SinoInsight 1
On Nov. 10, the PRC State Administration for Market Regulation (SAMR) issued new draft anti-monopoly rules for outline platforms in China. Big tech companies like Alibaba, Tencent, JD.com, Meituan, Pinduoduo, etc. stand to be targeted for abusing market dominance to restrict sales on competing platforms, unfair pricing, and other monopolistic practices.
SAMR also proposed a review system to stop companies from abusing their market position. Those found guilty may be asked to divest their assets, intellectual property, or technologies. The authorities could also inspect their key technologies and network infrastructure.
The draft anti-monopoly rules landed just before Singles’ Day (Nov. 11) in China, a period where online retailers often deploy underhanded tactics to court shoppers and vendors. After the new rules were announced, five major Chinese tech companies saw their shares plummet. Alibaba (down 5.1 percent), Tencent (down 4.42 percent), JD.com (down 8.78 percent), Meituan (down 10.5 percent), and Xiaomi (down 4.31 percent) saw 430 billion yuan (about $65 billion) in market value evaporate.
OUR TAKE
1. The rollout of anti-monopoly rules follows the recent suspension of Ant Group’s record IPO. Just like in the Ant case, the CCP appears to be curbing systemic financial risks and reining in the clout of big tech companies, as it moves to lower political risks and shore up regime security amid domestic and geopolitical uncertainty.
2. The rapid development and growing scale of big tech companies in China, as well as their market monopoly, pose a threat to CCP rule. Jack Ma once said that data is the new oil. Private tech companies like Alibaba and Tencent collect and disseminate information and data on a massive scale, and “compete” with the CCP for control over societal surveillance. Also, the scale of capital operations and financial holdings of some fintech companies, like Alipay and WeChat Pay, weaken the central bank’s currency and capital controls.
Technically, private enterprises must listen to the Party. However, the CCP fears a scenario where Chinese big tech companies accumulate enough money and resources to become serious political challengers. Thus, Beijing is preemptively stepping in to regulate tech companies and their online platforms to mitigate the Party’s financial and political risks, under the guise of safeguarding the Chinese people’s interests.
3. The CCP regime is not analogous to China’s imperial dynasties, but it is plagued by similar flaws inherent in centralized government. For instance, the power of emperors and imperial courts often waned near the end of their dynasty, partly due to court intrigue and elite power-grabbing, and partly due to aristocrats and local gentry gaining more power due to them amassing greater wealth than the imperial court. Emperors who sensed political danger often rammed through policies to re-centralize power, but more often than not their reforms failed and the dynasty collapsed.
The CCP now faces problems similar to a dynasty on its last legs. On the one hand, China’s big tech companies, backed by members of the “red aristocracy,” have amassed so much capital and assets (data) that they are legitimate threats to Party Central. On the other hand, Xi Jinping has been frantically consolidating power since taking office in 2012 to boost not just his personal authority, but the Party’s. “Government, military, civilian, and academic; east, west, south, north, and center, the Party leads everything,” Xi is fond of saying. Xi’s “strongman” maneuvers are driven by his need to stay ahead in the factional struggle in the CCP elite (modern day court intrigue), as well as prevent regime collapse as the Party struggles with economic deterioration, worsening social problems, and an increasingly hostile external environment.
Many observers mistake Xi Jinping’s power consolidation, as well as the regime’s growing effort to curb systemic financial risks and tighten societal controls, as a sign of strength. Conversely, such moves only signal that the Communist Party is in peril and is paranoid about regime collapse.
History suggests that Xi’s odds of rescuing the regime are slim. Once a dynasty enters its late stage, no emperor has managed to reform his way out of trouble. The emperor’s reforms instead usually inspire greater pushback from opposition both in the capital and from regional powers, as all sides struggle to preserve their interests. Xi’s regulation of China’s big tech could yet inspire similar resistance from successful private entrepreneurs and their political backers.
SinoInsight 2
Officially, no state in America has certified the results of the 2020 presidential election. However, after legacy media in America “called” the election for Vice President Joe Biden on Nov. 7, Biden has been holding press conferences on stages with decorations that read, “Office of the President Elect.” Ben Rhodes, a former Obama administration official, told MSNBC that “foreign leaders are already having phone calls with Joe Biden, talking about the agenda they’re going to pursue on January 20th.” According to news reports, the leaders of Japan, South Korea, and Australia called Biden to talk about strengthening ties, regional security, the pandemic, and climate change.
Meanwhile, despite talk about being “tough” on China, early information about Biden’s potential cabinet picks and executive orders as reported by media outlets suggest the Biden administration will pursue “soft” engagement with the CCP regime.
The Trump campaign has filed litigation in contested states, and there are pending recounts. On Nov. 11, the Georgia secretary of state announced a full hand recount of the presidential race, which the media previously called for Biden.
Concurrently, the Trump administration is persisting in its strong stance against the CCP.
On Nov. 7, the White House issued a presidential message on the National Day for the Victims of Communism promising to support “the more than one billion people currently captive within communist regimes and denied their unalienable rights to life and liberty,” a nod at Communist China. “Over and over, communism and socialism have proven to be irreconcilable with the unalienable and fundamental rights of life, liberty, and the pursuit of happiness … we commit to standing against this insidious ideology, and pledge with great pride that the United States will never be a socialist nation,” the message read.
On Nov. 9, the State Department announced sanctions against four Hong Kong and PRC officials—Li Jiangzhou, Edwina Lau, and Steve Li Kwai-Wah—for having engaged in “developing, adopting, or implementing the Law of the People’s Republic of China on Safeguarding National Security in the Hong Kong Special Administrative Region.” The sanctioned individuals are barred from traveling to the U.S. and are blocked from their assets in America.
On Nov. 10, Secretary of State Mike Pompeo said in a speech at the Ronald Reagan Institute that the “fight” between free nations and the CCP is one of “authoritarianism, barbarism on one side and freedom on the other.” He added, “From the Quad, to ASEAN, to NATO, we’ve woken them up to the threat posed by this Marxist-Leninist monster.” When asked about taking down the Great Firewall during the Q&A session, Pompeo said, “In the end, the people of China will ultimately be determinative just as the people of the Soviet Union were ultimately determinative of the course of history inside of that country. And so it’s our fundamental effort to work to make sure that the Chinese people have access to information, data, all the things that they will need to see so that they, too, can share in these very freedoms that we all care so much about … And for us to have the capacity to permit them to tear down this firewall that has been built around China would enable the people of China to make a much different set of decisions than the one that their current leadership has taken them down.”
On the same day, Pompeo announced at a press conference that Under Secretary Keith Krach will lead the U.S.-Taiwan Economic Prosperity Partnership Dialogue in the United States on Nov. 20.
OUR TAKE
1. With Biden’s establishment of an “Office of the President Elect” and discussing agenda with foreign leaders, there are, in China watchers’ lingo, two “centers of political authority” (兩個中央) in the United States. Regardless of the final election outcome, a dangerous precedent has been established.
The U.S. is politically vulnerable in the next 30-odd days until the states certify the winner. During this period, the CCP could take advantage of the media bifurcated reality to subvert American society and advance its push for global hegemony. Already, the CCP has been escalating bullying tactics against Australia, a key U.S. ally in standing up to the regime. The CCP could also exploit domestic political turmoil in the U.S. to intimidate its neighbors like India, Japan, and Taiwan. We believe Beijing is taking advantage of the political uncertainty in the U.S. as a distraction, while it backs a Hong Kong government motion to bypass the courts and disqualify pro-democracy Hong Kong lawmakers this week.
The free world needs to increase its vigilance towards the CCP threat.
2. Despite media efforts to sell a Biden victory as a fait accompli, President Trump could still emerge as the winner in December pending successful legal and constitutional challenges. How the U.S. will approach the “China challenge” will contrast greatly depending on who is in office on Jan. 20, 2021.
Businesses, investors, and governments who are moving ahead with China plans based on a Biden presidency should hold off until the final election results are cemented to sidestep political risks.
