Imagine you’re running a marathon. You’ve led the whole race. But a strong runner is coming up on your right. The finish line approaches.
Suddenly, there is a loud “crack.” The other runner has been shot in the head. You win.
This is essentially what has happened to the Chinese tech sector in recent months. The Chinese government has cracked down on major companies like Alibaba, Didi Chuxing, and Meituan. It has also regulated its substantial ed tech sector out of existence.
China used to be the US’s leading competition in technology. Now it looks like an also-ran.
Leaders of Alibaba and Didi angering Xi Jinping is one reason for the crackdown. Another appears to be China’s desire to refocus from software to hardware. The Party seems to think microchips, batteries and advanced materials are critical to economic leadership, while consumer software is a distraction.
One problem: semiconductors and most other manufacturing industries are a lot less profitable than software companies like Alibaba or Didi. And all of China’s net job growth since 2012 has been in services, not manufacturing.
Even with that growth, well educated Chinese youth often struggle to find decent jobs. Severely curtailing one of the most vibrant sectors of the economy will only make it worse.
China has lost sight of what those microchips and batteries are supposed to do: run software! They are not ends in themselves.
What’s more, the threat of sudden crackdowns will make it harder for all Chinese companies to raise money and grow. Maybe the hammer is landing on tech now, but investors will wonder, “Who’s next?”
More on China:
HOW CHINA’S TECH INDUSTRY DIES
CHINA’S TECH ELITE IS RUNNING SCARED
CHINA IS CRUSHING ONE OF ITS MOST INNOVATIVE COMPANIES
Photo: “Vice President Xi Jinping” by nznationalparty is licensed under CC BY-NC-ND 2.0
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