Why China Tech Isn’t Rebounding After Government Crackdown Ended

AI signage at the Baidu Inc. Create conference in Shenzhen, on April 16.Photographer: Qilai Shen/Bloomberg

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Since 2023, President Xi Jinping’s government has eased off on the crackdown and indicated that it still sees the trillion-dollar sector as an important part of the country’s economy. Yet the big tech firms are still mired in a slump, struggling to get past single-digit growth rates even as they invest in new technologies or venture abroad in search of new customers.

The government has made clear it won’t tolerate a return to the free-wheeling, get-rich-quick days of the past or the “hedonistic” lifestyles of some tech billionaires and their acolytes. And Beijing has made clear it sees China’s technological future not in video games and online marketplaces, but in industries that are more pivotal to its geopolitical conflict with the US, such as artificial intelligence and semiconductors.

How did the crackdown end?

Regulators resumed issuing video game licenses to Tencent and NetEase Inc., another online giant, in 2022 after a long freeze.

In January 2023, they allowed ride-hailing leader Didi to bring in new users for the first time since its apps were banned from app stores in 2021, after it listed in New York without permission from Beijing.

In July 2023, regulators wrapped up a three-year investigation of Ant Group Co., the financial technology business of Alibaba founder Jack Ma, by imposing a $1 billion fine on the company. That probe had been seen as the starting point in the government’s campaign to bring the nation’s most influential tech companies and billionaire entrepreneurs to heel.

Days later, the nation’s most important decision-making bodies published a manifesto calling for a revival of the private sector, which immediately drew endorsements from Tencent’s billionaire co-founder Pony Ma and peer Lei Jun.

Alibaba Group Headquarters Ahead of Earnings Results — The Alibaba Group Holding Ltd. headquarters in Hangzhou, China.Photographer: Qilai Shen/Bloomberg

In November, Alibaba said it was rowing back on a plan to break up into six separate and mostly independent pieces — a move that would have fulfilled Beijing’s goal of cutting the tech giant down to size.

What’s happened this year?

Beijing officials have made several further pronouncements in support of private companies and the techonlogy industry.

In August 2024, the country’s antitrust regulator announced that Alibaba had eradicated alleged monopolistic behavior. In September, Alibaba declared it will allow its hundreds of millions of shoppers to select Tencent’s WeChat Pay at checkout — giving them access to China’s most popular online payments service for the first time. That eliminated one of the last remaining major barriers between competing online ecosystems — a lightning rod for criticism from government agencies over the years.

So can China’s Big Tech Inc. run wild again?

Probably not. Maintaining social stability and an iron grip on the economy is a signature goal of the ruling Communist Party, and that’s unlikely to change soon. Analysts and investors say regulators have successfully — if brutally — reasserted their oversight power, and diminished the swagger — and societal influence — of tech billionaires.

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Much of Beijing’s concern centers around the hundreds of millions of users that remain reliant on Alibaba for shopping, Tencent for social media and lifestyle and Ant for payments and finance. All that activity produces vast amounts of data that help reinforce the platforms. Beijing has asserted control over it all and made clear that any new initiatives must align with its priorities. That means fewer live-streaming apps and more research into cutting-edge technologies, from artificial intelligence to cloud computing and advanced semiconductors.

It’s no coincidence that every major Chinese tech company from Baidu Inc. to Tencent have announced efforts to create an AI model to rival (or surpass) OpenAI Inc.’s seminal ChatGPT — a business as well as a political imperative given the potentially transformative nature of the technology.

Where are the red lines?

There are quite a few. There’s a persistent caution against wild investment and the cut-throat competitive excesses that characterized much of the industry prior to 2021, from ride-hailing to meal delivery and e-commerce. Regulators have also made preemptive moves to put guardrails in place for the latest technologies, ranging from deepfakes to generative AI which, in some cases, are among the world’s first. The Cyberspace Administration cited data and national security as its prime reason for investigating Didi and now mandates a data security review for all major companies seeking overseas listings.

More broadly, Xi’s administration blames widening social disparities in part on the internet boom, particularly in the pandemic era, and is moving to address any public discontent that could threaten its authority. That led to the “common prosperity” program that guides the activities of many of the sector’s leaders, who pledged to treat their workers better and donate billions of dollars to charity.

As a corollary, any attempts to hoard wealth and sabotage rivals — such as through undercutting prices or coercing merchants into exclusive deals, a key aspect of antitrust investigations — remain off-limits.

Will the companies regain their pre-crackdown heights?

That seems unlikely. Before 2020, Beijing’s hands-off approach to the technology sector minted billionaires and giant companies at a breathtaking pace, at one point inviting comparisons to Silicon Valley. Alibaba, Tencent and Ant had a combined market capitalization of nearly $2 trillion that year — easily surpassing state-owned behemoths like Industrial & Commercial Bank of China Ltd. as the country’s most valuable companies.

A rally that pushed Hong Kong’s Hang Seng Tech Index, a barometer for the mainland’s biggest companies, to its highest levels since inception started to unravel in February 2021, wiping out more than $1 trillion in value at one point that year.

Alibaba has shed more than $600 billion of value since the monopoly crackdown began in 2020. Tencent has lost $500 billion since January 2021. Both have bounced back from their 2022 low-points but remain far below their earlier peaks.

Key Speakers at Viva Technology Conference — Jack MaPhotographer: Marlene Awaad/Bloomberg

What happened to China’s tech billionaires?

Some, like Pony Ma and Xiaomi Corp.’s chairman Lei, have publicly championed Beijing’s new stance.

Jack Ma gave up controlling rights of Ant and retreated from the public spotlight. A memo he penned in November 2023 was viewed as signaling a gradual return to public life.

Many of his fellow billionaires, including ByteDance’s Zhang Yiming and PDD Holdings Inc. co-founder Colin Huang, have also stepped back from active roles at their companies.

Huang became China’s richest person briefly this year, underscoring how far the likes of Jack Ma have fallen.