The Chinese government cracked down on big tech firms and for-profit tutoring in July in what it said is an effort to maintain financial stability and protect consumers from firms that exploit citizens’ data.
Chinese authorities said they are concerned about protecting consumer data from leaking to the U.S. and about tutoring firms that are putting financial pressure on parents and students.
“China has this key advantage. If they see Big Tech monopolies & hyper capitalism being destructive in sectors such for-profit tutoring, they can “hop off” a lot faster than America,” tweeted Jamarlin Martin, founder and CEO of Nubai Ventures and The Moguldom Nation.
“Being able to PIVOT faster when the long-term destructive factors are clear, is a KEY advantage,” Martin added.
Evidence of a realignment in the relationship between China’s government and its biggest tech companies surfaced in October 2020 an antitrust case was initiated against Alibaba founder and CEO Jack Ma, who disappeared from public view.
Since then, the Chinese government has cracked down on more tech giants, including ride-hailing giant Didi Chuxing and the abrupt suspension of the Ant Group IPO that had been planned for November 2020.
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Beijing’s war against big tech has so far focused on monopolies, with the government saying it’s positioning itself to protect consumer rights and maintain financial stability.
China’s $100-billion education tech sector has also been under scrutiny as part of the country’s push to ease pressure on school children and reduce a cost burden on parents that is seen as contributing to a drop in birth rate.
Here are five things you need to know about the big tech and for-profit education crackdown in China:
Chinese authorities are concerned by the growing number of Chinese tech firms looking to go public in the U.S. This concern stems from the access of data that the U.S. authorities will have when these firms get listed stateside. Didi, TikTok and Alibaba all sought to float their shares in the U.S. before they were clamped down on by their government.
Beijing is concerned over the U.S. accessing critical Chinese consumer data and wants to guard against this before home-grown tech firms venture into foreign securities markets. The digital economy constituted 38 percent of china’s GDP in 2020 and is expected to grow to 55 percent by 2025. This has made the Chinese attach significant weight to their data and how it is used.
The increased cost of schooling is being blamed for a drop in the Chinese birth rate. Many Chinese adults are choosing to either have fewer children or none at all. By cracking down on for-profit tech education/tutoring, the government hopes to make education cheaper, reduce the cost pressure on parents and encourage more adults to have children.
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China’s tech stocks have lost more than $800 billion in combined value since February, as the government continues a crackdown that has affected at least five IPOs. The crackdown has also affected private investment with private equity investors preferring to dip into Indian and Southeast Asian markets rather than China, according to Rebecca Fannin, author of the book, “Tech Titans of China.”
Chinese tech giants have for decades managed to skirt rules that barred foreign ownership in many types of companies by using the variable interest entity arrangement to list overseas. But this increased scrutiny by their government and change in regulations to stop them from listing in the U.S. and elsewhere could make it harder for foreign ownership in Chinese firms.