Why China is restricting its tech companies

Why China is restricting its tech companies

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Even the big Chinese technology companies can hardly escape government control. The latest example is the transport service provider Didi. Other companies are likely to follow.Chinese companies that have large amounts of data from their customers and are listed on a foreign stock exchange are increasingly being targeted by the Beijing government. The Uber competitor Didi recently had to find out. The transport service provider went public in New York last week, although the Chinese authorities had suggested a postponement according to press reports. Shortly after the successful initial listing, those in power started investigations into violations of the handling of the data collected, whereupon the share price collapsed massively.

Since then, other companies have been scrutinized by the country’s cyber oversight: the truck rental companies Yunmanman and Huochebang and the Boss Zhipin job exchange. The background to these controls is the concern of the communist leadership that Chinese companies listed abroad could be forced by the authorities there to make their data available. To prevent this, Beijing has now introduced strict regulations to ensure the “data security, cross-border data flow and the management of confidential information” of Chinese companies whose shares are traded abroad.

Fear of data being stolen by Americans

As the news agency dpa quotes from the new regulation, it is now also ensured that Chinese capital market laws are applied and pursued abroad. Furthermore, the regulations for the admission of Chinese companies to IPOs abroad are being revised. This is likely to make it more difficult for Chinese companies to have access to stock exchange listings abroad – with corresponding consequences for these companies to raise capital. The extent to which the government is concerned about the handling of the large amounts of data from Chinese technology companies abroad is also shown by the statements of a spokesman for the Beijing Foreign Ministry. He recently named the US as the “greatest threat to global cybersecurity”. He criticized the surveillance of the USA “at home and abroad” and accused them of data theft and invasion of privacy. “It is the US that forced companies to install backdoors and obtained user data.”

Dangerous market power

The number of companies listed in the US has risen sharply in the past seven months, regardless of the political tensions between Washington and Beijing. In the first half of the year, Chinese companies collected a share of a third of the proceeds from IPOs worldwide – more than corporations from any other country, reports the Hong Kong newspaper “South China Morning Post”. Around 250 Chinese companies are currently listed in the USA. Experts fear that tech giants, such as the Amazon competitor Alibaba, the search engine operator Baidu or the gaming and payment service provider Tencent, which have so far been funded by the government, will also be targeted by cyber supervision because of their large amounts of data and their stock exchange listing abroad. While the West is very reluctant to regulate the big tech companies, the Communist Party has recognized how dangerous the market power of platform companies is for its political system and is therefore proceeding rigorously, said Sebastian Heilmann, Professor of Politics and Economics in China at the University of Trier, the “Handelsblatt”. China’s party headquarters are at the forefront of political and economic power, and that also applies to the data economy, said, Heilmann.

Retreat from Hong Kong?

US companies such as Google, Twitter and Facebook are considering withdrawing from Hong Kong because of the stricter data protection. There the government plans to take action against “doxxing” – a kind of cyber harassment in which private information is spread online. During the 2019 protests, government opponents disclosed personal information about police officers or their families. This led to threats against those affected. The law could be passed this month by the constrained Hong Kong parliament.


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Thomas Braun

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