Morning Commentary: The Contentious Relationship Between China and Its Tech Sector
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The Contentious Relationship Between China and Its Tech Sector
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Andrew Kositkun Foreign Exchange Head Trader
China’s tech giants were able to grow into the behemoths they are in part due to support from the government. Recent events — the last-minute suspension of Ant Group’s IPO and the introduction of a draft antitrust policy — have thrown Chinese Big Tech’s future into doubt.
For years, China’s Big Tech players have enjoyed an unusual amount of freedom, and the government has played an important role in developing the tech sector. In manufacturing, the government intervened directly to help establish China as a manufacturing hub where most of the world’s tech is made even if not by Chinese companies. In the services and software field, the Chinese government’s Great Firewall essentially created its own version of the internet. In the absence of Western tech companies, their Chinese equivalents have been able to flourish.
So why are regulators cracking down now? The short answer is that it’s unclear. As is almost always the case, Chinese officials have said little about their intentions other than they are mitigating risks to protect the consumer and maintain financial stability. For some, this is just Chinese officials reasserting their power after growing frustrated with the flamboyance of tech billionaires. What is known is that back in October, Jack Ma criticized China’s financial system as being outdated and blasted regulators as being shortsighted. Subsequently, Ma was summoned to Beijing for a meeting with the country’s top financial officials, with new regulations soon following. On Nov. 12, The Wall Street Journal reported that Chinese President Xi Jinping was furious at Ma’s comments and personally ordered the halt of Ant Group’s IPO.
Of course, this isn’t the first time that China has cracked down on or made an example of high-profile companies. But the current crackdown is shaping up to be the largest concerted action against private enterprise in decades. For decades, China’s private sector has maintained a delicate relationship with the Communist party. While Xi’s government has tightened its control of the Chinese economy, it has taken a relatively hands-off approach to the internet, e-commerce and digital finance. However, as Big Tech amasses increased influence and power, this all could be changing and raises the question of whether or not any tech company will get broken up. What is known is that Beijing will have to tread carefully if it desires to rein in tech’s growing clout without undermining some if its biggest success stories and, by extension, the Chinese economy.
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
The House has voted to support the $2,000 stimulus checks demanded by President Donald Trump. Senate Republicans are now faced with the dilemma of acquiescing with the request of the president or continuing their opposition to larger direct payments. Senate Majority Leader Mitch McConnell hasn’t said whether the Senate would take up the House bill, attempt to vote on a different one that would also increase payments or simply ignore the issue. Should the Senate take up the bill, the current expectation is for Republicans to oppose the proposal.
The House also voted to override Trump’s veto of a defense bill. Should the Senate follow suit, it will be the first time Trump’s veto has been overturned.
Equity markets around the world are higher, as stimulus hopes have helped sentiment. In Europe, the U.K. equity index outperformance stands out in particular as investors reacted to the Brexit deal in the first full day of trading since a deal was reached by the U.K. and EU. EU members could formally approve the deal today, with the trade deal scheduled to be voted on by the U.K. House of Commons tomorrow. U.K. Prime Minister Boris Johnson and EU officials will then sign the treaty, with the European Parliament giving its verdict on the deal by the end of February. Talks continue on financial services, a key part of the U.K. economy.
The EU and China have moved closer to striking a deal to further open the Chinese market to foreign investors. If an agreement is reached, it will be a successful conclusion to talks that began in 2013.
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