China’s government has launched a severe crackdown on its leading tech companies. Didi Chuxing, the equivalent of Uber, has been removed from app stores and ed tech companies are now required to be nonprofit, likely wiping out their investors.
A major index of Chinese tech stocks is down over 40% since February, even as US tech stocks climb:
China’s tech elite is responding by placating the government however it can, including a rapid increase in philanthropy in response to government messages that it expects bigger donations from the rich.
But it doesn’t stop there. Alibaba has been under intense pressure from the Chinese government since founder Jack Ma criticized some aspects of its performance, which led to his disappearance for several months. Alibaba has since created a special app to promote “Xi Jinping thought”.
China’s top entrepreneurs are also looking for an escape hatch in case their appeasement of the government doesn’t work. Interest from wealthy Chinese in moving abroad is increasing amid the government crackdown.
Sudden donations, new Communist dogma apps, and quiet plans to leave…these are acts of desperation.
I see a couple results from China’s crackdown:
1) Major businessmen in tech and other sectors are distracted. They’re worried about appeasing the government and/or emigrating, not building their core business. This will harm the prospects of their companies.
2) Would-be entrepreneurs are discouraged. Why start a company when it can be so easily appropriated?
3) Investors are discouraged for the same reason as # 2.
China is rapidly strangling its economic golden goose. The only question is, who will pick up the pieces?
More on China:
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