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China cracks down on its own tech industry

With the Chinese government accelerating moves against its own tech industry, China is — for now — prioritizing Communist Party control of the domestic economy over aggressive international competition.

Why it matters: China and the U.S. are both playing a long game, with tech as the playing field, companies as the pieces and domination of the global economy as the stakes.

Driving the news: A state-owned newspaper in China denounced online gaming as "opium for the mind" Tuesday, driving down shares of Tencent and other Chinese firms, the Wall Street Journal reports.

  • "Within hours the article was no longer accessible on the paper’s website, before later reappearing with some of its harsher language removed," including the "opium" line.
  • But the move is in line with a range of other steps China has taken over the last eight months to rein in its tech sector, from new restrictions on online tutoring firms to limits on firms' overseas investment deals.

Catch up quick: China's own "techlash" kicked off in November, when the Chinese government blocked the IPO for Ant Financial, founded by Alibaba billionaire Jack Ma.

  • The move was followed in April by a wave of antitrust actions, including a $2.8 billion fine for Alibaba.
  • Soon after the $73 billion IPO by China's ride-hailing giant, DiDi, government regulators barred its app from app stores.

The big picture: Some of these moves were justified on data security grounds, others on behalf of increasing competition. But China experts say the thread that ties them all together is the party's determination to show tech-sector giants and wealthy moguls who's boss.

Between the lines: "Disruption" is a byword for U.S. tech entrepreneurs determined to challenge incumbents, but for many in China — and certainly for the government — it's a dirty word.

Chinese leaders fear instability and see online platforms promoting it in two different ways:

  • Allowing social media platforms to grow independently powerful threatens the ruling party's tight hold on information in any future crisis.
  • Some experts believe the Chinese government worries about U.S.-scale inequality driven by tech entrepreneurs amassing Jeff Bezos-scale private wealth.

Yes, but: Other observers suggest that Chinese business and culture has a bias towards manufacturing, hardware and physical goods, and against the kind of immaterial goods created by the software and financial industries.

  • China's role as foundry of the world's tech products gives it a strategic advantage.
  • Its online platforms and software face an uphill challenge with users and partners in the U.S., Europe and elsewhere, who see Chinese companies as untrustworthy, given laws requiring them to share data with the government.
  • TikTok remains China's most successful software export, but its survival in the U.S. during the Trump era hung by a thread.

Meanwhile, Chinese companies have come to question the reliability of U.S. partners and suppliers following the Trump administration's broad bans on many of China's leading tech firms. For China today, self-sufficiency looks like a necessity.

The bottom line: China seeks continued economic growth and global power. But if that quest ever threatens to spark opposition to the party or enable dissent, the government will always choose stability.

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