China Squeezes Tech Companies for Love, Not Money

July 29, 2021

China has always kept its tech companies on a short leash, but it has recently been especially vigorous about keeping them under control. The Conversation reports, “Facial Recognition for Gamers, App Store Bans for Didi: What’s Behind China’s Recent Crackdown on Big Tech?” We learn companies that had been getting away with certain infractions for years are suddenly facing regulators’ ire. There is also the recent rebuke of social-media platform Xiaohongshu for enabling “wealth-flaunting” when, apparently, such online immodesty is nothing new. And fresh regulations were swiftly implemented last year that just happened to frustrate Ant Group’s plans to go public after that company’s founder criticized regulators. Oops.

The article takes a special look at DiDi, an Uber clone that achieved its goal of debuting on the New York Stock Exchange. It raised enough to position it as the second-largest US IPO by a Chinese company. (Alibaba ranks first.) Normally that would be a point of pride for China, but regulators responded to the news by pulling it and 25 related apps from China’s app stores. DiDi’s value took a nosedive, and now the company faces a lawsuit by investors. Officials claim the company violated security regulations, but it is suspected China was (understandably) concerned that data on riders might end up in US government hands.

Writer Barney Tan puts these developments in perspective:

“To understand the rationale behind the Chinese government’s recent moves, we must first understand the parallel universe that is China’s technological landscape. In China, technology must never be harnessed solely for an individual or organization’s gain. Social good is always emphasized, as defined and enforced by the Chinese government. DiDi’s listing on the New York Stock Exchange would have undoubtedly fueled the company’s global expansion. But in the eyes of the Chinese government, it could have also hurt the nation’s collective interests. It remains to be seen whether this apparent contradiction can be resolved. China’s collectivist approach to technology consumption is also evident in its regulation of mobile games. … In 2019, the Chinese government imposed a video game curfew on minors, banning them from playing between 10pm and 8am — allegedly to curb gaming addiction. South Korea is the only other country with such a curfew.”

This is where facial recognition comes in. Gaming giant Tencent has been rolling out “Midnight Patrol,” a feature that will use that technology to catch underaged gamers logged in after hours on an adult’s account. The company reports the tool is now part of 60 games with more on the way. Tan continues:

“From a Western point of view, such measures may seem a draconian violation of privacy and freedom. In China, however, they are generally lauded and welcomed. The prevailing view is tech firms may profit commercially from the exploitation of technology, but not at the expense of social good.”

Yes, that is a difficult mindset for many of us to wrap our heads around. Chinese companies understand this, often using different versions of their products for foreign customers. That is why we have TikTok and Chinese citizens have the more restrictive Douyin, for example. To each their own, I suppose, but investors may want to reconsider before plonking down a lot of money on the next big Chinese tech firm’s IPO.

Cynthia Murrell, July 29, 2021

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