Imagine what would happen if a country destroyed its tech industry overnight. In most cases,
this would lead to economic collapse and societal chaos. Yet, as you watch this video,
China is doing just that. The craziest part is that the drastic actions taken by the Chinese
government to dismantle their own tech industry might just save the country in the future.
China has been a major player in the global tech industry since the early 2000s. However,
it now seems that the Chinese government has done a full 180 and is trying to destroy all
of the innovations and hard work its tech companies have engaged in over the past two
decades. This seems insane, and it just might be, but many analysts believe that by cracking
down on its tech sector, China may position itself to not just thrive but control many of
the policies and regulations that will govern how tech companies operate around the world.
Make no mistake. China is not just implementing a few regulations; they are actively destroying
specific parts of their tech industry in order to force a major paradigm shift. In recent years,
tech icons like Jack Ma, founder of Alibaba, have disappeared, and China has leveled incredibly huge
fines against some of their most lucrative tech companies. The Chinese government is not just
trying to regulate certain companies in their country; they are trying to eviscerate them.
So, how could a government waging war on one of its biggest economic sectors be good for it? Let’s
pick China's policies and regulations apart and see if there is any sanity in what they are doing.
It should come as no surprise that the regulations being put in place are a way for President Xi
Jinping to seize power from major tech giants. He is also using this systematic reorganization
to focus the sector on what he believes the future of China should be. Before the crackdown,
most of China’s biggest tech companies were concentrated on software, platforms,
and apps that collect user data. This data was used for advertising and selling products to
consumers and is exactly what Alibaba, which is basically the Amazon of China,
has been doing since the early 2000s. Chinese companies were also investing large amounts of
time and resources into cryptocurrency and various social media platforms. Xi and his
associates want China's tech industry to move away from these superficial sectors and focus
more on physical hardware such as microprocessors, robotics, semiconductors, and electric vehicles.
In order to get the ball rolling, China enacted numerous regulations that would protect user data,
increase cybersecurity, and squash anti-competitive practices. This may
have hurt larger tech companies in China, but it hurt foreign companies working in China
that could not comply with the new regulations even more. This provided small and medium-sized
Chinese tech companies an advantage in the hopes it would lead to greater innovation.
The anti-monopoly rules that China has put in place keep large tech companies from scooping
up all of their competitors or forcing them out of business. This has helped smaller businesses
survive while also forcing tech giants to focus their attention on expansion outside of
China. This can be beneficial for the company itself, but it also spreads China’s power of
influence. And when it comes down to it, many of the things Xi is doing to destroy the tech
industry are so that it can be rebuilt in a way that will provide China with more power.
And although the Chinese government seems to have good intentions when dismantling the tech sector,
analysts worldwide are nervous about the repercussions that might arise. As China’s
no-COVID policy slows production and leads to more and more protests and unrest, their economy is
hurt. These factors, on top of the drastic changes being made to the tech industry—which accounts for
over 30% of the country’s GDP—should definitely set off some internal warning bells. But China is
a huge market, which means it has leverage when it comes to its foreign and economic policies.
China has a massive consumer base, so most companies need to play ball
with their government to tap into the country's population. This means that even though the new
tech laws and regulations may be restrictive and cause foreign companies to spend large
sums of money to restructure their business models to conform to the new Chinese laws,
they have no choice but to comply. The new Personal Information Protection Law,
Data Security Law, and anti-monopoly rules targeting the tech industry were taken from
the European Union’s General Data Protection Regulation. This means that tech companies
operating in Europe should also be able to adjust their practices in China and vice versa.
China has made it very clear that any company that does not
meet their regulations will be fined heavily or, in extreme circumstances,
won’t be allowed to operate in China. This is not an option for most tech companies that rely on
the Chinese market for a decent chunk of their profits. Businesses within and outside China
are now changing their procedures to ensure they don’t lose access to this vital market.
This is good news for Chinese tech companies because it means that everyone is playing by
the same rules. These new regulations have far-reaching effects. Since tech companies
are changing their practices to allow them to operate in China, it means global economic
norms are shifting as well. By forcing companies to conform to China’s policies,
it allows Chinese tech companies easier access to the global market. Basically,
China is rewriting global tech rules through the dismantling of their own tech industry.
But this is not all. In fact, the destruction of tech companies within China through their
strict regulations has greatly benefited the government in a somewhat sinister way.
Even though many of the restrictions China is placing on the tech industry have to do with data
collection, the government is happy to continue these practices for its own purpose. The new
laws require foreign tech companies operating in China to provide more detail while simultaneously
restricting them from sharing the data they collected about Chinese citizens with outside
parties. This is a double-edged sword for tech companies. On the one hand, they need access to
the Chinese consumer, but on the other, they are providing the Chinese government with a massive
amount of data that may allow them to force tech companies to do their bidding. This could lead to
things such as the 2016 Apple agreement that promised the company would increase spending
within China by $275 billion. Obviously, this was a huge win for the Chinese economy and government.
So, although the new laws are hurting Chinese tech companies,
the pros far outweigh the cons for the Chinese government. But forcing foreign
companies to adhere to their strict rules is only one part of the plan.
By getting rid of tech monopolies in China, the government hopes to stimulate innovation.
By hurting the tech companies that have become too big, China believes more competition will
arise between smaller businesses. This often leads to advances in a particular industry,
which is what China hopes will happen in their technology sector. Recently,
only a handful of companies have dominated the industry. Whenever a new company comes
up with a good idea or creates software that is better than what already exists,
they are acquired by one of these corporations. Other times these large
tech firms use more nefarious practices such as stealing intellectual property, but since
they control so much of the industry, there is very little a small company can do to stop them.
To be fair, this is not just a problem in China. These types of predatory practices
happen all the time around the world. Companies like Amazon, Apple, and Google constantly acquire
competitors and have a slew of legal actions brought against them for stolen programs or
property. Unfortunately, like with all tech giants, China’s companies have an army of lawyers
and strategists who ensure that, more often than not, what the company wants, the company gets.
However, China has now stripped away the ability of large tech firms to use such
tactics within the country. It will not stop these practices completely,
but it will force already established companies to compete with startups to
improve their own products. Because if they don’t, they will lose customers.
When we examine Chain’s crackdown on the tech industry more closely,
it is very clear that the decisions made were calculated and deliberate. Out of all the
tech companies that have been fined or ruined by China’s new regulations, around 95% were software
or platform companies, while only the remaining 5% were hardware businesses. This paints a clear
picture of the direction in which the Chinese government wants to take its technology sector.
President Xi has made it very apparent he wants China to become more self-sufficient. He has even
stated: “our dependence on core technology is the biggest hidden trouble for us… Heavy dependence
on imported core technology is like building our house on top of someone else’s walls: No
matter how big and how beautiful it is, it won’t remain standing during a storm.” Xi knows that
regardless of how powerful China’s software and internet companies are, it won’t matter if they
can’t build state-of-the-art computers or keep up with advances being made by other countries.
Therefore, the main reason that such harsh regulations have been put into place to
dismantle the Chinese tech industry is so that the entire sector can begin pivoting
towards hardware manufacturing and development while software is only
relied on as a secondary product. Huge emphasis is being placed on microprocessors, robotics,
and semiconductors. Xi and his advisors see this as the future, and they are likely right.
Left to their own devices, the Chinese tech industry would continue mining user data and
providing Chinese citizens ways to escape real life online through social media and
in a future metaverse. This is because large tech companies have been doing this for years,
and it’s been very profitable. There was no incentive for these companies to focus on hardware
when they could continue making money with online shopping, social media, and video games.
But these things don’t keep a country competitive in the global market. So,
it is clear that the destruction of China’s tech companies is an attempt
to force more innovation and to develop technological self-reliance for the country.
Interestingly, the regulations are also being used to scare away certain companies. It may
seem odd that China would want to force foreign businesses out of their market
when they bring in considerable amounts of money for the economy,
but like with everything else, it is all part of Xi’s crazy plan.
In Xi Jinping’s mind, he has put China in a win-win situation. If foreign tech companies
adhere to the new strict regulations, he will have leverage over them. If they don’t follow
his regulations and decide to leave, Xi and his advisors believe that domestic companies will take
their place. And, of course, these businesses will be funded by and answer to the Chinese government.
What this means is that either way, Xi has some form of control over all the tech companies
manufacturing hardware within China’s borders. Ideally, he wants the majority of hardware to
be produced by State-sponsored businesses, but right now, he’ll take either option.
Xi and other main players in the Chinese government have noticed how far behind
the United States the country is in terms of semiconductor manufacturing,
aerospace engineering, and biotech. Obviously, this is not what China wants,
which is another reason for the overhaul of the tech industry. China is already a world
leader in software and programming. This is why the government doesn’t need to grow the
industry further. Instead, they want to focus on China’s shortcomings. In 2021, the Chinese
government invested an all-time high in companies developing semiconductors and biotechnology.
With all of the new regulations and refocusing of the tech industry in China,
other world powers have begun to take notice. Unsurprisingly, the United States is keeping a
close eye on what is happening within their adversary’s borders. Even though the Chinese
government’s plan to destroy its tech industry might have seemed crazy at first, it now appears
to be working. In February of 2022, the U.S. Chamber of Commerce reported that the dismantling
of China’s tech industry was actually giving the country the money and talent it needed to develop
an economic advantage over the United States. It may seem unbelievable, but it would appear that
China’s destruction and reorganization of its tech sector is having the outcome they had hoped for.
China has doubled down on its plans, and the Ministry of Industry and Information
Technology declared it would create 600 “Little Giants” in 2018. What they meant by this is that
the government would back 600 startups that focused on hardware, strategic technologies,
and computing equipment. They succeeded in this effort and have even expanded the number of these
startups to 4,500. China plans to fund another 5,000 “Little Giants” over the next few years.
The Chinese government is very serious about changing the way its tech industry operates,
and as you’ll see, it is not afraid of who gets hurt.
Back in 2021, the Chinese government fined Alibaba 2.8 billion dollars—the largest fine
leveled against a company ever. They did this by citing anti-competitive behavior perpetrated by
the company. Alibaba is still operating and making profits, but this just goes to show how serious
China is about the restructuring of its technology sector. This was not a one-off case. China has
imposed huge fines on several big tech companies in the country. And although they are doing this
to shift businesses toward hardware manufacturing, there is another more sinister reason.
The big tech companies had gained too much power in the government’s eyes. It was clear that they
could influence decisions made even at high levels and impact how the average Chinese citizen
thought and acted. This was unacceptable to the government. As is well known, Xi does not handle
threats to his power very well. The destruction of the tech giants in China is also being done to
lessen their power and make sure the government is the only one controlling the general population.
The government knew it was dangerous to allow non-state-run companies to have the ability to
manipulate the public by collecting user data, controlling what social media and news content
they saw, and providing them with online experiences they couldn’t get enough of.
Big tech companies overstepped, and in a country led by an authoritarian regime,
threatening the government’s power is never a good thing. The destruction of the tech industry was
certainly motivated by the wants and needs of China to become more self-sufficient. However,
it was also a play to consolidate power back to the government itself.
But the government has also recognized an opportunity in the tech giants. Xi and
those close to him saw how influential the big tech companies had become and encouraged them
to grow their user bases and footprint in other parts of the world. China’s National Development
and Reform Commission even released guidance on how software and platform companies could
further expand their international capabilities to be competitive on the global stage. Really
what was happening was the Chinese government wanted these tech giants to stop siphoning
money from the Chinese government and start bringing in more foreign money.
It appears that tech companies listened to the commission and began expanding their
influence beyond China’s borders. In 2021, Tencent, a multimedia and video game company,
extended their reach into Europe. Didi, a ride-hailing app, has a similar number
of users as Uber in nine different countries. And let's not forget that TikTok is a Chinese
company that beat Google as the world’s most visited website for part of 2021.
Once again, the Chinese government's crackdown on tech companies has done exactly what it had hoped
for. The rest of the world watched, stunned, as fines and regulations were thrown at Chinese tech
giants by their own government. Destroying the status quo within the industry allowed
them to refocus on innovation, growth, and manufacturing while also expanding
China’s influence via their tech company's products and data collection across the world.
The long-term effects of these decisions appear to benefit the Chinese people as well. The law now
requires companies to report data breaches, which they were previously not required to do. Also,
false advertising and misleading promotions now receive much harsher penalties,
which better protect Chinese consumers from being scammed. These new laws required that
tech companies clean up their acts and operate more ethically. International
attention has even been drawn to several Chinese tech businesses as they have made
it onto lists of companies that have improved digital rights.
Obviously, not everyone is happy about China's success after blowing up their tech industry.
For years the United States has been outcompeting China in microchip and semiconductor technologies.
However, in 2021, China’s Yangtze Memory Technologies created a memory chip that
outperformed the most powerful chips from both Intel and Samsung. The U.S. has opened several
investigations into Chinese tech companies and their practices, but these lawsuits cannot
stop them from innovating and spreading their product to other countries across the globe. As
of right now, OceanBase, which Alibaba funded, is the fastest database in the world. In fact,
it is twice as fast as the second quickest database, which is run by the U.S. company Oracle.
Things are not going great right now in China, but this has little to do with the
way the Chinese government cracked down on the tech industry. China spends around 70 billion
more dollars than the United States on research and development. This allows them to turn more
innovations into commercial products for their own citizens and to be shipped around the world.
The growth of China’s GDP has slowed, but it is still increasing by almost twice as much as the
U.S.’s. By all indications, the destruction and reorganization of the Chinese tech industry will
only lead to more innovations, self-reliance, and a broader influence across the world.
Even with what appears to be a successful shift in the way Chinese tech companies operate,
there are some doubts that China will manage to recover fully from this transition. Many analysts
still believe that the Chinese government overextended itself by implementing too many
regulations and fines on their tech giants. They cite a lack of freedom for the companies
to operate how they see fit as a major problem. Also, the tight restrictions could lead certain
tech firms to be so bogged down with legalities that they won’t be able to innovate or grow.
It is hard to tell what exactly is going on within China as most information coming out
of the country comes from State-run sources. However, all we need to do is look at the
products we rely on every day, the software we use, and the websites we visit to see how far
the arm of the Chinese tech industry reaches. In the United States, large amounts of electronics
come from China. People spend enormous amounts of time on TikTok, where user data is collected
and shared with other companies and the Chinese government. So, much of the criticism about the
restructuring of the Chinese tech industry may be coming from fear rather than unbiased opinions.
If nothing else, one thing is for sure, Chinese tech companies seem to be weathering the storm
and innovating in new ways to keep them relevant. Over the next several years, industry leaders and
governments will need to closely watch the tech, hardware, and platforms coming out of
China. The unrest and policies in the country may stifle growth, but it is being dealt with
similarly to how the tech industry was. Xi and his associates are cracking down hard. It is unclear
whether this will lead to more protests or if it will beat the Chinese people into submission.
Although it is technically the People's Republic of China,
the actual people have very little say in what happens. Xi Jinping is an authoritarian ruler
and will not be giving up his power any time soon. This is why Chinese tech companies had
to comply with the onslaught of regulations, lawsuits, and fines.
That being said, the tech industry seems to be ramping back up. Strides are being made with
electric cars, artificial intelligence, and semiconductors. On top of that,
China is becoming more self-reliant within its tech sector and investing heavily in
biotechnology. If everything continues to go as planned, China will have the
most dominant tech industry in the world. These are uncertain times, and initially,
all signs pointed to a disaster when the Chinese government destroyed its tech industry. But it is
coming back with a vengeance, which means that its demolition may have been what saved it.
Now watch “China's Plan to Take Over the World.” Or check out “China's World War 3 Plan.”