China’s big clampdown and the question of what ‘tech’ really is

As one approaches middle age, the mind turns increasingly philosophical and starts questioning tenets once held to be an immutable truth. With this column turning fifty-one, the same phenomenon has forced it to question a very basic canon itself - Is what we call and celebrate as tech, really tech? This thought was triggered by a famous story about an eminent data scientist Jeffrey Hammerbacher, an early Facebook employee. In a now-famous interview with BusinessWeek, he mused: “The best minds of my generation are thinking about how to make people click ads...” Hammerbacher then left the ad-clicking business to Facebook and went on to build Cloudera, an enterprise data platform company.

This philosophical thought was further reinforced by a recent Substack post (https://bit.ly/37nuBAx ) by another Bloomberg columnist Noah Smith, which offered an intriguing reason as to why China seems to be wilfully demolishing its ‘tech’ industry. It started with Jack Ma, the iconic founder of the Alibaba Group vanishing from public sight, sabotaging the $37 billion listing of his Ant Group. Then came the famous Didi episode, where ‘China’s Uber’ had a sterling IPO, but was banned from onboarding new customers just a couple of days later ‘national security grounds’. Other Chinese tech majors like Bytedance and Baidu are also under similar regulatory pressure and are now undergoing what is officially called ‘rectification’.

A few experts believe that this is like the antitrust pressures being put on Google, Apple, Facebook, and Amazon in the West. Many, on the other hand, believe that this is because the tech companies have become too powerful and arrogant, and the Communist Party wants to show them who is boss. The Alibaba crackdown, for instance, came days after Jack Ma publicly disparaged Chinese public-sector banks of operating with a "pawn-shop mentality". The clampdown of Big Tech in China seems to be systemically different than in the US and Europe – China seems to be attacking the entire tech sector! It is not only the giants that are under the hammer, but even venture funding seems to have shrunk. For decades China assiduously built up its tech companies and its tech sector and touted a different industrial and Internet model than the West. Arguably, this was a resounding success, with China creating its own world class technology gems. Then why is it now deliberately destroying its own creation, and strangling the golden goose in its adolescence?

This is where Noah Smith presents an intriguing argument: China, he says, does not consider what we define typically as ‘tech’ to be tech, perhaps it has a different definition of it. His argument is that China is not attacking all tech companies – for example, telecom giant Huawei is solidly backed by the Chinese government. It is throwing gobs of money to build a world-class domestic semiconductor industry, and the heavy spending on Artificial Intelligence continues unabated. It is the consumer-facing, social networking and payments industries that seem to be in the crosshairs, not the hardware or electronics or deep-tech players. 

Smith argues that perhaps the West is too enamoured by the consumer facing Facebooks and Googles of the world, since they are insanely profitable, with their very low overheads, powerful network effects, and the proprietary algorithms that spin gold out of ‘free’ data. The West is intrinsically capitalist and equates profit with value, and they are good at building these super profitable consumer network companies, and so this is ‘tech’ for them – not necessarily the Ciscos or the Honeywells of the world, which make real tangible hardware but do not throw out piles of cash. Maybe the Chinese see things differently – they are interested in a ‘hard’ tech sector, which makes chips, engines, fuels, and aircraft. Things which add real economic value, rather than exploit first-mover advantage, and ‘squat on unproductive digital land’ deriving profits ‘more from rents, rather than real value added’. The Chinese want tech to win wars, as per Noah, not for just making life soft, by defining tech as something that enables everything delivered seamlessly to your door, or by effortlessly making you forget people’s phone numbers, names, or the way to their home. 

As Gregg Satel writes: “It’s a strange conceit of digital denizens that their businesses are something nobler than other industries. While it is true that technology can do some wonderful things, if the aim of Silicon Valley entrepreneurs was truly to change the world, why wouldn’t they apply their formidable talents to something like curing cancer or feeding the hungry?” Even in the West, there are clearly some honourable exceptions: Elon Musk is solving space travel, electric transportation, alternative energy, brain-machine communication, and urban commutes, while most of his contemporaries focus on ad-clicks. Scientists have saved the world by blitzing through mRNA and other vaccines. But it is perhaps the Chinese, with their Confucian hundred-year vision, who seem to be turbocharging this move back towards real ‘tech’. And, to create that, they know they need to destroy the ‘pretender’ that exists today?