Looking for reasons behind China’s tech crackdown (part 3)

Original images by Mohamed Hassan and Arek Socha.

To better understand the crackdown on Chinese tech companies from a Chinese perspective we need to look at what is being said inside China. In this third article in a series, we look at the way the harsh new regulations on the after-school tutoring sector fit in the same pattern of shifting government policy as the tech crackdown.  

We don’t need no private education

In July the government dropped the bomb on the after-school tutoring sector. Training companies are being forced to go non-profit and will be held to strict limitations on when and how they can tutor. This is basically wiping-out the whole sector for private tutoring of minors. The formal communication of the new regulations in People’s Daily mentioned two goals:

  1. continue to standardize off-campus training (including online training and offline training) to effectively improve the level of school education.
  2. effectively reduce the burden of excessive homework and off-campus students in compulsory education.

The announcement mentioned the following guiding ideology: “building a high-quality education system, strengthen the role of school education as the main position, deepen the governance of off-campus training institutions, and resolutely prevent acts that violate the interests of the masses, build a good education ecology, effectively alleviate the anxiety of parents, and promote the overall development and healthy growth of students.”

The new regulations for the tutoring sector are not specifically a crackdown on the tech sector; they apply to both online and offline after-school education. It is however an interesting case that shows what the government is trying to accomplish with its wave of new rules. 

Over the past decades, costs of living have greatly increased in China. Many problem areas are now being targeted. Fierce competition for a seat at the best universities, determined by a student’s score in the gaokao at the end of high school, has resulted in a crazy ‘keeping up with the Joneses’. Even kids that are still in kindergarten get private lessons because, well, so does the neighbour’s kid!

A recent People’s Daily article stated: “For a long time, off-campus training institutions have developed rapidly, with a huge total and uneven quality. Unlicensed and unlicensed institutions have been repeatedly banned. Especially in recent years, under the coercion of capital, trafficking in anxiety, excessive publicity, disrupting the normal teaching order of schools, has become another education system outside the national education system, violating the public welfare attributes of compulsory education and destroying the normal ecology of education. (..) There is a craze for out-of-school tutoring. (..) To fundamentally control the out-of-school training boom, it is necessary to eliminate parents’ educational anxiety. (…) Many parents are trapped by the training institutions, thinking that if they do not send their children to off-campus training classes, they will lag behind other students.”

It’s not just the tutoring institutions that have increased the costs of raising children. Real estate around the best schools has become unaffordable and in this rat race, some parents find themselves open to the extra pay that a 996 work schedule often offers. But even with extra pay they are struggling, and the government has found it hard to convince young parents to have another child. Changing the one child policy to a two child policy in 2016, then a three child policy (May 2021) and recently even announcing that it would scrap fines for having more than three children altogether hasn’t helped. 

As a result, the country isn’t just facing rising income inequality but also a dwindling workforce in the coming decades. In the meantime the younger generations have started considering throwing in the towel, with merchandise related to terms like involution (nei juan) and ‘lying flat’ (tang ping) getting so popular that they are now forbidden to be sold. The terms refer to the senselessness of the continued competition of the rat race and a growing wish to renounce the struggle.

The financial pressure on the parents results in one of China’s biggest challenges. In an article by Protocol Yang Wenzhuang, director of the Department of Population Monitoring and Family Development at China’s National Health Commission, is quoted saying: “Economic and social policies related to education, housing and employment have become key factors influencing families’ fertility choices. To encourage families to have more babies, the government will roll out supplemental policies to make life easier for parents. And that could include reduced education costs and Ministry of Education-led support for after-school services and summer care services to reduce the burden of education for schoolchildren.” 

In short, with the new regulations the government is taking back the responsibility of education from the private sector and reducing the costs for parents in the process. Time will tell if this relief results in an increase of the birth rate. A very real concern is that the regulations will drive after-school tutoring underground and increase the price. If so, the policy would make inequality greater, not smaller, since only the wealthiest families will be able to afford it. 

A shift in government policy 

Big tech companies have played an important role in digitization and the growth of the domestic consumption economy with e-commerce, mobile payment, and job creation for the lower classes in society through local services like ride-hailing and meal delivery. But despite the harsh regulations the government is not out to kill the private sector or turn their companies into state owned enterprises. The fact that they have been private has made them so successful to begin with. But the government has realised that now they have started to become destructive forces and it’s time to reel them in and have them operate within legal and ethical boundaries. 

As Rui Ma pointed out, none other than Xi Jinping himself wrote in Qiushi, a CCP Central Committee bimonthly magazine: “Our online work, online shopping, online education, and online medical services are flourishing and have become deeply integrated with the offline economy. We should ride this momentum to accelerate the development of the digital economy, digital society, and digital government, move ahead with digital upgrading across sectors, and actively participate in the formulation of international rules for digital currencies and digital taxation to develop new competitive strengths. We must also be clear, however, that the real economy is the foundation of our economy and manufacturing industries must not be neglected. As a large country with a population of 1.4 billion, China must be basically self-sufficient in food production and industrial development. We must never forget this.” In other words, the online sector is very important, we will continue to develop it, but at the same time – not instead off – we need focus on increasing efficiency of the offline economy. Those of you who have read the first article in this series will see parallels with Huang Qifan’s speech…

In an article for Reuters, Tom Westbrook argues that what is happening might be “the most significant philosophical shift since former leader Deng Xiaoping set development as the ultimate priority 40 years ago”. The Chinese government is now placing common prosperity above high-speed growth by aiming to improve equality and shrinking the wealth gap. 

According to The Economist, China’s vice-premier, Liu He “recently stated that China is moving into a new phase of development that prioritises social fairness and national security, not the growth-at-all-costs mentality of the past 30 years. (..) The government will guide the “orderly development of capital”, the better to suit the “construction of a new development pattern”. As Caixin explains, the phrase “disorderly expansion of capital” (see also the second article in this series) refers to profit-driven behaviour that negatively impacts consumer rights, innovation and financial stability. Since December, it has frequently appeared in high-level documents and senior official speeches.

Especially the anti-monopoly regulations should lead to a better competitive environment. Rana Mitter, professor of Chinese politics at the University of Oxford, is quoted by Bloomberg as saying: “The party is calculating that overall, the crackdown on larger companies will lead to more start-ups having space to breathe, and overall a boost to the economy.” The Economist quotes Liu He as saying: “China’s most innovative start-ups have had the choice of selling out to big tech or facing a quick and brutal demise. The recent dismantling of online monopolies has been a godsend for many promising, young executives who have long struggled under the thumb of big tech.”

According to South China Morning Post, Fang Xindong, one of China’s most influential experts on cyberspace policy, published an article in state media in which he said China “has had to strengthen rather than weaken antitrust efforts in the internet sector (..) to spur competition and innovation [so that] China can regain its dynamism and keep pace with the US when it comes to the digital economy”.

On August 11th the Central Committee and State Council released a five-year policy document for further regulation of the economy. According to Bloomberg the document states authoritieswould (among other things):

  • “Actively promote legislation” in areas such as national security, technological innovation, public health, culture and education, ethnic religion, biosecurity, ecological civilization, risk prevention, anti-monopoly, and foreign-related issues”.
  • “Intensify law enforcement in key areas related to the vital interests of the people” including food and medicine, public health, natural resources, ecological environment, safety production, labour security, urban management, transportation, financial services, education, and training.
  • Ensure “healthy development of new business forms” with “good laws and good governance” related to digital economy, Internet finance, artificial intelligence, big data, cloud computing and other related legal systems.

According to the Financial Times, the policy would “meet people’s ever-growing demands for a good life [and] address and resolve social issues effectively and efficiently to ensure social fairness, justice, equality and national safety as well as preventing risks.”

Condem or admire?

Amid many very worrisome policies of the CCP, I can’t help but admire the decisive way the government is currently handling the internet industry. For years I have been baffled by the things this sector got away with in China. In the past decade they have burned cash from investors in endless price wars, created mountains of discarded rental bikes around the big cities and have been partially responsible for turning some young Chinese consumers into the most materialistic beings you’ll find on this planet. A reset has been long overdue. And it will be warmly received by those who have gotten the short end of the stick.

As such it’s remarkable that in the west we are suspicious and critical about companies like Facebook, who have frequently abused our trust. But as soon as the Chinese government takes firm and much more decisive action against excessive behaviour in their market it is framed as ‘the CCP feels threatened by the power of the internet companies and needs to show who’s boss’. Maybe we can learn from them instead of condemning their policies … at least in this case.