China’s tech regulation a part of larger push to develop into a ‘superpower’

Chinese President Xi Jinping

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GUANGZHOU, China – China’s recent moves to regulate major tech giants are part of its broader drive to become a technological “superpower,” an expert told CNBC.

Like the US and the European Union, China is working to regulate the technology sector in many areas, from data protection to antitrust law. China’s tech companies have grown, largely unregulated, and are among the largest in the world.

And there are a number of regulations that have come into effect or are in the works.

In November, China’s central bank and regulators published draft rules on so-called microloans, including provisions such as capital requirements for technology companies that offer loans.

The Chinese State Administration for Market Regulation (SAMR) has also published draft regulations aimed at stopping the monopoly practices of Internet platforms. It is one of the most comprehensive proposals in China to regulate large technology companies.

Last month, SAMR announced it had opened an investigation into Alibaba into monopoly practices.

In October, China released a draft personal data protection law that aims to regulate how companies process user data.

All of these regulations are part of China’s greater effort to become a major global technology powerhouse, according to Kendra Schaefer, a partner at Trivium China, a Beijing-based research company.

“Among all these things, I think China understands that if it is to become a technological superpower, it has to create a solid regulatory basis,” Schäfer told CNBC’s Beyond the Valley podcast.

“It has to lay that foundation the way it does business, but it also has to lay that foundation in relation to data. In fact, data could be the most important regulation it has to lay down.”

“All of these things are fundamental and it’s really just a kind of framework, a stepping stone from which China can develop and move faster.”

Beijing seems to have taken a tougher stance on the country’s tech firms lately. In November, regulators forced Ant Group, Alibaba’s finance company, to suspend plans for the world’s largest IPO while the company looked at regulatory changes. Last month, Alibaba and two other companies were fined for failing to provide proper explanations to authorities about previous acquisitions.

That doesn’t mean Beijing is working against its technology champions, however, according to Emily de La Bruyere, co-founder of consulting firm Horizon Advisory.

“These multinational tech companies are clearly the driving forces behind China to expand its information and standards strategy around the world. That won’t change. We won’t see Beijing turn on its big tech as Washington appears to be,” Bruyere said CNBC via email.

“But Beijing will ensure that its big tech acts by its rules and regulations, connects to its platforms, and serves its strategies.”

US, EU Tech Regulation

It is not just China that is making profound changes in terms of technical regulation. The European Union was perhaps the most aggressive region in the world on this issue. The groundbreaking General Data Protection Regulation, approved in 2016, aimed to introduce rules for the processing of user data.

And in December, the EU introduced the Digital Markets and Digital Services Act, which aims to tighten more control over the behavior of tech giants in a number of areas.

However, the US has not yet taken a similar approach with far-reaching legislation in areas such as data.

“We don’t have good data regulation in the US yet,” said Schaefer of Trivium China. “So we don’t have that foundation, these kind of rationale, on which we can regulate not only our domestic businesses but also foreign inbound businesses.”

“I think we don’t have this basic data policy. This is one of the reasons we are taking this bizarre scatter-shot approach to control incoming Chinese apps like TikTok and target certain Chinese companies because we don’t have universal regulation.”

Schaefer was referring to the ongoing Washington saga that attempted to get Chinese company ByteDance to sell TikTok’s US operations.

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