that the United States needs an industrial policy like China’s; after all, as we’ve seen, China’s top-down approach has resulted in epic waste that might plague its economy for years to come.

And a “break them up” approach may well be more harmful than helpful.

Rather, American legislators should work across the Atlantic to develop a reasonable framework for global competition standards. The establishment of the new U.S.-EU Trade and Technology Council and Quad technology working group can help create a genuine democratic technology bloc that encourages collaboration while preserving fair play.

This neutral middle path — giving government support without forcing commercial results — has precedent (see: the Cold War origins of Silicon Valley).

It’s also the finest approach to provide safeguards for America’s technology sector while preserving its entrepreneurial spirit.

Nothing less than American economic leadership is on the line as Congress and the administration consider how to tackle tech competition in the near future.