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The crackdown in China continues – who is winning and losing?

The crackdown in China provides news on an almost daily basis. It started with big tech companies but is now moving beyond the technology itself and into areas that might seem to be none of the State’s business.

Recent events in the crackdown have hit big tech again, as the Government issues rules about the actual algorithms that companies can use in managing customer data. But they have also gone beyond that, regulating the ‘chaotic celebrity culture’ that has become rampant in the country, banning the posting of popularity lists and other ‘harmful’ activities.

Most recently the crackdown has hit gaming, as the regime tightens rules already in place, limiting the amount of time minors can play games. The Government says it is worried about not just gaming addiction but also shortsightedness. The gamers think otherwise.

Whatever you think about chaotic celebrity culture or a 17 year old gamer, the real question is who is benefiting from the new tough rules.

The customers, it would seem, are benefiting from the crackdown. Their data will now need to be managed for their advantage, more securely, openly and safely.

Big tech is not winning from the crackdown, indeed not only have the biggest of names been changing their practices ‘ahead of the regulator’ but share prices have taken a severe battering. Gaming companies such as Tencent are bracing themselves for more trouble.

Some companies, such as Didi, have shelved plans for expansion into other markets such as Europe because of the now heavy burden placed upon it.

The other challenge is that if Chinese companies decide to list in the US, for example, it can go badly wrong. Didi is the most obvious example, listing in New York at the end of June in what looked like a snub to the Government in China. But the regulations in China not only turned the IPO bad but was as unpopular in the US as it was in Didi’s home country.

Senators were furious that American investors were exposed to significant losses and that they were being encouraged to invest in a company whose books are closed to US auditors.

Now, it looks as if the Chinese state will take Didi into State control.

The crackdown in China is tough and wide-ranging. It benefits customers and probably the health of teenage kids.

That must be good. Surely.

Except that (for example) the Government is taking a stake in a key Ant asset that holds the credit scores of around a billion customers. That would not make those customers happy. Nor is the health of the vast eSports industry benefiting. In fact, it could soon be in tatters.

And, as Richard Windsor points out in the case of Didi, ‘this puts Didi at a huge disadvantage as the state now has a financial incentive to ensure that Didi can not compete and to see it drummed out of business’.

In short, according to Windsor, this strategy of closing down the freedom to grow companies, be excited by celebrities and play games ‘will do more harm to China’s technology ambitions than the USA will ever accomplish on its own’.

We are beginning to see the effect the crackdown is having on the health of its biggest, most innovative companies – the very ones that are driving the Chinese economy. Whether some sort of balance will return remains to be seen.

What is certain is that it will be another few months of uncertainty for everyone involved. Disruptive.Asia

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