Digitalization has swept through the global economy worldwide. China is perhaps one of the most digitalized societies worldwide. Part of this sweep has been abetted by the rise of large Internet companies that offer key services for everyday social and economic life in the general population. Such services touch upon social networking sites to enable digital connectivity over geographical distances and time, payment infrastructure to facilitate digital transactions and money transfers, and new platforms to expand video game options and video communication (such as short videos). The prominence of these services has been lucrative for Internet companies.
But their success has also made them a ripe target for regulation. My latest work examined the latest policies that have emerged out of China in response to the growth of Internet companies. Internet companies in China have leveraged their rich balance sheets to acquire or purchase minority stakes in smaller companies deemed conducive to growth. The most salient of these purchases include Tencent’s acquisition of a minority stake in California-based Snapchat and Alibaba’s stake in Chinese streaming platform MangoTV. The two cases capture the growing lengths to which Internet companies would search for new investment targets and engines of growth. Companies were not only looking to acquire competitors, they were also looking to acquire firms beyond the Internet sector and even national borders.
This volley of acquisition activity was one of the major legislative battlegrounds for China’s policy crackdown. New policies urged stringent reporting guidelines that covered Internet firm activities across national borders, curbed internal anti-competitive practices, and institutionalized new channels of oversight through a collaboration of government ministries.
If balance sheets were the only thing companies needed to acquire without limit, we would see private interests totalize social and economic life, resulting in greater inequality and the recession of government powers (and public interests). These concerns aboutthe growing influence of Internet companies are a story that is not restricted to China. Amazon, which made inroads into the pharmaceutical and grocery businesses, is a good example of the universal concern over Internet companies gaining too much ground.
But China is the first government to take hard legislative action to directly curtail – and even reverse – the expansion of Internet companies. The U.S. government was unable to make Amazon relinquish control of Whole Foods, but the Chinese crackdown incentivized Tencent and Alibaba to sell their holdings of other firms.
The Chinese Internet sector is thus a watershed moment, capturing a direct clash between liberalization in markets and government intervention. For much of the past fifty years, we have seen the gradual victory of liberalization in markets over public interests. China’s crackdown represents a turn in the tide, when government intervention appears to win out over private interests. My work shows that the policies part of this government intervention are designed with an ESG framework in mind: they seek to preserve environmental sustainability, social wellbeing of minors and rural civilians, and equitable corporate governance.
The Chinese Internet sector is thus a fertile ground for discussing the sustainability of stronger government regulation over the burgeoning Internet sector, the limits to which a government should restrict private corporate actions, and its ability to preserve investor interest.
Note: the above draws on the author’s published work in Policy & Internet.
All articles posted on this blog give the views of the author(s), and not the position of Policy & Internet, nor the Faculty of Arts and Social Sciences at the University of Sydney.
