China’s Big Tech crackdown and India’s rise

The Covid Crisis continues to disrupt 2021 with a cloud hanging over 2022 too. The only industry which has come out of it unscathed is Big Tech. Revenues, profits and valuations have been steadily on the rise. Innovations and future technologies have been spreading all around for them at a fast pace. But is the China story now unraveling?

The US companies show no signs of slowing their growth and our own government is strongly pushing Make in India. But the Chinese government has begun a crackdown on their own tech companies and nobody is quite sure how this will end.

Last year the high profile Ant IPO from the Alibaba Group was in the region of a record $35 billion. But it was suspended. High profile founder Jack Ma was summoned by the government, questioned and was missing from the public scene for months after that. Jack had criticized financial regulators and called China’s banks pawn shops. Fintech firms in China have been under the scanner for years now.

In April, 34 tech firms were called to a meeting where they were warned that they should stop indulging in monopolistic behaviour. Alibaba, Tencent and DiDi Chuxing were fined under the Chinese antitrust laws. While the amount is nominal in nature, it shows the intent of the government.

Vehicle for hire company DiDi is bigger than Uber thanks to its stranglehold over the Chinese market. In fact Didi did acquire Uber China years ago. When DiDi wanted to go public in the US, state authorities launched a probe against it. A similar fate awaited other companies who eyed foreign listings. In July this year, authorities ordered app stores to remove DiDi over privacy issues and this was followed by raids.

Tencent is into gaming and ByteDance has TikTok among other things. Chinese authorities have expressed alarm over their influence on the youth. There is new regulation that is limiting children to play video games to just 3 hours a week and a crackdown on online celebrity fan clubs.

ByteDance founder Zhang Yiming suddenly decided to step down from his CEO’s post. To those closely following the crackdown, it wasn’t that much of a surprise. Tech billionaire Colin Zheng Huang, also stepped down from his post in online discount company Pinduoduo.

Why had China earlier been promoting tech giants and now cracking down? For one it is clear that China is heading for tech-dystopia and these companies played a key role in it. Now that they have achieved this, with the facial recognition system and credit rating in full swing, it is time to rein in the tech giants as nobody can become too big for their boots in China.

Meituan is a Chinese shopping platform and billionaire Wang Xing is the CEO. In May he put up an ancient poem on his social media profile which was seen as a criticism of all these events. A report said that the stock of his company fell $37 billion in a matter of weeks. One estimate put the total losses as a result of the crackdown in excess of $1 trillion.

It’s not just the Chinese government though. The world’s two largest democracies have tightened the screws. The Donald Trump administration wanted an outright ban on TikTok and WeChat from the United States. While the Joe Biden administration toned down the rhetoric, nothing much seems to have changed at the ground level.

The Indian moves have been even more sweeping. From 2020 onwards, a series of bans were announced on all things Chinese and there was a separate one for soldiers at the border, where there have been clashes with the Chinese army.

The first casualty was TikTok, which was emerging as the only non-American company to enter the global one billion active users club (outside of China that is). The second was Huawei, which was also targeted by both India and America. If the global 5G rollout had been smooth and there had been no bans, Huawei could have emerged as the world’s largest tech company based on its 5G leadership alone. It is also a leader in smartphones.

This is being reflected in the startup scene. India used to be a distant third to the US and China. Startup India saw a funding spike in 2020 which became even bigger in 2021. Startup China meanwhile saw a marginal decline. There’s a chance that India can finally catch up with the Big 2.

China is seeing a severe population decline, a rapidly ageing demographic group and a disillusioned youth, who now see their job prospects slide even further with the tech crackdown. There was already uncertainty over China’s contribution to the global supply chain as a result of the Covid crisis. In the long run, it could very well be Advantage India at the cost of China.

In the next few years will Make in India beat Make in China? You can at least bet on it now!