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CWA # 549, 11 September 2021

China Reader
Alibaba then, Didi now: Three reasons why Beijing is going after its tech giants

  Sukanya Bali

China is trying to have the upper hand on the private industries as well within and outside the country

In July, China's Cyberspace Administration (CAC) launched an investigation of Didi, a ride-hailing company; the latter was asked to stop new user registrations during the investigation. This happened two days after Didi began trading on the New York Stock Exchange and raised USD 4.4billion. Didi's shares fell soon after it opened trading. The crackdown worsened after a week when 25 more Didi apps were removed from the app stores. 

China's tech giant fell under regulator pressure over the last few months. Tech giants in the country were scrutinized as authorities tried to tighten control over the giants to tame their growing monopolistic behaviour. 

The Didi Episode

According to China's Cyberspace Administration (CAC), "Didi's app has serious violations of laws and regulations about the collection of personal information." The investigation was stipulated through Cybersecurity law that came into force in 2017 to "guard against national data security risks, to safeguard national security and the public interest." This gave CAC a large role in the security of data procured by large firms. Will Cheng, a founder of Didi, faced several regulatory probes from Beijing over safety and operation licenses. 

Didi has more than 15 million drivers with 500 million users in China. The services are in more than 15 international markets which gather data from autonomous driving technologies and traffic analysis. On 19 August, China's Ministry of Transport said, "ride-hailing platforms have imposed strategies like arbitrarily adjusting their pricing rules and setting up excessive commission rates after gaining a dominant market position." Didi's share saw 43 per cent value wiped since its debut.

Not just Didi; there is a pattern

Besides Didi, CAC announced to conduct a review of companies, Yunmanman, Trucking Gang, and BOSS Zhipin and also fined companies like Kuaishou, Tencent's messaging tool QQ, Alibaba's Taobao, Neihan Duanzi, and Weibo, and also told them to "rectify" and "clean up" illegal content. Some of the apps were accused of glorifying underage pregnancy. Alibaba has been targeted since founder Jack Ma spoke out against Beijing's regulatory approach to the financial technology sector. Earlier this year, Alibaba was fined USD 2.8 billion for anti-monopoly violations. Soon after, many giants like Meituan, Didi, and Byte Dance were summoned and were ordered to "put the nation's interests first."

Are the tech industries "unfair and anti-competitive" business practices?

Chinese regulators began cracking down on what they called "unfair and anti-competitive" business practices in the internet industry. According to CCTV news, President Xi Jinping "ordered regulators to step up their oversight of internet companies, a crackdown on monopolies and promote fair competition", so that the regulatory supervision on the data security and financial activities can be enhanced. The government has signalled a tougher, deductive approach towards tech firms.

Several laws and mechanisms were put in place to regulate internet companies. In 2020, the Chinese government set guidelines for anti-monopoly rules for tech giants. Beijing's State Administration for Market Regulation (SAMR) ruled to stop price-fixing, predatory pricing, and unreasonable trading conditions." SAMR said, "The behaviour is more concealed, the use of data, algorithms, platform rules and so on make it more difficult to discover and determine what are monopoly agreements." Beijing Data Security Law requires companies to submit reports with critical data, to conduct a risk assessment. Tech giants are also required to classify these data as categories and govern how such data will be stored and transferred to other parties. Third, the second draft of the Information Protection Law, which calls tech platforms to impose stricter measures to ensure the secure storage of user data. The law prohibits, "illegally collecting, using, processing, transmitting, disclosing and trading people's personal information."

Three major concerns for Beijing : National security, data protection, and geopolitics

Chinese internet firms have come under increasing scrutiny from Beijing this year over national security concerns. The legislation passed and regulatory infrastructure that the Chinese are building for data protection indicates that the government is concerned about the user data amassed by the internet companies and the risk associated with the event of misuse.  

The government's policy document focused on stronger capital-market regulation in order to uphold its national security and social stability concerns. This new regulation marks Beijing's involvement in tracking and treating data linked to national security issues. In 2014, Xi Jinping in his first meeting with the steering group, said: "Without cybersecurity, there is no national security. Without IT applications, there is no modernization." With Didi expanding on the foreign land, regulators have accused corporate giants of abuse of their size and market power. CAC enacted rules on security reviews as part of safeguarding the nation's digital infrastructure. 

Beijing had been keen on providing data protection, as China competes with the US for its high-tech leadership. The concern was addressed over "stolen, leaked, damaged and illegally exploited" overseas by the foreign government. Soon after Didi, the IPO regulator stopped signing new users and was asked to remove the app from the mobile store over the data breach concerns. Two more companies, "full truck alliance" and "kanzhum" were suspended over a security review.

For the past year, there have been multiple accusations between Beijing and the US over the data breach. Last year the US, India, and many others attempted to ban the Tik Tok app over the privacy breach accusation. Former President Donald Trump barred companies' investment issues concerning links with the Chinese military. A Chinese FM spokesperson stated that domestic tech companies should not compromise their information when they go public overseas. Companies should submit to the scrutiny of foreign securities regulators.

China revamps its policy to rein over its tech industry amid concerns of user data privacy, anti-competitive practices, and scrutinizing the industries according to their terms. Clearly, the government is trying to have the upper hand on the private industries as well within and outside the country. These announcements by the CCP make tech giants like Didi and Alibaba more accountable and has to show their loyalty to the government over its stringent measures. 

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