Skip to main content
Logo do Ant Group fotografado em Hangzhou, China 29/10/2020REUTERS/Aly Song
TechTank

The Chinese government embraces tech industry competition

The Chinese government has been dismantling the bulwark behind which American Big Tech has been hiding to avoid domestic regulation. “While people are concerned with the size and power of tech companies,” Facebook Chief Operating Officer Sheryl Sandberg warned in 2019, “there is also a concern in the United States with the size and power of Chinese companies, and the realization that these companies are not going to be broken up.”

That argument just ran out of gas. In recent weeks, the Chinese government has moved forcefully to do what American tech companies have long fought in their home country: pro-market, anti-monopoly intervention and pro-innovation opening of big company chokeholds on digital information.

De-Tycoonification

In what The Economist described as “de-tycoonification,” the Chinese government is moving to limit the power of its tech companies. In December, the State Administration for Market Regulation began investigating Alibaba’s online shopping platform practices. It took only until the first week of April for it to conclude the company’s practices had hindered competition. The result was a $2.8 billion fine against the tech giant and a message to all Chinese companies.

Only one minute after the penalty was announced, People’s Daily, the official Communist Party newspaper, published the party’s position: “Monopoly is the great enemy of the market economy. There is no contradiction between regulating under the law and supporting development. Rather, they complement each other and are mutually reinforcing.”

Related

Days later, the Chinese government ordered Ant Group, the huge financial services company, to restructure itself in what was described as a “rectification plan.” Technology “cannot become an excuse for platform companies to go beyond legal, ethical and other bottom lines,” the state-run newspaper Economic Daily explained about the action.

So much for the arguments of American Big Tech companies that their dominance in domestic markets is necessary to counter Chinese monopolies.  “Mark Zuckerberg says breaking up Facebook would pave the way for China’s tech companies to dominate,” read the headline on an interview in which the Facebook founder and CEO warned, “[i]f we adopt a stance which is that, okay, we’re going to clip the wings of these [American] companies, then there are plenty of other companies out there that are willing and able to take the place of the work we’re doing…And they don’t share the values that we have.”

China, however, appears to be in wing-clipping mode and their tech companies are bowing in compliance. “The penalty issued today served to alert and catalyze companies like ours,” Alibaba said in response to the government’s action. “It reflects the regulators’ thoughtful and normative expectations toward our industry’s development.” The CEO of Ant Group praised the government’s “scientific and pragmatic spirit.”

Competing with China Means Out-Innovating China

The threat of Chinese dominance in the digital sphere is real. China remains a managed economy that is using digital technology to promote its ideology and expand its economic influence throughout the world. It has established a national goal to be the world leader in artificial intelligence by 2030.

But the myth propounded by Big Tech that monopolies are the way to protect a nation’s innovative future has been exposed by the very bogeyman with which the big companies have been trying to scare us.

China’s vibrant tech community and its huge population’s embrace of digital services are indeed a competitive threat to the United States. China’s competitive advantage is their ability to out-bulk the U.S. as 1.5 billion people generate data that can then be repurposed for other applications including artificial intelligence (AI) and new products and services.

With a population one-fifth the size of China, the U.S. will never be able to out-bulk China’s data collection. The American solution must be to out-innovate China. There are two keys to such innovation: competition and access to the necessary assets.

Competition Begins at Home

The solution to competition with the Chinese begins with competition in the United States. It is competition that drives innovation.

The tech companies have been selling the idea that their size and dominant market position is a national competitive advantage enabling them to push the boundaries of innovation. But what kind of innovation? The companies’ fiduciary responsibility is to their shareholders, not the national interest. This means returns to the company come first. Innovation is for the purpose of advancing shareholder value. If there is a benefit to the national interest, it is a secondary effect.

The companies with the best potential for innovative expansion—the kind of growth needed to compete with China—are smaller, innovation-focused companies. These are the companies whose fiduciary responsibility is the entrepreneurial pushing of the boundaries of development rather than the continuation of market dominance.

The Chinese government, it would seem, has embraced the benefits of good old-fashioned American competition, and moved quickly on its implementation. In the United States, however, protecting domestic American competition—and consumers—remains a work in progress that legislators, regulators, and courts have yet to resolve.

Competition built the American economy. Competition drives innovation. “Competition, competition, competition” must be our national policy.

Opening Access to Data Assets

The Chinese have also adopted policies that recognize that innovation requires access to digital information. The Wall Street Journal described the government’s Ant Group action as curbing “monopolistic behavior in how it collects, controls and uses consumer data.”

In both China and the U.S., the dominant companies have achieved that position by collecting and then hoarding vast amounts of data. Not only does this data feed their algorithms, but also keeping it from potential competitors feeds their continued dominance.

In the managed economy of China, the solution to such data hoarding is to increase state ownership and control with a kind of data nationalization. This is not an appropriate path for the United States to follow. But the Chinese focus on opening access to previously sequestered data does accentuate the important linkage between access to data and innovation. Whoever controls access to the data assets necessary for innovation will have the whip hand on new developments.

The contest between China and the U.S. is thus becoming a contest around the data chokehold of the dominant companies. China’s solution is to loosen the corporate grip on that data and make it more widely available. The nationalization of that data no doubt also serves the interests of the Chinese surveillance state and is one reason why why the U.S. should not pursue such a policy. The lesson here, however, is that the internet became possible because of the interconnection of disparate networks to maximize their efficiency. A similar kind of interconnection is required to maximize the innovation that can result from the application of data assets that are currently hoarded by the dominant digital platform companies.

Perversely, the actions of the Chinese government have turned “the Chinese do it” argument against its former Big Tech proponents. The U.S. should not embrace China’s managed market surveillance state policies, but our domestic policies should be informed by China’s recognition that competition and open data are key to innovation and competitiveness.

Get daily updates from Brookings