Xi Jinping’s tech crackdown risks proving Jack Ma’s point

March 25, 2021, 11:04 AM UTC
Ted S. Warren—Pool/Getty Images

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Chinese technology stocks tanked in Hong Kong on Thursday amid investor fears that Chinese regulators are stepping up state control over how the companies collect, store, and analyze user data.

The Hong Kong-listed shares of tech leaders including Alibaba Group, Tencent Holdings, JD.com, Pinduoduo, and Meituan Dianping, dropped more than 4% in early trading, although some later pared loses. Shares in Baidu, the search engine group that debuted on the Hong Kong exchange earlier this week, plunged 9%. The Hang Seng Tech Index, which tracks the shares of 30 leading tech companies, slid nearly 5% to its lowest level since November.

The declines follow a warning Wednesday from the U.S. Securities and Exchange Commission that it will force foreign companies listed in New York to disclose their financial records or risk being delisted after three years of non-compliance. (Beijing, citing national security concerns, forbids Chinese companies from giving U.S. regulators access to their books.)

But what really spooked investors in Hong Kong was a Bloomberg report, published just after the market closed Wednesday, that the People’s Bank of China is pushing a proposal to create a state-controlled joint venture between the central bank and China’s biggest technology firms that would oversee all the user data the firms collect from their hundreds of millions of consumers.

Details of the plan remain unclear. But as Bloomberg observed, the approach proposed “would mark a significant escalation in regulators’ attempts to tighten their grip over the country’s Internet sector.”

That grip was already plenty tight.

Since November, when President Xi Jinping personally scuttled a planned initial public offering for digital finance behemoth Ant Group, China’s regulators have launched a multi-front clampdown on what Xi has called “platform companies” in Internet-enabled sectors like e-commerce, digital payments, ride-hailing, video gaming, and entertainment.

Earlier this month, market regulators slapped token fines on 12 companies—including Alibaba, the nation’s e-commerce leader; Tencent, proprietor of the nation’s most popular social messaging service and top purveyor of online games; Didi Chuxing, the biggest ride-hailing platform; and ByteDance, the Softbank-backed parent company of TikTok—for violating anti-monopoly rules.

Jack Ma, the once high-flying co-founder of Alibaba Group—and Ant’s controlling shareholder—has all but disappeared from public view since October in Shanghai where he blasted China’s financial system as outdated and accused regulators of stifling innovation. It has been widely reported that Beijing is pushing Alibaba to sell off its media assets, including the Hong Kong-based South China Morning Post, because of growing concerns that the company might have too much influence over Chinese public opinion.

Regulators have forced Ant to accept a sweeping restructuring plan that will put all of its assets into a financial holding company, subject to capital requirements similar to those for banks. Many analysts think Tencent will be required to set up a similar structure for its banking, insurance, and payment services.

At a meeting of the Communist Party’s top financial advisory and coordination committee last week, Xi ordered regulators to increase oversight of Internet companies, crack down on monopolies, promote fair competition, and prevent the disorderly expansion of capital, according to state broadcaster CCTV.

“Some platform companies are developing in non-standardized ways and that presents risks,” CCTV said, citing minutes of the meeting. “It is necessary to accelerate the improvement of laws governing platform economies in order to fill in gaps and loopholes in a timely fashion.”

That stilted phrasing belies the rising apprehension among Xi and his allies that China’s tech companies, long celebrated as examples of Chinese entrepreneurship, have grown too big and powerful—and now threaten party control. But reining in the tech sector also poses risks. The danger for Xi is that his crackdown will go too far, stifle the development of China’s economy—and end up proving Jack Ma’s point.

More Eastworld news below.

Clay Chandler

This edition of Eastworld was curated and produced by Grady McGregor. Reach him at grady.mcgregor@fortune.com

Eastworld news


H&M, the Swedish-based retailer and world’s largest fashion company, came under attack in China on Wednesday from state media outlets and social media users for a months-old statement saying it would stop sourcing cotton from China’s Xinjiang region. The criticism prompted e-commerce platforms to stop selling H&M products and celebrities to cut endorsement deals with the fashion company. The retailer said in September 2020 that it would stop sourcing cotton from Xinjiang because of forced labor among China’s minority Uyghur population. Foreign brands like Nike are also coming under fire in China for opposing forced labor practices in Xinjiang, while Chinese retailers like Anta have said they are committed to keep using Xinjiang cotton in their products. Fortune


Hong Kong stopped delivering shots of the vaccine developed by German firm BioNTech and distributed locally by China’s Fosun Pharma due to faulty packaging in a vaccine batch delivered to the city. Fosun and BioNTech say they are investigating the causes of the faulty packaging. Hong Kong authorities have not given a timeline for when distribution of the vaccine may resume but say there is no reason to believe the vaccines were unsafe. The delay threatens to further derail a vaccine campaign that is struggling to gain trust and support among the Hong Kong public. New York Times


The U.S. is planning to impose sanctions on the Myanmar Economic Corporation (MEC) and Myanmar Economic Holdings Ltd (MEHL), two conglomerates controlled by Myanmar’s military junta, in response to Myanmar’s Feb. 1 military coup. The move comes as Myanmar protesters engaged in a silent strike on Wednesday. The action, following the death of a 7-year-old girl who was killed in her home by military police over the weekend, ground the nation’s economy to a halt. Reuters


Paraguay’s government declined an offer to accept Chinese-made vaccines in exchange for switching diplomatic allegiances from Taiwan to China, Paraguay’s foreign minister said this week. Paraguay is one of 15 countries globally that has diplomatic ties with Taiwan’s government over Beijing’s. It has struggled to obtain COVID-19 vaccine shots even as its neighbors have acquired doses from China. China’s foreign minister called the news a “malicious piece of disinformation,” while Taiwan’s said it opposes China’s efforts to use vaccines as a tool for “political manipulation.” Bloomberg


China’s One Belt One Road policy, a $1 trillion sweeping global infrastructure and diplomatic initiative, is succeeding despite U.S. attempts to suppress it. The U.S. has criticized China for using the policy to trap nations with mountains of debt in order to gain influence, but dozens of countries have ignored the U.S.’s warnings and signed on anyway. Eyck Freymann, Indo-Pacific director at the Greenmantle investment firm, writes for Fortune that the U.S. should try to compete with its own global investment scheme rather than just criticize China’s. Fortune

COVID-19 by country

India’s new wave of infections is challenging the theory that India previously had reached herd immunity. Cases are on the rise in 23 of India’s 30 states, and the country has reported over 40,000 cases each day over the past week. A fall in infections last winter prompted some scientists to question whether COVID-19 had simply run its course after spreading rapidly through India in the summer and fall of 2020. India’s new wave is challenging these assumptions and raising concerns about the possible presence of new variants. “We need to know exactly what is happening. Are these variants, and if they are, are the vaccines going to be effective? Are there reinfections?” Lancelot Pinto, a respirologist and epidemiologist at Mumbai’s Hinduja Hospital, told the Financial Times.

Markets and movers

Evergreen – The Taiwanese shipping giant was at the center of a massive traffic jam on Wednesday after one of its ships got stuck sideways in the middle of Egypt’s Suez Canal. An Evergreen spokesperson said that strong winds likely caused the ship to deviate from its course, but as of Thursday hundreds of ships holding billions of dollars worth of cargo sat waiting for the canal to clear. Wall Street Journal

Facebook – On Wednesday, the U.S. social media firm accused Chinese hackers of using its platform to target exiled Uyghur activists abroad by trying to trick them into clicking on links that would allow the hackers to infiltrate their devices. Reuters

Serum Institute of India – India has placed a temporary hold on major exports of AstraZeneca’s COVID-19 vaccine produced locally by the Serum Institute of India, according to Reuters. The export block is likely a result of India’s efforts to ramp up the supply of vaccines for its domestic population as the country battles a new wave of COVID-19 infections. Reuters

Bytedance – On Monday, the streaming giant and TikTok owner acquired Chinese mobile games maker Shanghai Moonton Technology for a reported $4 billion. With the purchase, Bytedance will gain control over one of Southeast Asia's most popular games, Moonton's 'Mobile Legends: Bang Bang,' providing Bytedance with a powerful asset as it seeks to challenge the dominance of Chinese gaming giant Tencent. Caixin Global

NagaCorp – The Cambodian government scrapped a $350 million resort that the Hong Kong-listed casino company NagaCorp had planned to build near the Angkor Wat historical site amid concerns that it would harm the site’s historical integrity. VOA Cambodia

Kodiak Robotics – The American self-driving truck startup is partnering with Chinese tech firm Hesai Technology company to make autonomous vehicles. Hesai makes laser-based lidar sensors that can detect objects and are key components in self-driving vehicles. Reuters

Final figure

$170 billion

On Wednesday, the Chinese tech giant Tencent posted a 26% jump in quarterly sales, earning $20.5 billion in revenue in the last quarter of 2020 on a surge in demand for its online gaming services. But the earnings report did little to quell investor anxiety about the potential for a regulatory crackdown after China issued new antitrust laws that could dent multiple parts of Tencent’s businesses, including its profitable financial services and gaming arms. The company’s stock price dipped 5% on Wednesday and over 2% on Thursday in Hong Kong. Its market capitalization has dropped $170 billion since reaching a peak $1 trillion valuation in January. On Wednesday, Reuters also reported that antitrust officials summoned Tencent founder Pony Ma for questioning earlier this month regarding potential violations of China’s new antitrust laws. Bloomberg

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