[ Noahpinion] Why is China smashing its tech industry?
For those outside China’s byzantine, opaque nexus of party, government, and big business, it’s very difficult to figure out what’s going on. Just who is ordering these actions is not clear, or what the ultimate result of the crackdown will be. That makes it very hard to figure out why it’s happening. Some observers see this as an antitrust campaign, similar to the ones going on in the U.S. or the EU. China’s leaders famously want to prevent the emergence of alternative centers of power, but is the West so different in this regard? One of the driving motivations behind the new antitrust movement in the U.S. is to curb the political power of Big Tech companies specifically; if you wanted to, you might see the Chinese tech crackdown as simply a Neo-Brandeisian movement on steroids.
But the breadth of the Chinese crackdown suggests a major difference. The U.S. has slapped down a few of its corporate giants before — Microsoft, AT&T, Standard Oil — but ultimately it didn’t crush the industries these companies were a part of. We’re unlikely to see major action against all the U.S. internet companies at once, and broad EU action will likely take the form of new rules rather than a sweeping crackdown. China’s attack on its tech companies, in contrast, seems far more comprehensive — it’s not just attacking the biggest internet companies, it’s attacking the entire sector.
This is strange because for years, it was conventional wisdom in the Western media that having a “tech” sector was crucial to innovation and growth etc. In fact, for many years American pundits argued that China’s economy would be held back by the government’s insistence on control of information, because it would make it impossible for China to build a world-class tech sector! Then China did build a world-class tech sector anyway, and now it’s willfully smashing the world-class tech sector it built. So much for U.S.-style “innovation”.
But notice that China isn’t cracking down on all of its technology companies. Huawei, for example, still seems to enjoy the government’s full backing. The government is going hell-bent-for-leather to try to create a world-class domestic semiconductor industry, throwing huge amounts of money at even the most speculative startups. And it’s still spending heavily on A.I. It’s not technology that China is smashing — it’s the consumer-facing internet software companies that Americans tend to label “tech”.
China may simply see things differently. It’s possible that the Chinese government has decided that the profits of companies like Alibaba and Tencent come more from rents than from actual value added — that they’re simply squatting on unproductive digital land, by exploiting first-mover advantage to capture strong network effects, or that the IP system is biased to favor these companies, or something like that. There are certainly those in America who believe that Facebook and Google produce little of value relative to the profit they rake in; maybe China’s leaders, for reasons that will remain forever opaque to us, have simply reached the same conclusion.
The internet companies in San Francisco and Beijing are highly skilled at business model innovation and leveraging network effects, not necessarily R&D and the creation of new IP….I wish we would drop the notion that China is leading in technology because it has a vibrant consumer internet. A large population of people who play games, buy household goods online, and order food delivery does not make a country a technological or scientific leader…These are fine companies, but in my view, the milestones of our technological civilization ought to be found in scientific and industrial achievements instead.
It’s become apparent in the last few months that the Chinese leadership has moved towards the view that hard tech is more valuable than products that take us more deeply into the digital world. Xi declared this year that while digitization is important, “we must recognize the fundamental importance of the real economy… and never deindustrialize.” This expression preceded the passage of securities and antitrust regulations, thus also pummeling finance, which along with tech make up the most glamorous sectors today.
And what do they think will serve the nation as a whole? My guess is: Power. Geopolitical and military power for the People’s Republic of China, relative to its rival nations.
If you’re going to fight a cold war or a hot war against the U.S. or Japan or India or whoever, you need a bunch of military hardware. That means you need materials, engines, fuel, engineering and design, and so on. You also need chips to run that hardware, because military tech is increasingly software-driven. And of course you need firmware as well. You’ll also need surveillance capability, for keeping an eye on your opponents, for any attempts you make to destabilize them, and for maintaining social control in case they try to destabilize you.
It’s easy for Americans to forget this now, but there was a time when “ability to win wars” was the driving goal of technological innovation. The NDRC and the OSRD were the driving force behind government sponsorship of research and technology in World War 2, and the NSF and DARPA grew out of this tradition. Defense spending has traditionally been a huge component of government research-spending in the U.S., and many of America’s most successful private-sector tech industries are in some way spinoffs of those defense-related efforts.
And so when China’s leaders look at what kind of technologies they want the country’s engineers and entrepreneurs to be spending their effort on, they probably don’t want them spending that effort on stuff that’s just for fun and convenience. They probably took a look at their consumer internet sector and decided that the link between that sector and geopolitical power had simply become too tenuous to keep throwing capital and high-skilled labor at it. And so, in classic CCP fashion, it was time to smash.