Why China tech isn’t rebounding after Beijing crackdown ended

BEIJING - China spent the better part of two years reining in the country’s most powerful private technology companies, including Alibaba Group Holding, Tencent Holdings and Didi Global along with their ultra-rich founders.

Since 2023, Chinese President Xi Jinping’s government has eased off on the crackdown and indicated that it still sees the trillion-dollar sector as an important part of the country’s economy. Yet the big tech firms are still mired in a slump, struggling to get past single-digit growth rates even as they invest in new technologies or venture abroad in search of new customers.

The government has made clear it will not tolerate a return to the free-wheeling, get-rich-quick days of the past or the “hedonistic” lifestyles of some tech billionaires and their acolytes. And Beijing has made clear it sees China’s technological future not in video games and online marketplaces, but in industries that are more pivotal to its geopolitical conflict with the United States, such as artificial intelligence (AI) and semiconductors.

How did the crackdown end?

Regulators resumed issuing video game licences to Tencent and NetEase, another online giant, in 2022 after a long freeze.

In January 2023, they allowed ride-hailing leader Didi to bring in new users for the first time since its apps were banned from app stores in 2021, after it listed in New York without permission from Beijing.

In July 2023, regulators wrapped up a three-year investigation of Ant Group, the financial technology business of Alibaba founder Jack Ma, by imposing a US$1 billion (S$1.3 billion) fine on the company. That probe had been seen as the starting point in the government’s campaign to bring the nation’s most influential tech companies and billionaire entrepreneurs to heel.

Days later, the nation’s most important decision-making bodies published a manifesto calling for a revival of the private sector, which immediately drew endorsements from Tencent’s billionaire co-founder Pony Ma and peer Lei Jun.

In November, Alibaba said it was rowing back on a plan to break up into six separate and mostly independent pieces – a move that would have fulfilled Beijing’s goal of cutting the tech giant down to size.

What’s happened this year?

Beijing officials have made several further pronouncements in support of private companies and the technology industry.

In August 2024, the country’s antitrust regulator announced that Alibaba had eradicated alleged monopolistic behaviour. In September, Alibaba declared it will allow its hundreds of millions of shoppers to select Tencent’s WeChat Pay at checkout – giving them access to China’s most popular online payments service for the first time.

So can China’s Big Tech run wild again?

Probably not. Maintaining social stability and an iron grip on the economy is a signature goal of the ruling Communist Party, and that is unlikely to change soon. Analysts and investors say regulators have successfully – if brutally – reasserted their oversight power, and diminished the swagger – and societal influence – of tech billionaires.

Much of Beijing’s concern centres on the hundreds of millions of users who remain reliant on Alibaba for shopping, Tencent for social media and lifestyle and Ant for payments and finance. All that activity produces vast amounts of data that help reinforce the platforms. Beijing has asserted control over it all and made clear that any new initiatives must align with its priorities. That means fewer live-streaming apps and more research into cutting-edge technologies, from AI to cloud computing and advanced semiconductors.

It is no coincidence that every major Chinese tech company from Baidu to Tencent has announced efforts to create an AI model to rival (or surpass) OpenAI’s ChatGPT – a business as well as a political imperative, given the potentially transformative nature of the technology.

Where are the red lines?

There are quite a few. There is a persistent caution against wild investment and the cut-throat competitive excesses that characterised much of the industry prior to 2021, from ride hailing to meal delivery and e-commerce. Regulators have also made pre-emptive moves to put guard rails in place for the latest technologies, ranging from deepfakes to generative AI, which, in some cases, are among the world’s first. China’s Cyberspace Administration cited data and national security as its prime reason for investigating Didi and now mandates a data security review for all major companies seeking overseas listings.

More broadly, Mr Xi’s administration blames widening social disparities in part on the internet boom, particularly in the pandemic era, and is moving to address any public discontent that could threaten its authority. That led to the “common prosperity” programme that guides the activities of many of the sector’s leaders, who pledged to treat their workers better and donate billions of dollars to charity.

As a corollary, any attempts to hoard wealth and sabotage rivals – such as through undercutting prices or coercing merchants into exclusive deals, a key aspect of antitrust investigations – remain off-limits.

Will the companies regain their pre-crackdown heights?

That seems unlikely. Before 2020, Beijing’s hands-off approach to the technology sector minted billionaires and giant companies at a breathtaking pace, at one point inviting comparisons to Silicon Valley. Alibaba, Tencent and Ant had a combined market capitalisation of nearly US$2 trillion that year – easily surpassing state-owned behemoths like Industrial and Commercial Bank of China as the country’s most valuable companies.

Alibaba has shed more than US$600 billion of value since the monopoly crackdown began in 2020. Tencent has lost US$500 billion since January 2021. Both have bounced back from their 2022 low points, but remain far below their earlier peaks.

What happened to China’s tech billionaires?

Some, like Tencent’s Mr Pony Ma and Xiaomi’s Mr Lei, have publicly championed Beijing’s new stance.

Mr Jack Ma gave up controlling rights of Ant and retreated from the public spotlight. A memo he penned in November 2023 was viewed as signalling a gradual return to public life.

Many of his fellow billionaires, including ByteDance’s Zhang Yiming and PDD Holdings co-founder Colin Huang, have also stepped back from active roles at their companies.

Mr Huang became China’s richest person briefly in 2024, underscoring how far the likes of Mr Jack Ma have fallen. BLOOMBERG