August 31, 2021
China's Tech Sector Is Too Big To Fail - That's Why Beijing Is Cracking Down on It
Heritage Visiting Fellow Michael Cunningham writes <[link removed]> that Beijing’s ongoing tech crackdown sent U.S.-listed Chinese stocks into a tailspin and left investors and
analysts wondering what is going on in China. Does the ruling Chinese Communist Party feel threatened by the size and influence of these firms or the tycoons who run them? Was the action against Didi days after its U.S. IPO aimed at deterring other technology companies from listing in New York? One narrative getting a lot of media traction speculates that Beijing is cutting its internet companies down to size to redirect capital toward higher-priority technologies, such as semiconductors and biotech.

While there is an element of truth to each of these theories, the driving force behind the crackdown—like previous action taken in other sectors—is a regulatory enforcement campaign aimed at cleaning up the tech industry. The Party has a longstanding distrust of the internet—a mass communication tool it cannot fully
control. On top of that, Beijing fears the massive size of the digital economy and its rampant shady business practices could result in civil unrest or even economic ruin if left unchecked.

In the U.S., “too big to fail” implies a promise of government protection, up to and including an eventual bailout, if needed. In China, however, the concept motivates the government to regulate companies heavily, even excessively, so it doesn’t have to bail them out in the future. So, while political motivations are no doubt at play in the current crackdown, there is also an economic motive. The more reliant China’s economy and society become on a given sector or company, the greater the government’s urge to beef up regulation and oversight, even if it means jeopardizing the well-being of key companies. Regulatory crackdowns typically target large, well-known firms, because their massive size and omnipresence make their infractions both easier to spot and potentially more harmful socially or economically. Action against a high-profile company also has a deterrent effect against non-compliant behavior by other businesses. This is important for the Chinese government, which relies on fear as a tool of self-regulation.

Nor did these crackdowns come out of the blue. Since Xi Jinping came to power in 2012, China has tightened regulatory enforcement across the board. The Party often designates priority industries or behaviors for the regulators to focus on, and two prominent themes driving these priorities have been controlling financial risks and cleaning up industries
closely connected to quality-of-life issues. The tech companies targeted in the current sweep fit into both categories.

China’s crackdown on big tech is neither surprising nor unprecedented. Regardless of what other motives played a role in this development, the sector has become too big to fail, and it will remain a target until Beijing is satisfied that its most serious risks have been resolved.
September 14, 2021 @ 9:00 am EDT - VIRTUAL EVENT: Hong Kong: Debating the National Security Law’s Impact on Business <[link removed]>

It has been over a year since the signing of the National Security Law in Hong Kong, effectively ending Hong Kong’s autonomy. While much of the focus has been on the diplomatic and political implications, there is very little analysis on the law’s impact on the business community in Hong Kong. Has the law impacted business operations? If so, how? To answer these questions and more, please join us <[link removed]> for a debate between two eminent scholars: Hong Kong University Professor Y.C. Richard Wong, and Harvard University Senior Fellow and former Hong Kong Legislative Council Member Dennis Kwok.

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