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Why China’s tech clampdown is good for the U.S.

January 6, 2022, 5:58 PM UTC

Deep into the latest dispatch about Chinese President Xi Jinping’s tech crackdown—a New York Times account of the shrinking labor market for Chinese engineers, programmers, and the like—there’s a key paragraph that should make America’s political leaders rest a little easier.

“To prove their loyalty, many tech firms are positioning themselves to help build key technologies that will help the country break free from what Mr. Xi described as ‘stranglehold’ weaknesses that the United States can exploit,” reporter Li Yuan writes. “That includes semiconductors, new energy and other advanced technologies.”

By now, the Xi administration’s intentions for China’s tech sector are clear. Central authority figures are taking greater control over the industry via increased regulation, heightened scrutiny, punitive fines, and unappealable diktats. 

The targets: Chinese companies that capitalize on customers’ desires for convenience and entertainment. The meddling has particularly hit e-commerce giant Alibaba, ride-hailing service DiDi, digital payments giant Ant Group, prominent social media company Weibo, and countless video game developers.

The end goal: a more-centralized Chinese government that fulfills Xi’s nebulous promise of “common prosperity”—and just so happens to centralize authority, indefinitely keep him in power, and help expand the country’s empire globally.

But the Times’ article hints at rocky times ahead for Chinese leaders—to the benefit of the American economy. 

While China certainly boasts manufacturing advantages over the U.S., a potential head-start in its bolstering of more nuts-and-bolts technologies, its industries of focus still rely on novel technology. Before a semiconductor can be made, it must be designed. Before an electric car rolls off the assembly line, an intricate battery must be developed.

In its clampdown on tech leaders, China risks alienating the entrepreneurs and energetic youth who drive the republic’s already-middling innovation engine. The Times notes that China’s college graduates are significantly more likely this year to apply to graduate school or seek government jobs—in some cases, at the expense of taking tech positions.

Even before the crackdown, China barely kept up with American ingenuity incubated by capitalism. Not coincidentally, 19 of the 20 countries leading the GEDI Institute’s Global Entrepreneurism Index operate under democracies (China ranked 43rd, sandwiched between Italy and Latvia).

“The U.S. retains a commanding advantage in one, especially critical export: ideas,” The Atlantic’s Michael Schuman wrote last month in an account of Xi’s “common prosperity” mantra. 

“From inalienable rights to Iron Man, Americans churn out the concepts and culture that make the modern world tick, more and better than anyone else. China has long strived to close the deficit, tossing out notions like ‘community of shared destiny’ or ‘win-win cooperation,’ but so far, nothing has caught on.”

China’s brute strength and grand ambition mean Xi’s tech tactics shouldn’t be discounted. But the capitalist mind remains the favorite to outsmart its rivals in the end.

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Jacob Carpenter

NEWSWORTHY

Strap in for a bumpy year. Tech stocks took a big tumble Wednesday before leveling off Thursday morning as the prospect of interest rate hikes in the coming months intensified, The Financial Times reported. The tech-heavy Nasdaq-100 fell by 3.1% on Wednesday, its largest single-day decline in 10 months, following the release of minutes from the Federal Reserve's latest meeting that indicated an interest rate increase is imminent. The selloff ceased Thursday, with the Nasdaq-100 up 0.5% as of early afternoon trading. Analysts are predicting a rocky 2022 for tech stocks that blossomed the prior year, helped along by low interest rates designed to smooth out the pandemic’s economic impact.

Some awfully rich cookies. French regulators levied a $169 million fine against Alphabet and a $68 million fine against Meta after concluding that the two companies violated European Union laws designed to make it easy for Internet users to reject digital tracking through cookies. The regulators determined that the companies failed to clearly deliver an anti-cookie option to consumers on three sites: Alphabet’s google.fr and youtube.com, and Meta’s facebook.com. Policymakers in France and the European Union have strengthened rules related to cookie opt-outs in recent years, to the dismay of tech companies that mine cookie data for lucrative targeted advertising.

The ‘Gram goes back to the future. Instagram began its rollout Wednesday of two new features that will let users scroll through content chronologically, reinstituting a property that the social media platform scrapped five years ago in favor of an algorithmically-driven feed, TechCrunch reported. The change comes as Instagram and parent company Meta face increasing scrutiny over the impact of the platform’s algorithms, particularly related to the delivery of ads and other messages that harm the mental health of teenage girls. Instagram users’ home feed will still default to an algorithm-heavy screen, but users in the coming months can switch to feeds that can chronologically display posts from friends, family, and people they follow.

A top streamer stumbles. Roku’s share price fell 12% on Wednesday after a top analyst downgraded the stock amid concerns about rising competition and the company’s ability to add revenue streams, CNBC reported. An investor note from Atlantic Equities questioned whether Roku, which has the highest domestic market share among streaming-device producers, can maintain its narrow lead in the sector while also finding an audience overseas. The company’s stock was unchanged as of early afternoon trading on Thursday.

FOOD FOR THOUGHT

The Gray Lady gets sporty. The New York Times plans to acquire The Athletic in a deal valued at about $550 million, The Information reported Thursday, setting the stage for a peculiar merger between two media outlets. The NYT’s commitment to sports has wavered over the years, while The Athletic boasts in-depth—and expensive-to-produce—digital content for hardcore fans. The Times’ plans for The Athletic aren’t immediately clear, adding to skepticism surrounding the marriage.

From the article:

The deal is a major acquisition for the Times, giving it a new pocket of subscription customers to the New York Times, which has set an ambitious goal of reaching 10 million subscribers by 2025. As of Sept 30, the Times reported 8.3 million digital and print subscribers.

The big question is how the Times can integrate The Athletic without squeezing its bottom line too much. The Athletic has said it doesn’t expect to be profitable until 2023, thanks to its hefty staff.

IN CASE YOU MISSED IT

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American businesses need to invest in tech education, by Rose Stuckey Kirk

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Bitcoin mining is being banned in countries across the globe—and threatening the future of crypto, by Shawn Tully

What it’s like to attend CES during COVID, by Chris Morris

BEFORE YOU GO

This property is red-hot. If you think the reality-based real estate market is crazy, wait until you get to the metaverse. The cheapest digital real estate on two leading metaverse platforms, Sandbox and Decentraland, are selling for the Ethereum equivalent of about $13,000. Nearly a year ago, that same parcel could be had for less than $1,000. Observers say you can blame artificial land scarcity and Meta’s pivot to the metaverse. Just wait until millennials all decide they’re ready to buy property.

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