China’s tech crackdown has netted the country’s biggest players in e-commerce, fintech, ride-hailing, private education, entertainment and gaming—so far.

In the world’s most digitized country, these tech companies now play an outsized role in almost every facet of Chinese citizens’ lives, collecting vast tracts of consumer data along the way.

On one level, the crackdown echoes global efforts to rein in Big Tech. But while these usually take time to wind through the system, China’s moves have come at breath-taking clip—up-ending IPOs, wiping out billions in market value, levying record fines and raising the question: Who’s next?

Since November 2020, when China released draft guidelines defining anti-competitive behavior by Internet firms for the first time, affiliates of Alibaba, Tencent, JD.com, Meituan and Didi Chuxing have either incurred fines or are being investigated for monopolistic practices. A planned mega-IPO for Alibaba’s Ant Financial was halted at the eleventh hour. And in April, Alibaba incurred a record fine of US $2.8 billion for imposing “forced exclusivity” rules on merchants.

Initially focused on antitrust, data security and cybersecurity issues, the crackdown has spread to societal concerns, from too much homework for young kids (solution: banning for-profit online tutors) to excessive gaming (solution: strict time limits for minors) to obsessive fandoms.

“I think the issues that regulators in China are trying to address are clearly not unique,” said Vey-Sern Ling, managing director of Union Bancaire Privee in Singapore and an expert on China’s Internet economy. “Protecting children, preventing systemic financial risk, preventing market abuse, promoting social stability, fairness, equality, and tightening cyber and data security, personal information protection, etc. We have seen developed countries in the West tackle the same problems.”

“But there is a lot more autonomy in China, much less time spent on discussion/consultation, and implementation is heavy handed,” Ling told Wunderman Thompson Intelligence.

China’s latest bid to tackle income inequality under a “common prosperity” mantra has also put pressure on technology companies and the billionaire tycoons who built them to spread the wealth around.

As to who’s next, “there are sectors where the regulators have shown the willingness to prioritize social objectives over investor interests,” Ling said. “These are financial, housing, education, transportation and healthcare.”

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Alibaba, courtesy of YouTube

Data protection

Other governments are also trying to curb the reach of Big Tech. In 2019, the U.S. Federal Trade Commission imposed a record US$5 billion penalty on Facebook for violating the privacy of users’ personal information. U.S. state governments are currently suing Facebook and Amazon for monopolistic practices while the European Union is probing Google on antitrust issues.

For the past decade or so, China has largely allowed its homegrown technology companies to grow unabated—albeit with censorship—within its Great Firewall, a cyber cordon that kept Western technology giants like Facebook and Google out.

By December 2020, 70% of China’s population—989 million people—were online, almost all via their mobile phones. Of these, almost 80% were shopping online, 86% were using mobile payments and 94% were consuming online video, according to the China Internet Network Information Centre.

Up until very recently, regulators treated the booming Internet economy with a light touch as “they didn’t necessarily want to kill the golden goose before it had actually laid the egg,” John Artman, technology editor at the South China Morning Post, said in a video segment on the Hong Kong-based newspaper’s website in mid-July.

It’s no coincidence that the crackdown is happening at a time when China and the US are openly competing on the global stage.

“There is definitely something else at play here,” Artman said. “The amount of data [tech companies] have about infrastructure like roads and transportation, or about users; that data could be used in a way that’s not aligned with central government goals.”

“The real issue here is the issue around data sovereignty,” he added.

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Ele.me, courtesy of YouTube

Consumer impact

For Chinese consumers as well as the brands that sell to them, the raft of changes could mean more choices and innovation in some cases, and less in others.

Alibaba’s Alipay and rival Tencent’s WeChat Pay, which together control as much as 95% of the online payment market, used to force merchants and consumers to pick sides. For example, shoppers on Alibaba’s e-commerce platforms could not use WeChat Pay for purchases and shoppers on JD.com and Pinduoduo—part-owned by Tencent—could not use Alipay. Similarly, Alibaba kept fashion brands on its Taobao platform from selling on JD.com.

These walled gardens are coming down.

Earlier this month, Tencent released its latest version of the WeChat messaging service that allows users to link to rivals’ content for the first time in years, Bloomberg reported. WeChat’s billion-plus users can now link to Alibaba’s Taobao mall, for example, or ByteDance’s short video app Douyin, the Chinese twin of TikTok.

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Freshippo, courtesy of YouTube

Alibaba has also started making Tencent’s WeChat Pay available on its apps such as food delivery app Ele.me and supermarket app Freshippo.

Children are getting special attention in the regulatory sweep. In late August, the government imposed a weekly gaming limit of three hours for those under 18, Xinhua reported. Minors can only play on Fridays, Saturdays and Sundays and only between 8pm and 9pm, and they must sign on with their real names.

This month (Sept), Douyin said it was imposing a time limit of 40 minutes daily for users under 14. These kids can only use Douyin between 6am and 10pm. The short-video app has more than 600 million active users in China.

The impact of new rules around celebrity culture are harder to predict.

Also in September, China banned reality talent shows and ordered broadcasters to depict more “masculine” men. In rules that also apply to China’s streaming services, the broadcasters are to stay away from “abnormal aesthetics” such as “sissy” men, “vulgar influencers” and performers with “lapsed morals,” AFP reported.

This could lead brands to veer towards associating with celebrities who are seen as safer, including virtual influencers who can be relied on not to produce scandal.

In recent years, Chinese consumers have been at the forefront of tech trends. That seems unlikely to change, despite the crackdown. But for now, the only thing that’s clear is that it’s far from over.

For more, download our report Transcendent Retail: APAC.

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