In 2020, China initiated a stringent crackdown on its tech sector, resulting in a substantial decline in the market value of its prominent Big Tech companies by $1.1 trillion. However, the current state of the economy has posed significant challenges, prompting the authorities to adopt a different approach. Recent reports indicate that the Chinese government is now actively welcoming the same tech firms they previously targeted. Local governments have taken the initiative to attract these tech giants through at least five deals centred around fostering the “platform economy,” as the South China Morning Post reported.
This shift in strategy reflects the recognition of the tech sector’s potential to play a crucial role in revitalizing the struggling economy. By extending a warm reception to these companies, the authorities are signalling their willingness to work together to leverage the advantages of the platform economy. The landscape for China’s tech industry appears to be evolving as both the government and the tech giants explore new opportunities for collaboration amidst the economic challenges the country is facing.
In a recent development, Qihoo 360, based in Beijing, entered into a cybersecurity agreement with the Hangzhou government, known as the home to Alibaba. This move aims to strengthen cybersecurity measures, as a local government notice on Friday reported.
Adding to the tech collaborations in Hangzhou, gaming giant NetEase partnered with the Hangzhou government in July, focusing on AI and esports. These strategic partnerships highlight the growing significance of technology and online security in the region.
Chinese Government’s Tech Sector Support Amid Economic Challenges
Meanwhile, Yin Li, the Chinese Communist Party chief of Beijing, strongly supported the consumer tech sector during a meeting with e-commerce giant JD.com, consumer giant Xiaomi, and Kuaishou—a major short-video competitor to ByteDance.
A few days earlier, Beijing mayor Yin Yong reassured outgoing Alibaba chairman and CEO Daniel Zhang and Lei Jun, Xiaomi founder and CEO, emphasizing the significant role played by the private economy in driving the capital city’s high-quality development.
Notably, other cities such as Tianjin, a northern port city, and Shenzhen, a southern tech hub, have also been actively forging partnerships with tech giants, as seen in a series of recent deals reported by the SCMP.
Even China’s state planner praised Alibaba on July 12, recognizing the company’s substantial contributions to crucial priority sectors, including autonomous driving and chip development. This marks a significant shift from China’s previous crackdown on Alibaba founder Jack Ma and his companies following his criticism of Beijing in an October 2020 speech.
The Chinese government’s keen interest in supporting its homegrown tech companies coincides with the challenges of the country’s economy, the world’s second-largest, struggling to recover from the impact of three years of on-off COVID-19 lockdowns.
Economic Struggles of China: Reversal of Policies and Global Impact
Insider’s recent report has raised alarm bells over China’s economy, which appears to be teetering on the edge of deflation. The latest official statistics, released on Monday, revealed a worrisome trend of manufacturing activity contracting for the fourth consecutive month in July.
In response to these discouraging economic indicators, Beijing displays a sense of urgency to jumpstart the economy. Surprisingly, the government is reversing significant policies implemented during the COVID-19 pandemic. There are hints that regulatory curbs on the property sector may be relaxed as authorities seek ways to breathe new life into the struggling economy.
The potential consequences of China slipping into deflation are far-reaching. It could significantly impact various sectors, affecting both businesses and consumers. Policymakers are undoubtedly keeping a close watch on the situation, aiming to implement measures that can effectively steer the economy away from deflationary pressures and towards sustainable growth.
Given China’s importance in the global economy, the international community closely monitors these developments. Any significant shifts in China’s economic policies could have ripple effects on international trade, supply chains, and financial markets. As uncertainties persist, the world awaits how China’s economic landscape will evolve, hoping for a positive outcome that will benefit China and contribute to global financial stability.