China Signals Support for Platform Companies Amid Easing ‘Tech Crackdown’
China’s technology sector faced regulatory scrutiny, impacting major tech firms with fines and restructuring. However, the government is now openly supporting platform companies, hinting at potential easing of probes. Premier Li Qiang’s call for regular communication with platforms and the NDRC’s endorsement of investment projects show China’s focus on using them to drive economic growth and job creation. This signals the official end of the tech crackdown.
Over the past three years, China’s technology sector has faced intense regulatory scrutiny, causing disruptions and uncertainties for tech companies. However, there is now a significant shift in the country’s approach, as China openly supports platform companies, suggesting a potential end of the regulatory probes that have affected the tech industry.
Speaking at a symposium in Beijing with several major platform companies, Chinese Premier Li Qiang’s call for cultivating regular communication mechanisms with platform companies solidifies this newfound support. The government’s endorsement of investment projects by leading platform companies highlights its focus on using these entities to fuel economic growth and create jobs in the country.
Similarly, a report released by the National Development and Reform Commission (NDRC) has actively encouraged and promoted these investment initiatives, recognizing their potential to drive economic growth and job creation.
In this article, we discuss the outlook for platform companies and tech firms in China.
Fines imposed on Ant Group, Tencent after years-long investigation, signaling the end of the crackdown on fintech
China’s regulatory crackdown imposed over the country’s fintech industry now seems to be ending, with two digital payments giants receiving what could be the very last fines in sight on July 7, 2023. The relevant investigation was initiated in 2020.
Tencent, along with its payments subsidiary Tenpay, recently disclosed that it has been fined around RMB 2.99 billion (US$410 million) by the People’s Bank of China (PBOC) – the country’s central bank. This penalty is supposedly a consequence of regulatory breaches related to their provision of payment services within the country.
Similarly, the central bank also announced its intention to impose a hefty fine of approximately RMB 7.123 billion (about US$1 billion) on Ant Group. The reasons behind this significant penalty include a range of illegal activities, encompassing issues related to corporate governance, consumer protection, banking and insurance services, payments and settlement processes, anti-money laundering practices, and fund sales.
With these significant penalties handed down and stronger scrutiny of the fintech sector, it appears that the Chinese government’s regulatory crackdown has achieved its objectives: reining in potential risks, enhancing consumer protection, and maintaining financial stability.
NDRC report on platform economies: An enabler of China’s economic growth
On July 12, 2023, the NDRC and other relevant government departments shared their research findings on platform companies, specifically what they called ‘green-light investment cases’, focused on new technologies and services that empower the real economy.
During the research period from 2020 to 2022, the top 10 Chinese platform companies collectively invested over RMB 500 billion (approximately US$69.923 billion) in research and development (R&D), securing more than 50,000 patents.
Notable examples include Tencent’s ongoing investment in Shanghai-based Enflame Technology, which aims to advance the research and commercial application of homegrown high-performance AI chips. Similarly, JD, the e-commerce platform, has committed over RMB 100 billion (around US$13.984 billion) to science and technology R&D since 2017 while focusing on strengthening its supply chain infrastructure.
These initiatives have led the Chinese government to recognize platform companies as essential enablers of economic recovery, particularly amid challenges such as downward pressure and external uncertainties. These companies have played a pivotal role in facilitating efficient resource allocation and supporting micro, small, and medium-sized enterprises (MSMEs), thus contributing to industrial upgrading and technological innovation.
The strategic investments made by platform companies have yielded significant returns, boosted their core competitiveness, and enabled China’s technological self-reliance. In the future, the NDRC plans to introduce more exemplary investment cases to encourage platform enterprises to take an even more proactive role in propelling development, job creation, and international competition.
Recent endorsements from the central and local government towards the platform economy
The platform economy has become a focal point of China’s push towards becoming a leader in science and technology innovation by its 100th birthday in 2049. To achieve this ambitious goal, both central and local governments in China have endorsed and supported the development of the digital platform economy in various ways.
At the central level, the Chinese government has formulated major policy initiatives, such as Internet+, Made in China 2025, and China Standards 2035, which aim to promote the digital platform economy as a key driver of industrial modernization. These initiatives emphasize the integration of traditional industries with advanced information and communication technology (ICT) to optimize resource allocation, enhance productivity, and boost employment opportunities.
Besides efforts from the central government, at the local level, the Chinese government has implemented region-specific, sub-national pilot projects that involve local governments, state-owned companies, and private firms. These projects serve as testing grounds for platform development and foster collaboration between different stakeholders.
An example of this can be seen in the Measures to Promote the High-quality Development of Productive Internet Service Platforms in Shanghai, released by the Shanghai Municipal People’s Government on July 18, 2023. This document outlines 16 measures aimed at fostering the growth and development of productive internet service platforms in the city.
The measures focus on three main aspects: strengthening commodity trading service platforms, expanding industrial product e-commerce service platforms, and enhancing digital transformation service platforms.
The government aims to boost the capabilities of these platforms in multiple areas, such as resource allocation, warehousing, logistics, information consulting, and more. By shaping a digital-based industrial chain, supply chain, and enterprise development ecology, the government aims to create a conducive environment for platform growth.
Furthermore, the policy also highlights the importance of cultivating platforms in key industries like electronic information, life and health, automobiles, high-end equipment, advanced materials, and fashionable consumer goods.
To provide additional support, the document clarifies the accompanying policies for platform enterprises, including facilitating their path to going public, participating in the pilot program for electronic invoices, and gaining access to financial services, land, and exhibition services.
These measures are designed to encourage innovation, investment, and overall growth within the platform economy, reflecting the government’s commitment to fostering a robust and dynamic digital ecosystem in Shanghai.
Tech crackdown in the past three years: Background and future expectations
Since October 2020, China’s regulatory crackdown on the technology sector has left a significant impact on major players like Alibaba, Tencent, and Meituan. With hefty fines and stringent restructuring measures imposed to tackle antitrust concerns and unfair practices, the tech industry in China experienced increased scrutiny and had to adapt to comply with changing regulations.
However, signs of the tech crackdown easing have surfaced since earlier this year, with indications that the Chinese government may be adopting a more balanced approach. The support shown by Chinese Premier Li Qiang and the economic planning agency for major tech companies, alongside the final fines on Tencent and Ant Group, suggests a shift may be underway from stringent regulatory actions towards fostering innovation and growth in the sector.
Looking ahead, the technology sector in China will continue to be impacted by the changing regulatory landscape. As the government aims to strike a balance between regulatory oversight and encouraging technological advancements, technology companies must remain vigilant and agile to survive and grow stronger.
In fact, the future of the tech sector in China will rely on how effectively companies align with the government’s vision – both driving innovation and ensuring compliance. With the tech crackdown seeing an end in sight, the focus is now on building a dynamic digital ecosystem that can lead China toward becoming a worldwide technology leader.
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at firstname.lastname@example.org.
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