China has been launching numerous multi-pronged crackdowns on tech giants, leaving both decades-old tech firms and startups alike; in an environment of uncertainty. But what is leading the Chinese government to head these crackdowns on its most profitable companies?
The Crackdown of Tech Giants in China
The entire crackdown of tech giants was conducted over the course of a few months. With three key moments:
- The suspension of Alibaba’s parent company Ant Group’s IPO in November 2020. This crackdowns have lead the collapes of Jack Ma’s business empire.
- The ban of DiDi, a cab service company, from accepting any new users under cybersecurity review
- Initiation of new regulaion over China’s after-school turoting or ATS sector. And by the late July, the government banned all for-profit tutoring.
In early July, the Chinese state newspapers affiliated with the government criticized online gaming and tagged it as “opium for the mind” and “electronic drugs.” The news was only published in a newspaper, but it had a major impact on investors’ fragile sentiment, resulting in massive losses to gaming companies.
In just mere five months, China’s MSCI index has fallen exponentially. During the same period, some of the world’s largest tech and internet companies incurred losses in billions of dollars. A famous name, Tencent, also known as WeChat, incurred a loss of 170 billion dollars. But, Tencent was not alone; several Chinese tech companies’ market rates have fallen sharply.
For now, the government crackdowns are primarily focusing on the following sectors:
- Gaming companies
- Technology companies eyeing IPOs
- Cloud computing
- Platform economy
- Private education
- Online Finances
- Celebrity fan clubs
- Ride Hailing
But why is China knocking down on its tech companies with such a huge user base? The answer to this question gives us a glimpse of the future perception of China’s economy by the Chinese Communist Party.
What is Driving the Crackdowns?
Many experts believe that the stock listing of DiDi in the US was the primary reason behind the mandated cybersecurity review of the company. In addition, the US data disclosure rules imposed on DiDi after its introduction in the US market might have been seen as a threat to national security.
On the other hand, the competitive education system of China has given rise to huge private tuition providers. The companies succeed in manipulating parents, using the pretense of their child’s future and the fear of being left behind. Thus, parents end up spending excessive money on After School Tutoring. This high financial and mental pressure of raising a child hinders Chinese parents from having children altogether. Some also argue that the communist party aims to strengthen its ideological control over the country’s education system.
The recent crackdowns might also be pointing fingers at the Social Credit program of the Chinese Party. The government might be tracking every individual and company in China and punishing them for transgressions ranging from dealing with business partners that violate environmental protections to littering.
The Big Plan
Technology can be classified into two major parts:
- Must Have
- Good to Have
The Chinese president categorizes companies like Ali Baba, DiDi, and Tecents games into the good to have technologies group. President, Jinping has mentioned his concern about the rise of good to have technologies on multiple occasions.
Lei Jun, the founder of Xiaomi, once said, “Even a pig can fly if it stands at the center of a whirlwind.” The government believes that the profit earned by the above companies comes more from rents than from actual value-added. Benefiting from the first-mover advantage, the companies have succeeded in creating strong network effects.
This is undoubtedly a major concern not only for China but for countries throughout the globe. Online gaming, shopping, and other in-hand services made available by technology; aim more at distraction and reaping benefits rather than adding true value to users.
Furthermore, the spiking growth of the tech-giants has created an abundance of high-paying job opportunities for the youth. Thus, instead of working on important studies like material science and manufacturing, millions devote their brilliance to game development and ad optimization.
As Dan Wang, GaveKal Dragonomics quotes in his 2019 letter, “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.”
Therefore, the Chinese government is shifting its population focus from user consumer technology companies to the high-end manufacturing sector. The companies manufacturing batteries, chips, air crafts, and other necessary tech products will be playing an important role in the coming future. Though the leading internet companies have collapsed in the last few months, the stock value of a few semi-conductor companies has surged.
The Mystery of China’s Tech Companies’ Crackdowns
The complicated Chinese government, party, and business system is extremely difficult for outsiders to understand. What exactly is being ordered by these actions remains unclear, as well as the outcome. Thus, it’s incredibly hard to figure out what’s going on.
As some observers see it, the US and EU are engaged in antitrust campaigns similar to this one. Historically, Chinese leaders strive to prevent alternative centers of power from emerging. But are Western leaders so different in this respect? According to the new antitrust movement in the U.S., one of the goals is to curb the power of Big Tech companies; therefore, the Chinese tech crackdown might be seen as a Neo-Brandeisan movement on steroids.
What Xi Jinping Aims, Acquires – The Return of Persistent President￼
The results of China’s presidential election were known to the entire globe, and especially to the citizens of China. In the wake of the recently concluded party congress in Beijing, Xi Jinping has established himself as the kingmaker.
Xi Jinping was a driving force behind the repeal of presidential term limits in 2018, which opened the door for him to hold the position of leader for life if he desires.
Xi Jinping has broken the previous history by accepting a third term as party leader and significantly enhanced the concentration of power at the organization’s top.
But what does the persistent president’s return means for China and the world? Here’s a detailed insight.
“The World Development needs China…”. – Xi Jinping
After being elected as president of China for the third consecutive term in a closed-door election, Xi Jinping stated in his first address to the audience, “China cannot develop in isolation from the world. The world’s development also needs China,”
This quote shows how China focuses on its growth to have a more prominent global effect as a superpower.
Additionally, Xi Jinping, with the proceedings of the new term, wants to focus on achieving economic, industrial, and technological goals. That will give the Chinese economic and technological sector a competitive edge to become the next prominent superpower.
However, the road ahead toward leading China as a top superpower for Xi Jinping needs to be smoother. There are unresolved domestic problems, economic difficulties, and hostile international relations with neighbors like Taiwan and India. One of his biggest concerns would be his relationship with rival America.
Nevertheless, Xi Jinping continues to hold the view that despite numerous challenges in becoming a superpower, the Chinese people would always support and remain steadfast on this side.
“On the road ahead, no matter high winds, choppy waters, or even dangerous storms, the people will always be our most solid support and strongest confidence,”President Xi Jinping
Two Countries Share a Friendship with ‘No Limits’ – Xi Jinping on Relationship with Russia
Mr. Putin will need China, said Alicia Garcia Herrero, head economist for Asia Pacific at Natixis. Russia must continue importing semiconductors from China to keep military, industrial, and civil needs operational.
Due to restrictions from US and European alliances, Russia has no choice but to export chips from China to operate for civil and military purposes.
Chip export from China to Russia more than doubled to roughly $50 million in the first five months of 2022 compared to a year earlier. While exports of other components like printed circuit boards also witnessed a double-digit percentage increase.
However, Xi Jinping raised concerns over the Russia-Ukraine war during his visit to an international summit in Uzbekistan with President Putin.
The focus, though, was on Putin’s oblique acknowledgment of Chinese “concerns” regarding the invasion.
“We highly value the balanced position of our Chinese friends when it comes to the Ukraine crisis,”Putin, Russian Presidnt
Nevertheless, China has been cautious in its interactions with Moscow to avoid falling victim to any potential sanctions and alienating other nations, such as those in Central Asia, with China forging economic links.
Yet, with the ongoing trade across two borders of China and Russia, Xi Jinping’s thought over Russia’s invasion clearly — supports the friend firmly in the backend while criticizing and commending Russia in front of the world.
“Regard science and technology as our primary productive force” – Xi Jinping
The most potent president of decades in China, Xi Jinping, at the opening of the meeting, straight away displayed China’s powerful ambitions and reliance on science and technology.
Violating a tradition that had been in place for 40 years, six out of politburo’s 25 members now have a background in science. Compared to just one person in the previous politburo, who had no members with education or experience in science or technology.
And there was a significant turnaround of the party’s top leadership after Xi Jinping was reinstated as general secretary for a third term.
Xi Jinping’s choices emphasize building up Beijing’s powerful military and technological capabilities so that China can defend or resist any pressure from the US and its allies, especially when it comes to enforcing territorial claims over Taiwan.
Moreover, China is also expected to prioritize research and development in aerospace and space science. To boost the aerospace and space science workforce, China aims to bring back Chinese scholars who are currently abroad or hired by foreign researchers.
Such initiatives and endeavors unequivocally show China’s priority for science and technology in the years to come. In 2021, China spent around 2.8 trillion yuan, 2.4% of China’s GDP, on Research and Development.
However, the current five-year plan for the nation sets a target of an annual increase of more than 7% every year.
“China must strengthen the unity of all ethnic groups.”
As western countries continue to charge Beijing with committing genocide against the predominantly Muslim Uyghur population in the region, China’s president, Xi Jinping, visited Xinjiang for the first time in eight years.
A supra-governmental group subject to US sanctions, the Xinjiang Production and Construction Corps (XPCC) was inspected by the president, who lauded the organization’s “excellent progress” in reform and growth.
Nevertheless, President Xi Jinping’s visit to the Xinjiang area comes out as more deliberate than opportunistic as the ruthless tactics employed by the Chinese government against the Uyghur minority in the northwest Xinjiang province have been brought to light by a cache of leaked documents and images.
Uyghurs are allegedly forced to unlearn their culture and religion via a network of institutes run by Chinese authorities in the area. The exposed documents state that
China has a shoot-to-kill policy for Uyghurs who attempt to flee the internment centers. The materials also go against the Chinese government’s claim that the Uyghurs willingly attend the facilities.
However, China’s Foreign Ministry has rejected the allegation and said the Media is spreading lies and rumors.
Though China was seriously condemned by the UN and western countries, knowing such ruthless behavior of China towards minorities is nothing new. Such criticism compelled President Xi Jinping to travel to Xinjiang, a region he hadn’t been to in eight years.
However, the future of the oppressed Uyghur Muslims and other minority communities under Vi Jinping’s third term is still uncertain.
Read More: Modern Uyghur ‘Genocide’ in Xinjiang China
Will China Invade Taiwan? The Looming Danger of World War 3 Explained
While the world is engulfed in the Ukraine-Russia war, global inflation, food shortage, and scorching heat, China is preparing to conclude its long-simmering plan to invade Taiwan.
Here’s an in-depth report:
Will China Invade Taiwan: An Overview
China’s goals for Taiwan are well known. Tensions between the two nations have been stoked for years by opposing perspectives over the sovereignty of the little island country. And now, they are reaching boiling point.
Beijing sees Taiwan as a breakaway province even though it has never been a part of China. Moreover, the so-called reunification with Taiwan has been a top priority for the Chinese president, Xi Jinping, ever since he came to office. And he hasn’t ruled out using force to do this.
Taiwan’s military, which has 169,000 active soldiers, is outnumbered by its superpower neighbors’ million-strong army by over a 20 to 1 margin. And, with the looming danger of China’s invasion of Taiwan; expert fear, the world is inching closer to a World War situation.
Why does Taiwan Matters to the World?
If China were to Invade Taiwan, two nuclear power heads, China and the US, could war head to head into what could escalate into world war three.
But why is Taiwan so important for the world, especially for the US?
South China Sea Dispute
The South China Sea is one of the most important regions for global trade because over 30% of the world’s shipping passes through the passage, which amounts to $3.37 Trillion in trade per year. The sea also homes 11 billion barrels of untapped crude oil and 190 Trillion cubic feet of natural gas.
And most important of all, the country controlling this region will have significant military benefits.
For years, China has been keenly taking control of the region. To an extent, where the Sino military has created an artificial island to claim the South China Sea as its own.
So, if China succeeds in invading, it will have the upper hand in the second most important region in the world, handing China significant military dominance in the area.
US’s Promise in Question
The US does not recognize Taiwan as an officially different state. But, the Taiwan Relations Act 1979 does require the US to aid Taiwan in self-defect. President Bidden also testified that in case of Chinese assault, Washington would protect Tawain with force.
Though Biden has framed US support for Taiwan in terms of ideals, such as the defense of democracy against despotism, many analysts point out that Washington also views the island as strategically significant.
Furthermore, if China invades Taiwan, the US will be forced to reciprocate to honor its promise. Failing to do so would put Washington in question even with its strongest allies, including NATO.
Taiwan: The Semiconductor Hotstop
From laptops to game consoles and automobiles, most of our electronic equipment is powered by semiconductors chips manufactured in Taiwan.
Taiwan alone has 63% of the market share in the global semiconductor industry. By one measure, TSMC (Taiwan semiconductor manufacturing company) holds over 54%. It’s a vast industry worth over 100 billion USD in 2021.
Therefore, Taiwan is the world’s semiconductor hotspot that powers significant tech companies, including Apple, Intel, and Nvidia. And, with China in control of Taiwan, it will directly take over one of the world’s most vital industries.
Can China Takeover Taiwan By Force?
The People’s Liberation Army has significantly improved under president Xi Jinping to an extent where invading Taiwan is possible.
However, one key determiner is how close PLA is to mastering the skills required to deploy thousands of troops to Taiwan by air or sea, take over the island and push over to size crucial areas like railways, ports, and communication.
However, even if LPA- the biggest military force in the world- wanted to annex Taiwan, doing so would be fraught with danger.
While subjected to naval and aircraft bombardment, the Sino military will have to cross Taiwan bay with over 100,000 soldiers. And, even if the military were to reach Taiwan’s coast; landing aircraft to unload armored personnel carriers, artilleries, and tanks would be a challenge because of the island’s rocky shoreline.
The invasion will further provoke large-scale combat between the US and China.
Taiwan Brace for China’s Invasion
With China’s aggressive military power demonstration near Taiwanese borders and Nancy Pelosi’s visit, the Taiwanese authorities are preparing for the invasion. Now, allies are pumping in more military aid while the neighbors are arming with new fighter jets.
According to Chinese officials, live-fire sea and air exercises are being conducted in six different regions around Taiwan. The drill includes over 100 planes, including ten warships, bombers, and fighter jets.
However, Taiwan is also setting the stage for strong retaliation.
Last week, Taiwan conducted its largest ever military drills that stimulated the repulsion of an invading force. City across Tawin shut down for thirty minutes for nationwide military exercises.
And now, with China set to orchestrate fresh military drills near Taiwan; the island nations say, “Our military will be ready but will not ask for war.“
Cobalt Mines: China Taking Over the Fuel of the Future
Green energy and electric vehicle is the future of a sustainable world, and one of the critical components powering the dream of a more sustainable planet is Cobalt. The blueish-grey chemical has risen to prominence as a vital component of lithium-ion batteries, the technology that will fuel the smart technology revolution.
As more countries electrify their vehicles, the Democratic Republic of the Congo (DRC) has become an increasingly important supplier of the vital energy source in EVs, Cobalt. Cobalt is a crucial component of electric car batteries, and Central Africa provides two-thirds of the world’s supply.
Often referred to as the fuel of the future, Cobalt is undoubtedly the key to the growing electric vehicle industry. But who controls cobalt?
Cobalt: The Fuel of the Future
The use of Cobalt in the green energy industry is as diverse as it is enduring. Having tripled in price in just a decade, Cobalt has formed the cornerstone of some of today’s essential applications, from hard metals, jet turbines, orthopedic implants, and electric vehicles.
However, the supply of this critical chemical element is expected to become increasingly complicated. In 2017, the DRC produced 67 percent of all worldwide Cobalt mined. Because the DRC is related to concerns of corruption, child labor, and human rights violations, this is a challenge for enterprises with customers that require high levels of supply chain due diligence.
Furthermore, the DRC’s new punitive cobalt tax policy may lead large miners like Glencore to halt or stockpile output in the nation until the government agrees to better conditions, resulting in further market shortages. Furthermore, Cobalt is produced as a by-product of copper and nickel mining, and the world’s sole primary cobalt mine exists.
But, China’s influence on the Cobalt industry has increased drastically over the years. So, how is China taking over the fuel of the future?
China is Taking Over the Fuel of the Future: Cobalt
China’s approach to financing state-owned enterprises may be causing significant inefficiencies in the economy. Still, it also gave them unrivaled supremacy in essential minerals necessary for new technology like Cobalt.
According to Darton Commodities, China now controls roughly 85% of global cobalt supplies.
This includes a three-year arrangement with Glencore, the world’s largest cobalt producer, to sell 52,800t of cobalt hydroxide to Chinese chemicals business GEM. This is almost a third of Glencore’s entire expected production for this period.
Furthermore, after purchasing the Tenke Fungurume Cu/Co mine (TFM) from Freeport McMoRan in 2016, China Molybedenum (CMOC) is the largest shareholder in the DRC’s Tenke Fungurume Cu/Co mine (TFM). The mine is the only supplier to Finland’s Kokkola refinery, distributing to Japanese and Western technological companies.
Several smaller Chinese companies own cobalt holdings, such as Comika Mining/Wanabao Mining, Congo Dongfang Mining, and Hunrui Cobalt. According to Darton Commodities, Chinese refinery output accounted for 58 percent of world refined cobalt output in 2017, with the remaining 98 percent imported, primarily from the Democratic Republic of Congo.
The DRC: China’s Key to Winning the Green Energy Race
Local Chinese upstream production and cobalt resource exploitation account for just 23% of the global electric car supply chain. On the other hand, China dominates one downstream and two mid-stream production stages. Moreover, China accounts for 66% of cathode and anode manufacture, 80% of chemical refining, and 73% of lithium-ion battery cell production in the worldwide EV supply chain. As a result, China relies on Congolese Cobalt to dominate the world market.
The importance of the DRC and the draught report’s consequences stem from the link between Cobalt, batteries, electric vehicles, and global politics. Over 70% of the world’s cobalt deposits are located in the DRC. Also, the DRC houses the world’s eighth-largest cobalt mines.
However, Chinese battery manufacturers will struggle to keep up with the country’s booming electric vehicle sector and the government’s geoeconomics aspirations if they don’t have an ample supply of Cobalt. In addition, the possibility of Congolese officials reopening the Sicomines investment agreement may throw global markets into a tailspin. However, the DRC is a vital link in a significant high-tech supply chain as one of the world’s poorest countries.
If China can acquire Cobalt in the DRC, it will control global supply networks for a material that is highly concentrated geographically. This will help China dominate the reusable battery materials and electric vehicles market. However, China’s Dual Circulation Plan and worldwide climate policy may suffer substantial defeats due to the discoveries in this new draught report.
The Hurdles Ahead for China
According to US Geological Survey estimates released in 2019, the DRC holds over 51% of world cobalt deposits.
Roskill forecasts that the central African country generated roughly 90kt Co in different intermediates in 2020, accounting for nearly 70% of global cobalt feedstock production.
Prior to the current declaration, Chinese businesses already owned over 40% of the cobalt mining capacity in the Democratic Republic of Congo as a consequence of decades of investment and development in the nation, with multiple resource-for-infrastructure deals inked and implemented since the 1990s.
China’s need to achieve a balance between internalizing supply chains and leading international investment is exemplified by the Sicomines incident.
The Dual Circulation Strategy tries to accomplish this by maintaining one foot in the global system and the other firmly planted in China. Sicomines are a key component of this method.
China can grow its EV market and local consumer culture by importing raw resources like Cobalt, which allows the country to be independent of international tides. Electric car production can also help Beijing gain an image as a climate change leader on the world stage.
The Congolese government’s examination of Sicomines is unlikely to jeopardize China’s geoeconomic goals. Still, it does provide insight into China’s essential sectors, economic strategy, and the challenges it will confront in securing strategic supply chains.
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