If the past week is anything to go by, life could be about to get a whole lot worse for China’s biggest tech giants and possibly even the billionaires who run them, as the country’s top graft buster vows to turn its sights on the digital-platform economy.
In a communiqué published last Thursday, the Central Commission for Discipline Inspection (CCDI) warned that efforts will be ramped up to “sever the connection between power and capital” in what appears to be a marked shift in focus after big tech already suffered wide-ranging regulatory crackdowns in 2021.
“Efforts will be made to investigate and punish any corrupt behavior behind the disorderly expansion of capital and platform monopolies,” reads the document, adopted in Beijing at the 19th CCDI’s sixth plenary session held from January 18 to 20. It warns that “no mercy” will be shown to those who “engage in political gangs, small circles and interest groups.”
As Beijing prepares for the all-important 20th Communist Party Congress at the end of the year, when President Xi Jinping is widely expected to begin a third term, there are few signs the signature anti-corruption campaign launched under his watch is slackening.
On January 18, the Chinese leader demanded “zero tolerance” in the battle against graft, while a high-profile documentary series by state broadcaster China Central Television (CCTV) on the anti-corruption campaign is currently airing. The first episode featured a public confession by Sun Lijun, a former public-security vice-minister charged with accepting millions of US dollars in bribes.
Meanwhile, the CCDI’s announcement that it will investigate corrupt practices in the digital-platform economy suggests the crackdowns on big tech launched last year are only likely to intensify through 2022. And Jack Ma’s Ant Group, an affiliate of Alibaba, could be first in the crosshairs.
The company is implicated in a corruption scandal involving former Hangzhou party secretary Zhou Jiangyong, according to the Financial Times. He stands accused of helping the tech giant acquire cheap land through firms controlled by his younger brother in 2019.
The allegations follow a tough 2021 for Ma’s business empire, after Chinese regulators forced Ant Group to pull what would have been the biggest initial public offering (IPO) in history at the end of 2020. Alibaba was also hit with a record US$2.75 billion anti-trust fine last April for abusing its market position, combined with a barrage of new regulations.
But any hope of a rosier 2022 for the tech giant, as well as the sector more broadly, has looked increasingly unlikely in recent weeks.
In last month’s readout of the Central Economic Work Conference, an annual gathering that sets the agenda for the coming year, top policymakers warned it will establish “traffic lights” to prevent the “barbaric growth of capital.”
As Sinocism’s Bill Bishop wrote in his newsletter at the time, the language in the readout was harsher than many previous statements. “If I am a capitalist in China, I am not thinking it is positive.”
A report published in Global Times last week provides a glimpse into the new environment many Chinese capitalists find themselves in.
“Capital is showing its intention to cross the line,” Wu Xinwen, a professor at Fudan University in Shanghai, told the state-backed media outlet on Thursday. If left unchecked, Wu added, the consequences would be a capitalist class no longer satisfied with economic power but demanding political power also.
The convergence of Beijing’s anti-corruption campaign with its crackdown on big tech is unlikely to come as a surprise to those who closely follow developments in China.
Since the 19th National Congress in 2017, the leadership has repeatedly warned of the need to proactively defuse economic and financial risks.
In the same year, President Xi announced that solving the problem of “imbalanced and inadequate” development would become the main policy objective for the foreseeable future – a historic break with Deng Xiaoping’s maxim of “letting some get rich first.” And few have grown wealthier and more influential than China’s tech behemoths.
Back in 2017, Alibaba founder Ma said the company aimed to become the fifth-biggest “economy” in the world by 2036, behind only China itself, the United States, Europe and Japan.
In June 2020, the company was worth nearly $580 billion, second only to Tencent in China’s huge tech sector at just over $630 million. This placed both giants not far behind the Turkish economy, which rounded out the top 20 for national gross domestic product at the time.
If the sheer size and social influence of these tech behemoths was not enough to spur Beijing into action, then a widely reported speech by Ma in the lead-up to the regulatory storm was widely reported as the trigger. In October 2020, the billionaire publicly attacked the Chinese banking sector for having a “pawnshop” mentality.
But while Ma had clearly misread the mood in Beijing, as Angela Zhang, author of Chinese Antitrust Exceptionalism argues, the drastic centralization of financial regulatory power since 2017 means the outcome was always inevitable.
With Beijing’s anti-corruption campaign now zeroing in on Alibaba and big tech more broadly, the question over the coming weeks and months will be: How far will it go?
In the run-up to the 20th Party Congress, all bets are off. Despite what some report, the Communist Party of China has no interest in “crushing” its tech titans. In its own words, it wants to “guide” them to serve the interests of national development better.
Amid the regulatory storm last year, Alibaba, Tencent, Pinduoduo and others rushed to announce billions of dollars in support of Beijing’s “common prosperity” initiative. But while Xi’s position at the very top of the pyramid is all but settled, the power transition unfolding over the next 12 months will produce both winners and losers.
As anti-corruption investigations ramp up into big tech, 2022 could turn out to be the “year of living dangerously” for some of China’s richest, and most powerful, individuals.