Crackdown on Chinese tech giants is backfiring on Beijing

According to a scholar at the Center for Strategic and International Studies, Beijing’s assault on technology firms is “backfiring” on China. US politicians ask for monitoring on Chinese enterprises hoping to list in the United States.

China cracked down on ride-hailing firm Didi last weekend. Now there is fresh concern about the regulatory inspection of Chinese tech companies. Authorities forced app shops to delete the Didi app from their stores just days after the Chinese company launched its IPO in the United States.

Chinese regulators accused Didi of illegally collecting personal data from users. Since then, China has launched a cybersecurity investigation into three other Chinese companies listed in the United States.

“Delicate balance”

According to Jude Blanchette, the center’s Freeman Chair in China Studies, Beijing is striking a “delicate line” of managing domestic tech giants while ensuring they may still list elsewhere. It is already backfiring in the sense that the moves taken by Beijing, particularly over the weekend, are causing lawmakers in the United States to increase their calls for tighter regulation over Chinese firms listed in the United States, he also added.

In a statement issued Wednesday, Republican Sen. Marco Rubio said it was reckless and irresponsible to allow Didi — an unaccountable Chinese company— to sell shares on the New York Stock Exchange. Didi shares in New York have dropped nearly 28 percent since China’s crackdown over the weekend.

To put this in context, remember that the Chinese internet space was previously entirely uncontrolled. The government has only recently begun to introduce restrictions, perhaps in the last five years. According to Renaissance Funding data, 30 Chinese-based IPOs in the US raised the most capital since 2014. According to the New York Stock Exchange, as of late April, approximately 60 Chinese companies hoped to go public in the United States this year.

Politics vs. business interests

China is often required to make examples of enterprises to drive this message home over the past 30 years of opening up the country: There is a wide degree of latitude for business and profit, but one must be conscious of the political borders Blanchette. The saying goes, ‘Kill the chicken to scare the monkey, he explained.  With the corporations that have recently come under examination, there is a political sin that the company has committed, from Beijing’s perspective.

Blanchette stated that Alibaba founder Jack Ma’s speech last year was the proximate cause of this. Blanchette also noted that all of this regulatory monitoring would not go away.