China’s Tech Crackdown and How Can It Affect You?

By Remitbee - Sep 29, 2021

China is again making a buzz in world news. It is not because of the COVID-19 pandemic but because of its government’s recent stricter rules imposed on its giant tech companies, resulting in yet another episode of China’s tech crackdown. This issue all boils down to one word: power. The Communist Party controls the market, and private companies’ economic and political influences are limited.

China’s Tech Crackdown: An Overview

Before diving deep into the impact of China’s tech crackdown on Canadians and North Americans, let’s first have a brief overview of how tech companies gather enough funds to develop new tech products and apps that gain popularity in the digital market.

Like other companies do to raise money to fund, homegrown Chinese companies offer their companies through an initial public offering (IPO). Here they offer their stocks to the public so that they can be sharers of the company. Aside from the local public, these companies sought help from the international public. For some years, China’s government has been lax in implementing rules for homegrown Chinese companies raising money overseas through IPO. As a result, better tech products and apps from China have soared in popularity and income, especially those developed by China’s biggest private companies.

With more than enough funds to back their products and apps, China developed tech products and apps that match and often surpass those produced in the U.S. and Europe. One great example is Tiktok, the leading most downloaded app up until the present developed by ByteDance, a Beijing-based company.

For several years, companies in China have enjoyed lax government regulation when it comes to international IPOs. Until another Chinese IPO who has been funded internationally, Didi Global Inc., a ride-hailing giant app in China has been taken down from mobile app stores in China by the Cyberspace Administration of China (CAC) due to the way Didi handles their customer data as part of China’s tech crackdown. As a result, its shares fell as much as 25%.

Because international sharers share Didi Global Inc., its data, by part, is also “shared” to them. In this digitally-driven world, user’s sensitive data can be shared with others in an instant. To protect users' privacy, China has examined Didi’s cybersecurity practices to ensure that their data is protected and, as much as possible, can only be accessed within the country.

The New and Stricter Rules

Cybersecurity is just one part of the new and stricter auditing rules implemented with the latest China tech crackdown, especially for Chinese companies listed on U.S. stock exchanges. Data collection practices, online content, and the use of algorithms to target users are also closely examined. This means that tech companies will be forced to change how they may recommend and rank content. Aside from Didi, large Chinese tech companies such as Alibaba Group, Ant Group, Tencent, We Chat, Meituan, and Kuaishou were under close inspection by the government.

The Personal Information Protection Law (PIPL), a new data protection law passed by China, will require companies that process Chinese people’s data to keep the data within China, preventing them from transferring a Chinese citizen’s sensitive personal data internationally.

Because the Chinese Communist Party (CCP) has more power over the giant companies in the country who have been buying out start-ups and limiting the competition in the market, monopolization and anti-competitive practices are controlled. These give way for start-ups to establish a name on their own, compete with the giants, and show what more they can provide to improve their citizens' lives.

China's tech crackdown also resulted in limits on gaming and celebrity culture. Children under the age of 18 have reduced hours playing online video games–three hours power week only on Fridays and the weekends, plus an extra hour on public holidays.

The CCP has regularized even celebrity fan culture. The rules they released discourage fans from consuming celebrities’ products, prevent minors from engaging on online fan events, and regulate fan clubs' fund-raising behaviour, to name a few.

Experts see these latter two stricter rules as part of CPP’s larger effort to control the excesses of Chinese internet culture to limit its negative impact on its citizens, especially teenagers who they consider the future of their motherland. Instead of wasting time on extreme-addiction-like behaviour brought about by gaming and celebrity culture, experts see these rules as a means for CPP to hone the younger generations to be more moderate, cultured, and productive.

China’s Tech Crackdown and its Effects on the Stock Market

China is the second-largest economy in the world, next to the U.S. Its recent tech crackdown has had a negative impact on the shares of these tech companies on the stock market as previous shareholders have sold off their shares to invest their money in other companies, plummeting the stock price of these companies. These new stricter rules may result in the delisting of some Chinese companies in the U.S.

Stock market investors are more cautious in investing in Chinese companies due to the stricter regulatory policies imposed by the government. Some experts think this crackdown is a move for China to keep IPOs closer to home instead of listing them abroad, such as in the U.S.

Experts have different opinions on the effects of China’s tech crackdown on these large tech companies. Some believe that these companies will recover in a few months, assuming that they will find ways to adapt to the stricter rules imposed by the government. Others think that it might take longer for these companies to recover from the billions they lost, especially with the uncertainty of the government's imposition of new laws to regulate these large corporations and maintain power.

China’s Tech Crackdown and You

Are you a Canadian and North American investor with stocks in Chinese tech companies? If so, it is best to do your research well and listen to what experts have to say to help you decide if you should resell your stocks in these companies or take advantage of their lower prices to increase your shares in the company. A

For Canadian and North American businessmen who wish to operate or continue to run their business in China, it is best to familiarize yourself with the new laws the CPP imposes. This will help you ensure that your company will thrive in China and provide needed products and services without being constantly under the government’s scrutiny.

In this digitally-driven world, tech companies worldwide have undeniably made the world a place that is a lot easier to live in. Thanks to continuous technological advancements, your phone, for example, is not just for calling, texting, taking photos, or browsing the web. Phones now double as tools that you can use to operate your appliance at home and order food. More importantly, if you run a business in China, you can use your phone to send money to your company in China and anywhere in the world from Canada, such as through your Remitbee app.

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