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About the author: Patrick Jenevein is CEO of Pointe Bello LLC, an advisory firm.
Xi Jinping, general secretary of the Communist Party of China, is currently kneecapping his countrys most successful private companies.
Until very recently, the CPC permitted the growth of domestic tech giants, including Alibaba , a Chinese analog of Amazon ; Tencent , a massive tech conglomerate; Xiaomi, an artificial intelligence company tied to the military but better known for its smartphones; Huawei, a controversial global leader in 5G networks; and Baidu, one of the worlds largest AI companies. Leaders watched these firms create massive numbers of jobs and improve consumers lives, and challenge their American and European competitors.
But now, the CPC fears them. In late 2020, Beijings regulators abruptly scuttled the initial public offering of Ant, an internet payments company that spun out of Alibaba. The stock offering was poised to be the largest IPO in history, giving China the sort of bragging rights you would have expected party bosses to relish.
This wasnt a one-off. In spring 2021, Chinese regulators issued a $2.8 billion antitrust fine to Alibaba. And regulators have cracked down on the ability of Chinese firms to list their shares in the United Statesonce a rite of passage for Chinese companies that signaled international legitimacy.
That very legitimacy has become a problem for the CPC, which is cracking down on Chinas Big Tech precisely because they present an alternative governance structure in Chinese societyone that knows the people of China better than the CCP itself. The Communist Party of China has always insisted on a paramount rulethe partys own absolute hegemonyand these Big Tech companies threaten that.
For years, China-watchers in the West clung to the conviction that the CPC needed strong economic growth from the private sector to survive in power. Growth meant increasing prosperity, and prosperity bought domestic peace: It implied proof that the Party provided for the people. Now, the Party fears that that legitimacy will rest with its true sourcethe technology companies that have become billboards for Chinese pride and the governance structures that made them so.
Former Alibaba CEO Jack Ma pointed out this discrepancy in his own resignation letter. Effectively ousted from the tech powerhouse he helped create, Ma lamented, Simply relying on individuals or blindly following a system will not solve our problems, and highlighted the benefits of the governance structure he created at Alibaba, saying, I have full confidence that our partnership system and efforts to safeguard our culture will in time win over the love and support from customers, employees and shareholders.
Its exactly that collaborative attitude that prompted the recent about-facefrom the CPC. As Chinas economy has grown, the Chinese people increasingly see businessmen like Ma as the heroes of Chinese prosperity and that has clearly become a headache for the CPC. Speaking of the measures the party has taken against Ma and his business empireincluding blocking the Ant IPOone apparatchik likened them to putting a bridle on a horse.
Its a telling metaphor. The Chinese economy has grown tenfold this century, according to World Bank figures, from $1.3 trillion in GDP to more than $14 trillion today. For much of that time, the Communist Party was content to ride the galloping horse of private economic growthgreased of course by a fair share of corruption and redistribution back to party bosses. Today, Xi clearly worries more about the growing social and political clout of this new class of tech billionaires than about slowing growth or irking domestic investors, whove been hit hard by the selloff in Chinese tech shares.
Whys that? Because these billionaires and their companies know the Chinese people better than the CPC and they genuinely valueand respond totheir individual needs and wants. This service and reliability is completely antithetical to the communist ideology.
Having watched what the regime was capable of in Tiananmen Square in 1989 or Hong Kong in the past year, it would seem foolhardy to bet against Beijing in this power struggle. On one hand, Xi and his party would not have picked this fight with Chinas titans of industry unless they felt it was necessaryand survivable.
But on the other hand, the recent crackdown provides evidence not of the Partys strength, but of its weakness. Its efforts to bridle Chinas tech stallions may be just the outcropping of a tectonic power struggle. And that raises some important questions: Has Chinas Big Tech already stolen the hearts and minds of Chinese people away from the Party? And how far is the Party willing to go to reassert its dominance, whether over domestic companies or in the South China Sea and Taiwan?
Guest commentaries like this one are written by authors outside the Barrons and MarketWatch newsroom. They reflect the perspective and opinions of the authors. Submit commentary proposals and other feedback toideas@barrons.com.
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China's Regulatory Stifling of Its Tech Giants Shows Xi and the CCP Are Worried - Barron's
