The crackdown began last year when Chinese regulators cancelled the $300bn flotation of Ant Group in Hong Kong and Shanghai at the last minute. The government went on to threaten other tech firms and to humble tycoons, not least Jack Ma, the co-founder of Alibaba and founder of Ant.
All governments worry about data privacy and monopolies, but China’s interventions signal a systematic attack on tech by the party. On July 7th Bloomberg reported that China might re-examine the use of “variable-interest entities”, a legal structure that underpins almost all foreign investment in Chinese tech. The message is clear: powerful tech firms must defer to the Communist Party, their bosses should keep quiet and foreign owners’ property rights can be violated.
An optimistic view is that the crackdown is political theatre. Global firms have often been burned in China only to recover. South Korean and Japanese companies have faced boycotts and protests that later faded away. China’s government shuns foreign banks for a while, to punish them for perceived errors, but eventually welcomes them back.
This time may be different. Foreign investors have lost hundreds of billions of dollars, which may permanently alter the supply of global capital to China. To fill that hole, Chinese firms will depend on less sophisticated mainland markets. Once again entrepreneurs and investors must weigh and reweigh the vast rewards of China’s markets against the risks of its opaque laws, bullying officials and paranoid rulers. If you were risk-hungry, unorthodox and keen to start a business that breaks the mould, would you still choose to do so in China? ■