The Wire China, the China-focused weekly online magazine producing great reporting, recently invited me to contribute an op-ed contextualizing two big stories over the last four years (coincidentally or not, the magazine’s lifespan). It’s mostly subscriber-only, but it’s well worth your time and money if you follow China and US-China relations.1
In 2020, we read about a sprawling “crackdown” on tech businesses in China, and now, we hear great enthusiasm for AI and other tech development there. I argue this is not so much a difference of approach by the Chinese government as it is a matter of emphasis and what is garnering media attention. Still, China’s internal and external circumstances have changed. With permission, the full column is reproduced below.
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China’s Tech Turnaround
Beijing’s crackdown on the sector, followed by recent huge investments in AI and other areas, are part of a long pattern of shifts in the way the government has approached tech development.
By Graham Webster — Originally published July 21, 2024, in The Wire China.
Jack Ma’s fintech giant, Ant Group, had its initial public offering blocked after he publicly challenged government regulatory currents. Ride-hailing industry leader DiDi was hit with an investigation that would lead to $1.2 billion in fines, and its IPO in New York was ultimately reversed. Whole industries — online tutoring and mobile gaming — were banned out of existence or frozen in place by regulatory fiat. The future suddenly became uncertain for online delivery companies like Meituan, operating in a sector that had transformed urban streetscapes with an army of smartphone-guided delivery workers on ebikes.
A new antitrust authority, established alongside an E-Commerce Law in 2018, was meanwhile flexing its muscles and paring back platforms’ market power in the name of competition. New laws on privacy and data security took effect, laying out a daunting and uncertain compliance burden for digital businesses. The Chinese authorities also banned revenue-enhancing tricks such as online platforms offering higher prices to customers who they thought would pay more.
The universal media shorthand for all this was a Chinese “crackdown” on big tech. Investors grew wary of China’s digital economy after years of optimism which had helped place the likes of Tencent and Alibaba among the world’s most valuable companies. Some aspiring entrepreneurs in China kept out of the game, fearing the next government shift would snuff out their nascent idea or, worse, make a political example out of the CEO themselves.
Yet by 2023, the story seemed to have changed. That spring, the government announced that the pro-R&D Ministry of Science and Technology (MOST) would now be the operational office of a new Central Commission on Science and Technology — matching the status afforded the Cyberspace Administration of China (CAC) when its parent was elevated to Party commission-level in 2018.
The CAC itself had become a highly active regulator on data matters, with its security- and propaganda-focused measures often coming at the expense of ease of doing business. So it was significant that at the same time, the government announced a new National Data Administration under the powerful National Development and Reform Commission, and tasked it with unlocking the potential of data “factors of production”— resources held across the digital economy but disproportionately by large platforms.
Meanwhile, national and local government support has recently been pouring into the exploding if amorphous field of AI, incubating startups, establishing labs, and building out “intelligent computing” data centers across the country. And though foreign observers may have criticized China’s longstanding support for other tech industries, especially in the renewable energy space, as producing overcapacity, China’s market share in batteries and EVs has become highly enviable.
If you scanned headlines on China’s tech world over the last five years, you’d be forgiven for having a sense of whiplash. An unprecedented tech crackdown, followed by a government pinning its hopes on tech to lead the country out of post-lockdown doldrums? Did the Party’s top planners create a mess for themselves only to about-face?
In some ways, this has been quite a turnabout. While the most prominent and fastest-changing policies on technology sectors once sought to reshape by restriction, the standout policies today seek to reshape by boosterism. But the story is more mundane (if still somewhat dramatic for a narrative about government regulation) when you realize these seemingly divergent approaches are applied to different technological fields.
China’s tech “crackdown,” or in Chinese government terms “rectification,” was never particularly broad, and most of it has never, in fact, ended. It focused primarily on online services and platforms that help organize offline activities, such as delivery. And most of it should have come as no big surprise, because a lot of the action came after long and well-publicized efforts to draft a Personal Information Protection Law and a Data Security Law had finally come to fruition.
Moreover, while DiDi may be out of the doghouse and Ant is still happily chugging along with its indispensable payment and portal app, 2021’s new data laws are still driving extra compliance burdens and uncertainty across the economy. Much of what looked like a severe yet temporary “crackdown” was actually caused by new legislation that is still in effect, with detailed obligations rolling out continuously.
Nor is the Chinese government’s tech boosterism a new development. Some of the most rousing language in recent top-leader rhetoric — touting self-reliance and indigenous or independent innovation — harkens back to the 1960s and ‘70s, when China proudly announced its nuclear and satellite achievements (with a little help from the Soviets). The current specific focus on fostering AI industries dates at least to the State Council’s 2017 New Generation Artificial Intelligence Development Plan. China’s entire experience with the Internet, starting in the late 1990s, can only be understood if government efforts to advance tech-fueled development, while maintaining necessary controls, are taken into account.
If the “crackdown” mostly never ended and efforts to supercharge tech development are longstanding, the headline reader’s sense of whiplash is more due to a change in China’s circumstances than a change in party-state intentions.
China’s internal circumstances are certainly novel. Harsh and ultimately failed Covid control measures, widely derided at least in retrospect, contributed to an economic stagnation that has now lasted more than 18 months since the end of lockdowns. People only debate what kind of mess the property sector is in, not whether it’s a shambles. Anecdotally, even elites feel the future is economically and socially uncertain.
From the outside, China is of course under a great deal of pressure, especially in high tech. Although the official effort to spur AI development is years old, it cannot be a coincidence that the public enthusiasm for AI spiked after twin shocks from the United States. First came the Biden administration’s October 2022 launch of an effort to block China’s access to the most powerful AI-training semiconductors and the country’s ability to develop any advanced chips in the future. While U.S. officials rather dubiously plead that the controls are narrowly tailored, the message was clear: China would have to go it alone sooner rather than later.
The next month, San Francisco-based OpenAI released ChatGPT, making clear to the world what a smaller community of observers and developers already knew: large language models (LLMs) trained with those advanced chips would do dazzling things, with untold economic and social implications. Chinese and outside observers immediately asked why such a breakthrough had happened in California and not in China, where state support for AI has been vocal, and wondered whether the U.S. chip blockade would keep Chinese developers behind for the long-term.
These new circumstances have intensified Chinese government efforts to develop core technologies at home. A lackluster effort to advance China’s domestic semiconductor industry is now being revamped and re-funded. The race is on among private sector, academic, government, and hybrid labs to reap the benefits of LLMs and other machine learning techniques despite U.S. efforts. Their prospects are uncertain, but China is home to many leading machine-learning scientists, and their efforts are readily framed in patriotic terms. With the United States explicitly trying to undermine a range of advanced industries in China, innovators not only seek to achieve results but look forward to showing the world they can’t be kept down.
Neither ambition nor government regulation are novel in this story, and both have a history of uncertainty. Massive public investment failed once to significantly advance China’s chip sector; it could fail again, and investments in LLMs could similarly falter. In the decade since the then-new Xi Jinping administration formed China’s cyberspace regulator, we’ve seen lots of legislation but uneven implementation. Forces of ambition and breakthrough innovations could bear fruit and still run up against state control. Regardless, domestic doldrums and foreign factors are driving China’s tech world to try something different.
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About Here It Comes
Here it Comes is written by me, Graham Webster, a research scholar and editor-in-chief of the DigiChina Project at the Stanford Program on Geopolitics, Technology, and Governance. It is the successor to my earlier newsletter efforts U.S.–China Week and Transpacifica. Here It Comes is an exploration of the onslaught of interactions between US-China relations, technology, and climate change. The opinions expressed here are my own, and I reserve the right to change my mind.
My main gripe is I now get emails from both The Wire, the venerable UK chronicle of new currents in music, and The Wire, the scrappy China journalism startup.