Politics in Command: Understanding China’s Techlash

Guest Blogger

Nick Frisch

At first glance, Beijing’s crackdown on China’s tech firms might look familiar to American or European regulators grappling with how to tame tech. As in Washington and Brussels, Chinese regulators cite concerns over monopolistic abuses and dodgy data brokers. Officials in all three jurisdictions have gestured towards similar-sounding motives for their actions: reining in unaccountable corporate cartels, protecting consumer rights, privacy, and data from monopolistic abuses, and stopping socially disruptive profiteering from civil discord.

Down at the level of the average tech consumer, China’s recent actions have indeed mirrored, and in some cases exceeded those in Europe and America. Chinese authorities, for instance, have spent the past few years cracking down on shady data brokers whose practices damaged consumer trust; Beijing’s recently introduced data law matches, and in many cases exceeds, the stringency of US or EU policies.

What’s missing from this picture is a dose of Chinese history. In the relationship between the Chinese state, technology, and market forces, the Chinese government has never been constrained by free market dogma. On the contrary, the Communist Party’s ideological origins, as a conspiratorial and messianic Leninist “vanguard” of professional revolutionaries, put the Party leadership above the constraint of any law or constitution, accountable only to their own understanding of the “inexorable” laws of historical development. Long before the ideological import of Marxism-Leninism, the imperial Chinese administrative state saw itself as a guardian against market distortions in strategic commodities like salt, rice, and water. Left unchecked, market forces could put salt and rice outside the reach of subsistence farmers, leading to famines and revolts, and a toppling of the ruling dynasty; if the state failed to maintain dykes and levees, mismanaged irrigation could lead to hunger or flooding, and pitchforks at the gates of the Forbidden City. For the administrators of the premodern imperial state, to relinquish the right to exercise control over flows of people, capital, commodities, and information would have been seen as misguided and dangerously eccentric. For the leadership of a Leninist Party-state, accustomed to thinking of itself as a vanguard uniquely attuned to the developmental dialectic of history, surrendering such powers over markets would be unthinkable. These two strands of statecraft were molded into the rulership of Mao Zedong during the early decades of the People’s Republic of China. In braiding together the Marxist-Leninist and imperial dynastic notions of statism, Mao pursued economic and political schemes that turned China in on itself and prioritized political purity over economic growth. The Chairman once quipped: “socialist weeds are more fragrant than capitalist grain.”

In the post-Mao reform era, these two strands of imperial and Leninist statism have been reframed and adjusted under Deng Xiaoping’s formula of “socialism with Chinese characteristics,” an intentionally vague formula. The government pulled back on some areas of the economy and privatized others. Some starry-eyed Western politicians and economists hailed these moves as a prelude to full market economics and a more liberal politics. If so, they weren’t listening closely: even as Deng argued for market reforms, Party hardliners insisted that while some market development could be tolerated to increase prosperity and strengthen the state’s economic base, markets must always remain, fundamentally, “a bird in a cage.” 

Neither the imperial nor the Marxist strands of Chinese statecraft point towards any “end of history” with liberal capitalism. In the traditional Chinese conception of history, dynasties are cyclical, and policymaking alternates between tightening and loosening, never questioning the baseline assumption of the state’s right to intervene. In the Communist notion of history, any linear development towards a “shining future” of socialism runs through a Leninist one-party state; if the state has not yet withered, that simply means that full socialism has not yet arrived. Today, Xi Jinping’s official ideologists are still molding these two strands of thinking, now pushing them into a “new era” of “Xi Jinping thought” of “socialism with Chinese characteristics”; meanwhile, the regime’s internal police agencies keep domestic control through a “stability maintenance” apparatus with a bigger annual budget than the People’s Liberation Army. Liberal democracy and free-market capitalism is nowhere in the picture or on the horizon, to the frustration of Western lobbyists who spent decades advocating trade with China on the premise that it would lead to at least some liberalization. In fact, the fruits of capitalist experimentation could be tolerated only so long as they benefited the Party’s monopoly on power. In the case of the tech sector, the limits of that tolerance have been reached, and the reckoning has been more brutal than most Western investors or policymakers could have imagined. In less than two years, over a trillion dollars of market value has been wiped off Chinese tech firms; once brash CEOs have retired or avoided the limelight, and been forced to issue a spate of public apologies and promises of philanthropic aid. Western observers who see corporate rights to growth and innovation as sacrosanct are baffled by Beijing’s moves, which seem to cut against every Silicon Valley shibboleth of how to let great companies flourish into world-beating behemoths. But Beijing cannot tolerate any company or other entity which poses a systemic risk to Party power, or whose social or economic misdeeds may tarnish the Party’s prestige as a sound steward of the Chinese people’s interests. 

In ancient China, political accountability for central government depended on the belief that, “if only the emperor knew” about misdeeds of lower-level minions or local tyrants, redress and justice would be delivered. Century after century, aggrieved petitioners flocked to the capital and would attempt to flag down court officials to plead their case. In modern China, citizens still hold a belief that the government must ultimately redress the abuses and excesses of lower-level officials or unaccountable corporations. For private firms, this remains true whether the offender is within or outside the tech sector: at the moment, for example, the central government is grappling with possible collapse in the real estate industry, and millions of middle-class aspirants infuriated over broken promises and unbuilt apartments. Even through the reform period, the Party has not flinched from using aggressive policy tools and signaling mechanisms to focus officials’ and executives’ minds and placate irate citizens. In 2007, when a cycle of food- and product-safety scares embarrassed China on the eve of the Beijing Olympics, a top pharmaceutical regulatory official accused of taking bribes was executed. Last year, after a Party official-cum-financial executive was convicted for shenanigans that damaged consumer trust in China’s financial system, state media made a point of covering that his death sentence was carried out, rather than (as is normal practice) suspended.

As Beijing presses this broader crackdown on wayward sectors of the economy, such as real estate and financial products, China’s techlash is an outlier. Unlike other sectors of the private economy, the tech industry has no precedent or ancestor in the state-run corporations. Through the 1990s, many state-owned firms, such as those in infrastructure or finance, were partially privatized, spun off, or reformed into profit-making enterprises in the 1990s, but kept their vestigial ties to the state. Many of the earliest profiteers from this semi-privatization came from privileged Party princeling backgrounds. Tech was different. Tech firms had few antecedents in the state-run sector, and Chinese tech CEOs tended to emulate those in Silicon Valley, viewing the government as fusty and unsuited to comprehend the dynamic realities of a new prosperity driven by consumer-facing innovation and services. Over the last decade, this calculus shifted as the majority of Chinese citizens flipped from being offline to being wired through smartphones. In a comparatively short period of time, hundreds of millions of people bought smartphones, plugging into China’s modern tech economy and leapfrogging over the fax machine and the PC. Suddenly, the Party realized that tech firms, and technologies like cryptocurrency, had acquired astonishing systemic power, and the government lacked insight into how these tech platforms functioned and assessed risk. On the economic side, for instance, Chinese state banks had become counterparties to microfinance loans issued by Alibaba’s finance platforms, without insight into the algorithm that was pricing their risk exposure and apportioning their capital. 

But the fear ran deeper than economics: for the first time since the founding of the PRC, private firms had acquired and centralized more data about Chinese citizens than the government surveillance apparatus that keeps the Party in power.  Police states are information gluttons, and cannot tolerate other entities gorging themselves on citizens’ data without the government getting a cut. Nor can a Leninist party tolerate non-state entities gaining too much power over citizens’ information intake. The Chinese leadership was said to be gobsmacked by Twitter’s deplatforming of President Trump after the January 6^th, 2021 storming of the U.S. Capitol building, finding it inconceivable that a political leader could lose his megaphone due to the decisions of a private capitalist executive. For China’s leaders, such loss of control over the key platforms and channels of social and economic influence is tantamount to markets run amok, and strengthens their resolve to ignore bourgeois pieties about the free market and civil liberties. This, in Beijing’s eyes, justifies the crackdown: it would be better to have a slightly less prosperous and flourishing tech industry that is stable and compliant, even at the cost of some innovation, competitiveness, and global market share, than to follow “free markets” over a cliff. The roughness of China's methods shows the importance and urgency of the task: besides "normal" regulatory practices that would be familiar in Washington or Brussels, China has used its full political toolbox against tech firms, including old-style denunciations in the pages of People's Daily. Chairman Mao said that the Party must always keep "politics in command." Beijing's tech crackdown shows that, however much China has changed since, the warning still rings true. 

Nick Frisch is a Resident Fellow of the Yale Information Society Project. You can reach him by e-mail at nicholas.frisch@yale.edu.