China simply fined Alibaba $2.Eight billion {dollars}. It spells finish of huge tech’s romance with State

A pedestrian comes to a logo in front of the headquarters of Alibaba Group Holding Ltd. in Hangzhou, China, by Photo: Qilai Shen | Bloomberg photo

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C.Hina’s state anti-monopoly bureau has tightened its regulations on big tech players, as evidenced by the latest move against the country’s largest e-commerce company, the Alibaba Group.

Alibaba was fined a record 18.2 billion yuan (more than A $ 3.6 billion) over the weekend for allegedly abusing its dominance. The company, which operates the digital payment platform Alipay and offers bank loans to entrepreneurs, publicly apologized:

Alibaba sincerely accepts the punishment and will ensure that the determination is respected. In order to meet its responsibility to society, Alibaba will act with the greatest care in compliance with the law, further strengthen its compliance systems and build on growth through innovation.

In the meantime, questions have been asked about the whereabouts of Alibaba’s founder Jack Ma. In October last year, Ma hit China’s financial watchdogs and banks.

Among other things, he criticized the state-administered financial sector and was then brought to a meeting with the regulators. After that, the always visible Ma was not seen in public for months.

Ma’s sudden withdrawal is just one of several developments pointing to a huge shift in digital space regulation in China. The leniency the state once gave tech companies no longer applies.

And recent actions against Alibaba could mark the beginning of the end of the romance between China’s big tech and the government.

A scratchy excuse

The first real test of this relationship took place late last year. China’s state market regulator accused Alibaba subsidiary Ant Group (also owned by Ma) of anticompetitive behavior.

Some of Ma’s comments at the time were not well received in Beijing. In October, he claimed that China’s banks had a “pawnshop mentality”.

According to reports, President Xi Jinping himself approved the subsequent withdrawal of Ant Group’s IPO from the Shanghai and Hong Kong stock exchanges.

The company was then forced to establish itself as a financial institution and submit to the supervision of the state-controlled Chinese central bank.

The antimonopoly ruling passed on the Ant Group last year and Alibaba more recently is not inconsistent with corporate governance in Western democracies. However, executives of western tech companies generally do not apologize to the government after alleged anti-competitive behavior.

Back when big tech was in the pocket of the state

There was a time in China when big technology companies lived the dream. In the past, China’s regulators have given their internet companies much more leeway than the tightly controlled state-run media.

In 2000, when Alibaba was only a year old, only 1.8% of the Chinese population was online. That number now exceeds 50% of the population.

As my colleagues and I explain in our book, the Chinese government’s decision in 2007 to require licensing of all video sharing platforms resulted in rapid market dominance from Baidu, Alibaba and Tencent. It was followed by Bytedance (which owns TikTok), Kuaishou and Meituan.

The license request was in response to pressure from international copyright holders, including the Motion Picture Association of America. It eliminated less financially resilient operators, many of whom were copyright infringement.

Also read: H & M, Nike, Adidas canceled? China can control social media, but not consumer behavior

Many great technology leaders were aware of their social responsibility and stood up for the Chinese dream: Xi Jinping’s roadmap for national rejuvenation. And Alibaba went ahead.

In the past decade, rural e-commerce centers called Taobao Villages have been set up to accommodate the “rural revitalization” form of government.

When the central government announced a campaign to activate grassroots entrepreneurship in 2015, Alibaba partnered with the local provincial government in Zhejiang. The resulting project has been aptly named “Dream City,” which the governor of Zhejiang described as:

a new kind of entrepreneurial mass space, a huge incubator, a young entrepreneurial community, a new engine of the information economy, an internet start-up ecosystem.

Throughout the time, Alibaba had added several companies to its war chest, mostly acquisitions of smaller companies. It took most of the popular video site Youku Tudou and bought into the movie business to get closer to younger audiences.

The state enters

China’s internet companies have built the infrastructure of China’s digital economy, which is now estimated to account for 36.2% of GDP. This growth is largely due to the forces unleashed by China’s new generation of digital capitalists.

Alibaba has invested heavily in research and development over the years. It has a modern campus in Hangzhou’s Yuhang District that recruits foreign talent. Other tech giants aren’t far behind. Tencent has similar locations in Guangzhou and Shenzhen, and Huawei has one in Dongguan.

As Stephen Barthlomeusz of the Sydney Morning Herald notes, the state regulator’s recent alignment of Alibaba (and other big tech companies) has not come without a cost.

China’s technology market has fueled growth and innovation. In fact, China’s antimonopoly laws have been in place since at least 2007. However, enforcement was lacking because the state chose to innovate by nationalizing the technology sector and letting it develop.

If activities are curtailed, there is now a risk that China’s economy will slow down. At the same time, the Chinese public is increasingly disaffected with the predatory practices of big tech. Sound familiar?

Also read: Chinese state media celebrate top entrepreneurs. But not Jack Ma

The visible hand

At the same time, China’s tech companies owe much of their success to the government. The state allowed them to benefit from measures aimed at keeping foreign competitors at bay and attracting human capital back to China to work in these companies.

In return, the companies helped the Chinese state advance its technocratic surveillance model by investing in the social credit system and facial recognition.

This is the status of the future relationship. The question now is whether this will lead to a permanent cooling. In the year that celebrates the 100th anniversary of the Chinese Communist Party, it might be more expedient for China’s tech companies to stick to the party line. However, the market no longer offers the appearance of distance from government intervention. And new laws allow the Chinese government to access information about the users of the Chinese technology platforms.

Since the state’s propaganda machine reminds people of its victory over capitalism, it is in the interests of the incumbent actors to adopt the principles of socialism instead of playing against their shareholders.

Michael Keane, Professor of Chinese Digital Media and Culture, Queensland University of Technology

This article is republished by The Conversation under a Creative Commons license. Read the original article.

Also read: With his fortune of 60 billion US dollars, TikTok founder Zhang Yiming is one of the richest in the world today

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