China’s great crackdown has a long way to go
China’s crackdown on its technology sector has moved from corporations to consumers. On Monday, state media revealed new rules for online gamers, limiting under-18s to one-hour windows on weekends and bank holidays.
Online gaming giants such as Tencent and NetEase will be forced to enforce the restrictions with an “anti-addiction system” that involves verifying real names and government documents. The regulations will affect 110 million video-gaming children who, while not a substantial source of revenues to gaming companies, are potentially the lucrative next generation of online spenders.
The regulations will affect 110 million video-gaming children who are potentially the lucrative next generation of online spenders.Credit:AP
It is hard to say nobody saw this coming. At the start of August, the state-run paper Economic Information Daily called video games “spiritual opium” and declared that children were hopelessly addicted. In 2019, the government announced a cyber-curfew on under-18s playing online games after 10pm; Tencent, the country’s biggest gaming company, recently said it would deploy a “midnight patrol” facial recognition system to enforce the ban.
Chinese media presented the latest move merely as an attempt to “effectively protect the physical and mental health of minors”. Plenty of parents would no doubt agree. But the fortunes of China’s other big internet companies suggests this is far from the only motivation.
For almost a year, Xi’s administration has been on the warpath against Chinese corporations. Last November, it scuttled the $US37 billion ($51 billion) IPO of financial technology giant Ant, turning its billionaire founder Jack Ma from a rock star into a recluse overnight. It cited financial stability, an explanation that might have carried more weight had the incident not fired the starting gun on a widespread crackdown on China’s most successful companies.
Since then, Beijing has used a toolkit of financial penalties, competition investigations and new regulations against its biggest consumer internet companies. Alibaba – the e-commerce giant founded by Ma – was fined the equivalent of £1.4 billion ($2.6 billion) for abusing a dominant market position. Food delivery app Meituan faces its own fine on similar grounds, while Didi, the taxi app known for chasing Uber out of China, has been hit with regulatory crackdowns for having the temerity to choose New York’s stock market over Shanghai’s.
It has not always been like this. Chinese internet companies were once seen by Beijing as a necessary counterweight to Silicon Valley’s influence, working with the state to censor unpalatable phrases and allow security services to monitor citizens. Its Great Firewall kept Facebook, Google and YouTube out, allowing the domestic social media industry to thrive. In 2003, online gaming was recognised as an official sport.
By most measures, this was a success. While other home-grown technology initiatives faltered, Alibaba and Tencent are now among China’s biggest companies. The breakneck growth of online shopping and spending helped to boost China’s GDP figures. Mirroring much of Silicon Valley’s inventions, down to the charismatic and powerful founders, these companies have become the closest thing within the Middle Kingdom to capitalist ideals.
Many countries that have struggled to build domestic technology giants will envy this. But Xi might look around and wonder what it is all for.
Beijing is six years into the “Made in China 2025” programme designed to move the country from the world’s factory into its research lab. Areas such as robotics, artificial intelligence, electric vehicles, aerospace and, most critically, semiconductors were earmarked as fields where China should be self-sufficient. Donald Trump’s trade wars have only made the need to break the country’s reliance on US technology more acute.
China did succeed in emulating Silicon Valley, but not in the way its leaders would have liked.
But 2025 is fast approaching and China is nowhere near an independent supply chain. This has been brutally exposed by the crippling of Huawei – one of the country’s successes in cutting-edge technology – at the hands of a White House-ordered microchip embargo. Communist Party apparatchiks seeking an explanation – or an excuse – might find a convenient target in the country’s dominant consumer internet firms hoovering up China’s engineers and capital.
Plenty outside of the country have expressed a version of this sentiment, that the Einsteins of this generation are devoted to finding new ways to keep smartphone users scrolling instead of driving society forward. But that is the free market at work. The West is, for the most part, bound to it; China is not.
Last month, the CCP’s central committee announced a five-year plan that indicated much stricter control over the economy, particularly in crucial technologies such as semiconductors. Technology stocks slumped, but it was considered a price worth paying.
China did succeed in emulating Silicon Valley, but not in the way its leaders would have liked. It has more companies that resemble Facebook than Intel or SpaceX. It has ended up with many of the same problems – powerful internet giants that chased growth instead of fixing their problems – without the benefits of advanced domestic engineering.
No surprise, then, that it is turning its back on the model. This week’s video game order is the most heavy-handed example to date, but it is unlikely to be the last.
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