TechScape: Xi Jinping’s ‘Little Red Book’ of tech regulation could lead the way

After a long hiatus and endless gossip, Alibaba’s founder, Jack Ma, has finally resurfaced. Last month, he was spotted meeting business partners in Hong Kong. More recently, he travelled to Spain on Zen, his luxury yacht, and was last week seen touring Dutch research institutes to “pursue his interests in agriculture technology”, according to the South China Morning Post, the paper he owns.

Ma’s reappearance is low-key, but is, nonetheless, significant. It reminds us of his place in the company he founded and in today’s tech scene in China. On the day his trip to Europe was reported the company’s share price went up by 9% in Hong Kong. And sightings of Ma abroad have fuelled recovery of Chinese tech stocks over the past month.

The Ma saga over the past year is fascinating. It involves multiple strands in today’s China: wealth, politics, fame and technology. They are all in Xi Jinping’s sights as he revamps Chinese society and prepares for a likely third term as president next year.

Like the fluid political situation, both domestically and overseas, China’s technology scene is changing dramatically. Beyond the various gloomy headlines and endless gossip about elite politics, the country’s massive tech sector is also a playground for policymakers. Some believe they are redefining the relationship between technology, society and politics, others worry the politicians are rocking the boat and no certainty anything will work.

You say ‘crackdown’, I say ‘reform’

You might be sceptical about all that’s happening in today’s China, but you should nonetheless pay attention to it, because there are parallels in the west, too. Let’s start with language. It’s interesting to notice the difference in vocabulary when you speak to officials and longtime China tech observers. Earlier this year, the veteran analyst Kendra Schaefer had a call with an old-guard China analyst, who remarked: “The world says ‘crackdown’, China says ‘reform’”.

“I couldn’t agree more,” Schaefer, who’s also head of tech policy research at the research firm Trivium China, told me from Beijing. “While the crackdown has often been portrayed as a single, concerted push from Beijing to rein in its tech giants, I tend to view it as four different reform efforts, each driven by a different government agency, and each with different goals.”

In the past few months, we’ve seen efforts from China’s central bank to mitigate systemic risks posed by the rise of fintech; the cyberspace regulator to rein in data privacy abuses (China’s data privacy law kicked in on Monday); and a push by the market regulator to end anti-competitive practices by platform companies. And then there are a series of efforts to tackle tech-related social issues, such as labour rights for ride-hailing drivers. “These are all areas where China’s tech companies have benefited from lax regulation over the past couple of decades, and now the free ride is over,” said Schaefer.

So depending on how you approach it, Beijing is either turning China into a 1984-type of society through technology, or making the sector a huge petri dish that regulators elsewhere would have to pay attention to when scratching their heads over how to deal with an increasingly digitised world.

But the devil is always in the detail, said Ma Rui, the founder of Tech Buzz China, an online tech community. “This is the new reality for China’s tech sector, and many are asking what the implications will be for doing business in China in the future. Compliance costs are rising for all businesses, but the tradeoff is that consumer rights may be better protected. The government claims it will protect innovation and small businesses with exemptions, but we will see if that works at all.”

‘Common prosperity’ and ‘social responsibility’

But, of course, one also has to bear in mind the bigger political and societal trends taking place in today’s China: the talk of “common prosperity” – a popular slogan these days in the country. “Achieving common prosperity is not just an economic issue, but a significant political one that matters to the party’s basis to rule,” Xi warned in January told his provincial ministerial-level cadres in January.

To be sure, “common prosperity” is a noble goal in itself – one that western governments often struggle to achieve (here I recommend a good book: Trade Wars Are Class Wars: How Rising Inequality Distorts the Global Economy and Threatens International Peace, by Matthew Klein and Michael Pettis). But the crucial question is: what is the right way to achieve them, as political economist Yuen Yuen Ang, of University of Michigan, Ann Arbor, said to me this summer.

So far, we’ve seen tech billionaires from Tencent’s Pony Ma to Xiaomi’s boss Lei Jun all of a sudden discovering their charitable side and donating billions of dollars to help the country achieve “common prosperity”, a move that only reinforced the sceptics’ view of China’s future.

For years, Beijing had struggled to find an equilibrium between tech and the state. But now, it seems things are happening under the “common prosperity” banner. It is, undoubtedly, redefining the relationship between China’s technology sector, its society and China’s vast bureaucracy. (Although to be absolutely clear, it’s also ultimately an unequal relationship because of the role of the state and the ruling party in today’s China.)

The “good old days” of “barbaric growth” – a popular phrase in Chinese lexicon that describes an anarchical expansion – for tech companies are gone now. In the future, they are not only expected to deliver profits for their shareholders, but they will be required to also shoulder social responsibilities, and to make sure the cake is divided between multiple players in the gigantic Chinese market.

“It is a vision that embodies Xi’s take on next-gen Chinese socialism – one in which companies are welcome to accumulate wealth, but they can’t do it at the expense of the workers, and they must help the state achieve its national aims in the process,” said Schaefer.

So, you’re going to hear a lot of talk about “social responsibility” in regulators’ framing of their policies in the tech sector, for example.

Last week, China’s market regulator – the State Administration for Market Regulation (SAMR) – proposed a long list of responsibilities it wanted internet platforms to uphold. For the first time, it defined what it considers “super-large platforms” – including those with more than 500 million users and a market value of more than 1tn yuan. They were urged to, for example, be transparent when recommending products using big data.

You won’t be surprised by the names of the companies the regulation may implicate: the likes of Tencent, Alibaba and Meituan. And you won’t be surprised, either, to hear that many Chinese consumers loved it. “The dissatisfaction among users has been accumulated over the years, and it seems Beijing is seizing on the moment to use one stone to kill two birds,” said Ma.

‘The sheriff of China’s Big Tech’

One of the most pressing issues China has been working on in recent years is data – a national security issue for Beijing. In September, the Data Security Law went into effect, giving the security services a prominent role, according to Graham Webster, the editor-in-chief of the DigiChina Project at the Stanford University Cyber Policy Center. This Law in theory affects nearly anything with the ability to store information.

And on Monday, the Personal Information Protection Law (PIPL) came into effect, too, limiting, for example, what companies can do with consumer data. Under this legislation, websites must obtain explicit consent from users before hoovering up their personal information. Sounds familiar?

“This new legislation could mean really substantial improvement for data protection in China’s private sector, and some of the world’s most direct regulations on algorithm use in markets. Or, it could be under-enforced and stall awaiting detailed regulations,” said Webster.

But Webster also observed that Chinese authorities have been distributing data regulation powers across a wide array of sectoral regulators, as well as giving the new SAMR a role in platform governance. “This means the locus of digital policymaking is spreading,” he said to me.

Talking about SAMR, this new regulatory body – founded three years ago – has been in the headlines a lot in recent months. Some news outlets call it “the sheriff of China’s Big Tech”. It’s so important that Pony Ma, the founder of Tencent, spoke with them at his own request early this year.

Regulation with Chinese characteristics

From Jack Ma to China’s equivalent of GDPR, the coherent theme in everything that’s been happening in China’s tech world in the past year is regulation. And, from Beijing’s point of view, there are three different types of regulations.

1) Regulations that keep up with the west: for example, PIPL. It is true that in the one party-controlled China, there is no ultimate privacy and the government can do whatever it wants due to a lack of proper checks and balances. But there’s also a huge grey area in which normal daily life takes place. In this sense, as Webster said, this Chinese equivalent to GDPR will benefit private citizens when they interact with tech companies. And it was years in the making, too.

2) Regulations that are Chinese idiosyncratic: these include things such as limiting the number of hours children can play online video games every week. It’s hard to imagine such regulations appear in Britain and America (although, anecdotally, some parents here also say they wish they could find a way to restrict the number of hours their children spend in front of computers). It’s not a new phenomenon under Xi Jinping. These type of regulations have been around for many years.

3) Regulations through which China wants to get ahead: Remember Facebook’s whistleblower Frances Haugen? “We liked social media before we had an algorithmic feed,” she told British lawmakers last week. In China, the government wants to regulate algorithms, too (although I keep wondering how they can effectively put bureaucrats in the role of evaluating complex and often opaque technical systems?).

Then there’s digital yuan. Trials of the virtual currency are ongoing and Beijing is trying let foreign athletes to use it during next year’s Winter Olympics, according to a top central bank official.

There are practical and technical questions – and we don’t know how much of an appetite there is among the general public. “This could be a big deal, or it could be mostly hype and imaginative thinking at this stage,” remarked Webster. But if Beijing can pull it off, it would be a significant development in China’s tech space. Capitals from Washington to London will take a keen interest, and it may set standards for other countries.

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