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China’s tech crackdown & the Jack Ma problem
Is the Communist Party losing support in China?
On GZERO World with Ian Bremmer, Shaun Rein, founder and managing director of the China Market Research Group, explains why wealthy Chinese citizens fear that the country is moving towards socialism and is no longer pro-business as it was in the past.
“People have trusted the Chinese government to do the right thing. It was almost like they were invincible,” Rein explains, “But zero-COVID wasn’t done well, so they’re starting to lose some support, especially among the wealthy.”
Along with zero-COVID sapping domestic consumption and production, Rein also points to the example of Jack Ma. Ma was a hero to many young Chinese, rising from a peasant to become the billionaire owner of one of China’s biggest tech companies, Alibaba. But Communist Party's crackdown on the private sector forced Alibaba to split into six separate companies and forced Ma to give up his control.
Rein says he agrees with the decision because companies like Alibaba were becoming too powerful, controlling too many industries and stifling fair market competition. But the Beijing's crackdown has rattled the business community and some worry that China’s ethos of “socialism with Chinese characteristics” is starting to look a lot more like traditional socialism, full stop.
Watch the GZERO World episode: China’s economy in trouble
And watch GZERO World with Ian Bremmer every week on gzeromedia.com/gzeroworld and on US public television. Check local listings.
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- Jack Ma dethroned as China's richest with 'Lone Wolf' moving up ›
- What We're Watching: Qatar-Saudi embrace, Jack Ma's whereabouts, Egyptian incompetence ›
Gang members wait to be taken to their cell after 2000 gang members were transferred to the Terrorism Confinement Center, in Tecoluca, El Salvador. Handout distributed March 15, 2023.
What We’re Watching: El Salvador’s lingering state of emergency, Northern Ireland on alert, Alibaba’s breakup, Greek election matters
El Salvador’s state of emergency one year later
This week marks one year since El Salvador’s bullish millennial president, Nayib Bukele, introduced a state of emergency, enabling his government to deal with the scourge of gang violence that has long made his country one of the world’s most dangerous.
Quick recap: To crack down on the country’s 70,000 gang members, Bukele’s government denied alleged criminals the right to know why they were detained and access to legal counsel. The arrest blitz has seen nearly 2% of the adult population locked up.
Despite these draconian measures and Bukele’s efforts to circumvent a one-term limit, he enjoys a staggering 91% approval rating.
Bukele has also sought to distinguish himself as an anti-corruption warrior, which resonates with an electorate disillusioned by years of corrupt politicians (Bukele’s three predecessors have all been charged with corruption. One is in prison; two are on the run.)
Externally, relations with the Biden administration have been icy under Bukele, with San Salvador refusing to back a US-sponsored UN resolution condemning Russia’s war in Ukraine.
What matters most to Salvadorans is the dropping crime rate, which is why Bukele will likely cruise to reelection next year.
Fears of domestic terror attack in Northern Ireland
Britain's MI5 intelligence agency has raised the domestic terror threat in Northern Ireland from “substantial” to “severe” amid fears of an imminent attack in the British-run region. This follows a series of attacks by Irish nationalist groups, mainly against police, in Northern Ireland in recent months.
The New Irish Republican Army, a paramilitary group with roots in the original militant group of the same name, has taken responsibility for a series of crimes against law enforcement and journalists.
For context, the IRA dominant in the 20th century disbanded with the signing of the Good Friday Agreement in 1998 that put an end to decades of violence between pro-British unionists wanting to stay part of the UK, and Irish nationalists calling for the unification of Northern Ireland with Ireland.
This warning comes as US President Joe Biden is preparing to travel to Belfast next month to mark the 25th anniversary of the peace deal, which put an end to the conflict, known as the Troubles.
Indeed, tensions have risen since Brexit, which revived age-old questions about the status of Northern Ireland’s borders. The threat level in Britain, meanwhile, remains “substantial,” meaning that an attack is still a strong possibility, according to authorities.
Alibaba breaks up … itself
Now we know the real reason Alibaba founder Jack Ma resurfaced in China this week. On Tuesday, the Chinese e-commerce giant announced it would spin off its different businesses into six units with separate CEOs under a single holding company. Each unit will be allowed to seek outside capital or go public independently.
Alibaba claims that the Chinese government did not order the restructuring, but it's an open secret that Xi Jinping thought the company had become too rich and powerful. The restructuring plan was unveiled the day after Ma made his first public appearance in the country since late 2020 to boost confidence in the tech company and within the broader sector. (His public criticism of regulators set off a broader crackdown against China's tech sector that hit Alibaba hard.)
Politics aside, Alibaba is just following in the footsteps of its main rivals, Tencent and JD.com, which showed earlier they got the memo from Xi: Break yourself up before you become too big to fail, or it'll be worse if we have to do it for you. The question is, would this ever happen in the US to curb the power of Big Tech?
Greek PM calls spring election
PM Kyriakos Mitsotakis, whose popularity has dipped in the wake of a train disaster last month that killed 57, has called for a general election on May 21. The train crash sparked national protests and strikes as angry Greeks pointed blame at the government for poor transport-sector investment and regulation.
In this election, Greece is transitioning to a proportional representation system, making it harder for any party to enjoy an outright win.
Mitsotakis, whose term was set to end in July, has been dogged by protests and allegations of wiretapping of political opponents by security forces. His reputational dent mixed with his New Democracy Party’s declining numbers – though they remain slightly ahead of the opposition Syriza Party – raise the likelihood of Greece soon being ruled by a coalition.
Syriza, meanwhile, says that even if it wins an outright majority, it will form a "government of cooperation." But the left-wingers have ruled out the possibility of working in a coalition with Mitsotakis’s conservatives.
Supporters of Kenyan opposition leader Raila Odinga throw stones at riot cops in Nairobi.
What We’re Watching: Kenyan protest politics, twice the Ma in China, SNP names new leader
Anti-government protests escalate in Kenya
On Monday, hundreds of protesters stormed a controversial farm owned by Kenya’s former President Uhuru Kenyatta. The rioters stole livestock, cut down trees, and then set the land on fire.
The motive likely has something to do with the ongoing protests against the government of President William Ruto captained by opposition leader Raila Odinga, who narrowly lost the 2022 election to Ruto, Kenyatta’s ex-VP. (The members of this political threesome have all worked with each other in the past in Kenya, where elite business and politics are about as tight as can be.)
This behavior is nothing new for Odinga. While the protests are outwardly about the rising cost of living, Eurasia Group analyst Connor Vasey says that the opposition is just “taking his politics to the streets,” using inflation and other grievances as a “lightning rod to ensure turnout”. And while he is officially trying to overturn Ruto’s victory, Vasey believes that what Odinga really wants is an unofficial executive role in government.
From here, we can expect a test of political willpower. Odinga is threatening more rallies, while Ruto says he’ll continue to deploy the security forces against the protesters. The president hopes that if his rival doesn’t get his political concessions soon, popular support for his mobilization will subside.
The Mas go to China
On Monday, Alibaba founder Jack Ma appeared in public in China for the first time since late 2020, when he got caught in the crosshairs of Xi Jinping's tech crackdown after criticizing Chinese regulators. The billionaire, once China's richest man, paid the price by giving up control of his fintech company Ant Group, which was also blocked from going public and fined a record $7.5 billion for antitrust violations.
Meanwhile, Ma Ying-jeou (no relation) became the first former president of Taiwan to set foot in China since 1949. Ma — who is also the only Taiwanese leader to have met the sitting Chinese leader — is visiting this week as a private citizen, but anything Taiwan-related is always politically sensitive. What's more, his trip comes just days before current Taiwanese President Tsai Ing-wen travels to Central America and the US amid bubbling cross-strait tensions.
The Ma trips are unrelated and probably coincidental. Still, Jack Ma's resurfacing might be a sign that Xi is no longer going after China's tech titans because he needs them to help the economy recover from zero-COVID. For his part, Ma Ying-jeou probably wants to pitch the opposition Kuomintang party's softer touch with China in contrast with Tsai's hardline diplomacy ahead of the presidential elections in 2024.
Yousaf will lead Scotland’s divided governing party
“We will be the generation to win independence for Scotland.” So pledges Humza Yousaf, who was named leader of the Scottish National Party on Monday following a two-week-long election. Parliament will officially vote him in on Tuesday, naming him Scotland’s sixth first minister, the head of its devolved government.
Press attention will focus on the novelty of his win. Yousaf is the first Muslim to lead a major party in Britain. But he’s also now the first person to lead the SNP following the shock resignation of the still-popular Nicola Sturgeon, whose departure was seen by many as an admission that a new Scottish independence referendum is highly unlikely for the foreseeable future.
Yousaf’s razor-thin victory margin – he won just 52.1% of the vote against rival Kate Forbes – raises the thorny question of whether the party can remain strong without a credible call for a near-term independence vote to keep the party united despite its many differences on other issues.
“We are family,” says Yousaf of the party he now leads. How functional a family? We’re about to find out.
Who's winning the global battle for tech primacy?
How is China able to control their tech giants without suppressing innovation?
For Ian Bremmer, one important reason is that there's a big difference between Jack Ma questioning Chinese regulators and Elon Musk doing the same to the SEC.
"In the United States you've got fanboys if you do that; in China, they cut you down," Bremmer told CNN anchor Julia Chatterley in an interview following his annual State of the World Speech.
Still, he says China knows it cannot kill its private sector because it needs to keep growing and competing with American tech firms.
So, who's winning the global battle for tech primacy?
Right now, Bremmer believes the US and China are at tech parity — thanks to their tech giants.
"When we're talking about tech supremacy, we can't just talk about governments anymore."
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Nicholas Thompson on China's tech U-turn
Six months ago, China's tech giants were champions of the state, working with the government to conquer US Big Tech. But then Xi Jinping started cracking down, and a trillion dollars in their market value is gone. Huh? For Nicholas Thompson, CEO of The Atlantic and former editor-in-chief of WIRED, it makes sense for Xi to go after cryptocurrencies to ensure they don't replace the yuan. But going after national tech champions, he says, could be fool's errand because it's inevitable they'll someday become more powerful than the state itself.
Watch this episode of GZERO World with Ian Bremmer: Big Tech: Global sovereignty, unintended consequences
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- Who's winning the global battle for tech primacy? - GZERO Media ›
Why is China trying to game the gamers?
This week, the market value of Tencent, China's biggest video game company, nosedived after a state media outlet suggested that online gaming was as addictive and destructive as opium. Tencent immediately pledged to cap the number of hours people can play, and to keep minors off its platforms.
It's the latest example of a months-long crackdown on major Chinese technology firms that until recently were viewed as some of the world's most powerful and successful companies, as well as a source of national pride. Beijing's about-face on its own tech titans could have big implications for China, and beyond.
Who's being targeted? First they came for billionaire Jack Ma, who was fined a whopping $2.8 billion for alleged antitrust violations and stopped from launching Ant Group, part of his Alibaba empire, as the world's biggest IPO. The value of its stock has plummeted since.
Then Beijing imposed sweeping restrictions on cryptocurrency trading, perceived as being too volatile... right as China (wink-wink) is pushing its own digital yuan as a reliable alternative.
After that, it was the turn of ride-hailing app Didi, which — on the eve of its American IPO — had its offices raided by state security agents for collecting more data on passengers than Beijing was comfortable leaving in the hands of a private firm. Next, for-profit tutoring giants were taken offline for skewing college admission odds towards the kids of rich families who can afford the help.
Now, it's the gamers' turn.
Why all the fuss? Beijing has all these companies in its crosshairs because they do at least one of three things Xi Jinping doesn't seem to like: they've become too big too fast, have gathered too much data, or are making too much money at the expense of social stability.
At a time of rising inequality in China, being rich is no longer, in Deng Xiaoping's own words, "glorious."
Here are two ways to understand what's going on.
One prevailing narrative — especially in the West — is that Xi is bullying large, rich companies because he is simply an authoritarian party boss who wants to stop any tech mogul or company from becoming too influential for the ruling Communist Party. Some argue that Xi would rather put the likes of Alibaba, Didi, or Tencent in their place — and perhaps out of business altogether — than let them become rival power centers. That's especially true if US stock market listings open up sources of financing and influence for these companies from Beijing's number one rival.
But another reading is that he is using his terrible powers for an understandable purpose. After decades of breakneck growth and corporate enrichment, China is reining in companies in the interest of social harmony over infinite growth. From this perspective, Xi is astutely flexing the one-party state's (considerable) muscle to nip social ills like inequality, monopoly, or gaming-induced apathy in the bud before they become horrific political problems like in the West.
In fact, at a time when many countries want to regulate tech firms but can't do so expediently as democracies, Beijing is — as far as this argument goes — ahead of the curve. In other words, by cracking down on tech behemoths Xi's acting less like Joseph Stalin than like trust-buster Teddy Roosevelt.
Xi has found an unexpected ally in Chinese youth, who are otherwise tired of their parents and the government ganging up on them over playing video games. There's a #MeToo angle — Tencent is one of several tech firms linked to Kris Wu, a famous singer accused of sexually assaulting multiple women. In cancelling him, young Chinese and the CCP have found common ground: the youth hate Wu for being a sexual predator, while the party generally despises the celebrity obsession culture tech companies rake in billions from.
What do you think? Is Xi using his power for good or bad reasons? Let us know here.
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Will China's tech sector be held back?
Ian Bremmer's Quick Take:
Hi everybody, Ian Bremmer here, and a happy post-4th of July. Spending a couple of days in Nantucket, back to New York in relatively short order. But a Quick Take to kick off your shortened week.
And I thought I would talk a little bit about what's happening between the Chinese and the Americans on tech. In particular, I think it's quite important that the Chinese government and their regulatory authority on cyberspace, the Cyberspace Administration of China, the CAC, has been focusing a cybersecurity probe on Chinese companies that have recently listed in the United States. It started last Friday with Didi, which is the leader for Chinese ride hailing. So it's basically like Uber or Lyft in China, $4 billion IPO in New York just a couple of days before the Chinese government announced that they were going to engage in serious scrutiny and regulation of the company. Their stock value went down like 20% almost immediately on the back of that.
Then you also saw broader announcements against a truck hailing app. This is called Full Truck Alliance as well as Kanzhun, which is a major online recruiter in China. And I think it's important because if you look at the Chinese tech sector, which is the most dynamic and innovative in the world aside from the United States, it has been driven significantly, I would say even mostly by the private sector.
And China is a communist country. They engage in state capitalism. So the state is the principal economic actor, but there is a vibrant private sector. And particularly when we talk about innovation and the ability to attract world-class talent that works really hard and could work anywhere, it's important to get that level of efficiency that it is private sector. Well, the Chinese government is increasingly uncomfortable with the independence of many of these firms. And the principal way, mechanism for many of these companies to become more independent was to list outside of China and increasingly outside of Hong Kong as well. And for many, that means IPO listings in the United States. Now to the extent that the Chinese government is now sending a message that there are going to be significant price to pay for Chinese tech companies that list outside of China, Mainland China or Hong Kong, that's going to put a very significant chilling effect on any Chinese tech companies that are thinking about so doing, which will mean much more alignment of those tech companies to the Chinese government model, becoming national champions more in line with, let's say Huawei, which is really state-directed, military integrated. And they try to make money, but first and foremost, it's really not about shareholders. It's really about what the Chinese government wants.
Now, in the United States, of course it is a vastly different landscape. You've got companies in the US that are more aligned with the government in the tech space. Anything from Oracle, to Microsoft, to Anduril, which is AI and drones together, for example, but then you have an awful lot of companies that are more traditional multinational corporations that are focusing purely on their shareholders. And Apple is not working closely with the government in any way, shape, or form. And you have a lot of individual CEOs, tech CEOs, that themselves increasingly feel like the most powerful individual actors in the United States and in the digital space increasingly on the planet, Mark Zuckerberg, Elon Musk. Now, we know that the Chinese government isn't allowing any Elon Musks to emerge in China. One did, Jack Ma, and the Chinese government basically defenestrated him, but they hadn't been taking that position towards the Chinese tech firms. And now increasingly they are.
I would say there are a couple of big questions that this puts into play. One is it makes it more likely that a broader technology split between the United States and China is coming. Fewer Chinese companies with access to American investment and shareholders, more Chinese tech companies aligned with the Chinese government, fewer American tech companies with access to the Chinese market. These are the two largest economies in the world. They're the two technology superpowers. I would argue more integration and interdependence is good. And it's good because you ultimately don't want to destroy things that you're interdependent with. So it means that there will be a greater sense of cooperation, even in the absence of trust. I think we're moving away from that.
But the other question, and it's a big question, is to what extent will a Chinese tech sector that is increasingly controlled by the government, not just in terms of red lines of what they can and can't do, not just state capitalism and industrial policy, but that the actors themselves increasingly can't really be full-fledged private sector actors. Does that mean that the tech sector in China will become dramatically less competitive and less efficient than it has been historically?
And I think there is a danger of that. Certainly, in the last 20 years, if you think about why technology companies do really well, yes, it's access to capital, yes, it's access to data, but it's also access to incredibly innovative human capital. The best data scientists, technologists, entrepreneurs in the world. And I think it is true that there are some areas of advanced technology where that's not important. And certainly, some of the advances in artificial intelligence have been more about lots and lots of data and deep learning on that data, even in our top rate than it is about the human capital. But in most sectors of the advanced economy, the big technological advances are not coming just from data and capital. You have to have the human element.
And as long as that continues to be the case, I think that the direction China's presently heading will support political stability in the short-term but will underminethe productivity and growth of the Chinese tech sector in the medium and long-term. And I think watching that dynamic is going to be critically important for both the United States, China, and the world.
So anyway, some challenging news, some chilling news for those of us that are hoping that the US-China relationship can become more stable over time and not more confrontational. That's certainly not the direction we are heading right now. And I would also just point out that those decisions made right on the back of the 100th Communist Party Congress, and Xi Jinping's big plenary to the extent that people were hoping that after that, you could start to see more engagement, you just needed to get Xi through this significant period where he needed to be more nationalist. I don't think that's true at all. I think structurally, the Chinese government has, is, and will be oriented in a much more national champion direction, in part because they think that that's the way they win, and they feel much more confident about their model. Whether that confidence is properly misplaced, that's a very open question.
So anyway, interesting stuff. Hope everyone's doing well. Talk to you all real soon.
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What We're Watching: Qatar-Saudi embrace, Jack Ma's whereabouts, Egyptian incompetence
Qatar blockade lifted: A bitter dispute between Gulf rivals Saudi Arabia and Qatar has begun to ease after Qatar's Emir Sheikh Tamim bin Hamad al-Thani flew to Saudi Arabia for the Gulf Cooperation Council summit and was warmly embraced by Saudi Crown Prince Mohammed bin Salman, known as MBS. The immediate cause of the détente was Riyadh's decision to lift a years-long land and air blockade that significantly disrupted Qatar's economic activity and led to a bitter standoff in the Gulf. (The Saudis, along with Egypt, Bahrain, and the UAE launched a joint blockade against Qatar in 2017, citing its support for the Muslim Brotherhood, and regional foes Iran and Turkey.) It's unclear what concessions Qatar made in exchange for beginning the normalization process, though President Trump's son-in-law Jared Kushner, a close friend of MBS, has been lobbying for the move for some time. Qatar has long denied claims that it supports Islamic extremist groups and rebuffed demands like terminating Turkey's military presence within its borders. As for the timing for the rapprochement, it could reflect a feeling that increased GCC cooperation is needed as the incoming Biden administration in the US is expected to promptly re-engage in talks with Iran.
Where is Jack Ma? After two months where he seemed to have disappeared altogether, Chinese billionaire and Alibaba co-founder Jack Ma is now "laying low," according to media reports, after a fallout with the Chinese government. Ma has not been seen in public nor heard of since late October, when he openly criticized China's banks and financial regulators. Just days later, Beijing blocked Ma from listing his fintech company Ant on the Hong Kong and Shanghai stock exchanges, in a deal that would have made Ant the world's largest initial public offering. When Ma tried to save the IPO by offering the government a stake in Ant, Beijing doubled down by opening an antitrust probe into Alibaba, the world's top e-commerce firm. Indeed, Ma's fall from grace has sent a strong message to other Chinese tycoons: don't question the regime's wisdom — or else. It also plays into wider public resentment about rising income inequality in China, which the ruling Communist Party is very worried about. Either way, we're watching to see if Ma will find a way to make amends with the government, or whether his low profile is a preamble for Beijing to take over Ant and other parts of the Alibaba empire.
Incompetence and horror in Egypt: Over the past several days, shocking video footage has made the rounds online of an oxygen leak that suddenly killed every patient in the intensive care unit of an Egyptian hospital. Egypt's government first denied the story, accused the Muslim Brotherhood of making it up, and pressured hospital employees to keep quiet. Public outrage is growing, however, and Egypt's health minister has now admitted that hospitals face oxygen shortages as a new wave of COVID takes hold across the country. This combination of horrific event, personal tragedy, state incompetence, and public fury recalls the massive warehouse explosion in Beirut that killed more than 200 people, left 300,000 homeless, and destabilized Lebanon's government in August 2020. Egypt is far more politically stable than Lebanon, but we can expect more of these kinds of stories from other cash-strapped, poorly governed countries in 2021, particularly because they will be the last to receive the vaccinations that allow human, economic, and political recovery to begin.