Jaya Josie, Member of IMI International Committee; Visiting Professor, Zhejiang University International Business School (ZIBS)

Since the beginning of the fourth industrial revolution the digital economy has become the foundation of economic development and economic growth. In a comparative paper that refers to developing economies Singh (2017) defines the digital economy as an economy where data and digital intelligence are the chief economic resources, which are employed for sector wide reorganisation of economic activity. The paper distinguishes between the digital industry from the earlier software industry and the internet industry. Singh (2017) shows that the digital economy can extend beyond information, communication and media to all sectors of economy including the service industry, health and education. The paper presents a comparative examination of the digital industrialization strategies of the US, China, India and the EU, and concludes with some recommendations. The author argues that the US currently dominates the digital economy with China a close competitor and, together the two economies present the two successful models of the digital economy.

On the one hand the US strategy is domination by its digital corporations through free and unregulated flow of data both globally and domestically (Singh, 2017). On the other hand, China’s approach of state directed capitalism and investment in research and development and innovation in the digital economy have been extremely successful. India and the European Union (EU) have a mixed economy rules-based approach in which the public sector role is important (Singh, 2017). The paper further makes the point that corporations collect data from sources that are considered from a ‘commons’ pool that often includes personal data and data for natural resources where governments act as legal guardians and managers for such data (Singh, 2017). It is for this reason that most governments around the world have raised serious concerns about the current unregulated mining and use of personal and strategic big data by private corporations.  

In recent years India, China, the EU and even the United States (US) are moving towards a more regulated approach towards the digital economy in the face of public concerns of the greater public good and personal privacy. Preempting this tendency in 2017, Singh (2017) presented five key elements for a sound digital industrial policy that China, the EU, India and even the US are seriously considering implementing over the next few years. The five principles for a sound industrial policy include: (1) providing enabling legal and regulatory frameworks, including for easy and secure e-transactions, (2) supporting a start-up ecology and other domestic digital businesses, (3) building public digital and data infrastructures, (4) shaping regulatory frameworks for digital monopolies that are set to control whole sectors, and, (5) as required, developing public/community digital platforms in some key areas (Singh, 2017).

The request for this paper asked for an analysis of the development of so-called ‘big tech’ in China. However, ‘big tech’ does not exist in the real world. In the digital economy you only have consumer service platform companies and innovative software companies. In China, consumer service platform companies are inappropriately referred to as ‘big tech’ because of their tendency towards becoming monopolies. It is a tendency that Singh (2017) predicted in his paper. It is this monopoly and anti-competitive tendency that governments in China, India, the EU and the USA now wish to regulate. The paper will briefly assess the development of consumer service monopolies in China.

In recent years China’s e-Commerce digital economy platforms have evolved into monopoly companies and started investing and diversifying into the financial sector with a particular focus on mobile payments, car-hailing, online education and food delivery services. Digital economy e-commerce firms such as Alibaba and Tencent, Baidu and Didi have come under scrutiny and fined for monopolistic and anti-competitive behaviour. There is much speculation in the media that China wants to excessively regulate and stifle its digital economy platform companies. This type of speculation started after China stopped the initial public offering (IPO) of Ant Financial on the Shanghai and Hong Kong stock exchanges. There is a sense that much of the speculation is driven by the new anti-China sentiment that is currently pervasive in the western media. However, there are more sober analyses that take into account the principles advocated by Singh (2017).

In a recent article Chorzempa (3 August 2021) recognizes that China has legitimate public policy reasons for regulating its e-commerce consumer service platforms. The author argues that China is motivated by similar reasons advocated by India, the U.S and Western Europe. The reasons demonstrate that in the face of uncontrolled growing consumer platform monopolies, governments must exercise their right to assert their authority in the interest of the public, consumers and free and fair competition.  It is in this respect, that the Politburo of the Communist Party of China (CPC) announced that it would “prevent the disorderly expansion capital”.

Apart from Ant Financial’s challenges, DiDi Global, Alibaba, Tencent Holdings and Baidu have been fined for anti-competitive practices. These actions were reinforced by new regulations for overseeing e-commerce consumer service platforms. The regulations include antitrust and personal data protection (Chorzempa, 2021). In fact many of China’s digital industry regulations are exactly in keeping with the elements proposed by Singh (2017). Globally, there is growing concern about the risks that digital economy e-commerce companies present with respect to data collection, personal privacy and anti-competition behaviour. A greater risk is platform companies concentrating excessive power in the digital economy. The new US administration has prioritised the same concerns that regulators in China have expressed and the US is most likely to introduce similar regulations.

The regulators in China have become aware that the private digital economy sector has become extremely powerful as they move away from providing only e-commerce services and now enter and attempt to dominate the finance service sector through super applications (app) based on new sophisticated algorithms. It was reported in the media recently that Tencent, the major social media company in China, prevented its users from using its WeChat app for sending links to Tencent’s rival Alibaba’s e-commerce websites. The power of both Tencent and Alibaba meant that small merchants and start-ups were forced to enter into exclusive distribution agreements with these two companies because they have users that use their apps. Another example of monopoly control of data was the DiDi ride hailing company in China refusing to divulge data to the authorities after customers of DiDi’s service were murdered. The aims China has for all the sectors in its digital economy are no different from other countries grappling with concentration of power and the protection of personal data.

At least one author believes that these e-commerce platforms should not be called ‘Big Tech’, Wheeler (2021).  The author argues that the label ‘Big Tech’ is misleading and believes that the label promotes the American policy misconception that the consumer market dominance of the digital economy by e-commerce platform companies is essential for their ability to innovate in the interests of national security (Wheeler 2021). The author further suggests that China’s policy stance is a recognition that there is a difference between “consumer tech” innovation that produces new consumer services and, the “deep tech”. China recognizes that there is a difference between ‘consumer tech’ innovation for consumers and ‘deep tech’ cutting edge innovation needed for national security. The so-called ‘Big Tech’ companies are primarily concerned with servicing their customers by matching information from users with advertisers. So what we call ‘Big Tech’ in China should in fact be called “consumer tech” e-commerce platforms because although they use internet technology developed by other software companies at taxpayers expense they do not add value to national security. They develop and innovate for their own profits and shareholders and not in the interests of the country (Wheeler, 2021).  

China’s new regulations open up the data bases kept by the e-commerce platform companies and these companies will be required to share data they have collected with the state and other companies to use for competitive purposes. The State Administration for Market Regulation (SAMR) of China proposed additional regulations that include prohibiting the use of “data, algorithms and other technical means” to influence user behaviour or “hijack traffic, interfere or impose barriers” to the operation of other internet services (Wheeler, 2021). Many other countries and regions are contemplating similar policies. For example, the EU’s recent Digital Markets Act and Digital Services Act also recognise the anti-competitive and anti-consumer behaviour of the monopoly e-commerce digital platforms.          

All governments should be able to assert their roles to protect public interest. However, as the U.S. has been unable to establish independent monitoring and oversight of the internet platforms many of the platform companies act like governments and create and impose policies that benefit their shareholders. The latest system of regulations introduced by China is an important and essential oversight and monitoring policy to balance the control of the platform companies. China has recognized that supervision and regulation of the “consumer tech” platform monopoly companies will promote consumer welfare, worker rights and technological advancement in support of national security.

The protection of consumer welfare and worker rights is written into the DNA of the Communist Party of China (CPC) and was always part of the history of CPC. However, western commentators such as Sha Hua (2021) in the Wall Street Journal (17 September 2021) argue that the recent call by the CPC for common prosperity and unionization of workers is nothing but Beijing’s strategy for ultimate control. Given this level of ignorance, it is perhaps important to place the call of the CPC in context. The notion of “Common Prosperity” for China was first articulated in the 14th Five Year Plan that was drafted in October 2020, approved, and adopted on 11 March 2021, and finally published in June 2021 by the Communist Party of China (CPC).  The search for Common Prosperity follows China’s acknowledgement that with the elimination of absolute poverty in China by 2020 the country is now on the way to becoming a “moderately prosperous society”. Much of China’s rapid movement towards a moderately prosperous society is due to the principle of New Democracy adopted by CPC in the early fifties. This New Democracy gives the masses of the people the ultimate decision in the trajectory of socialism with Chinese characteristics. New Democracy is a ‘system of real universal and equal suffrage, irrespective of sex, creed, property or education, … In economic terms, large industrial, financial, and commercial enterprises would come under state ownership… the republic will neither confiscate capitalist private property in general nor forbid the development of such capitalist production.’ (as cited by Marc Blecher, 2019, Chapter 25 New Democracy ANU (pp. 155-160)). Today China has recently declared that it has finally eradicated absolute poverty in the country, and is on the way to achieving the UN’s Sustainable Development Goals SDGs.

China has developed phenomenally over the past 30 years it has shown how the Socialism with Chinese Characteristics under the New Democracy can foster innovation, research and development, technological advances and peaceful coexistence at home and internationally.

In 2020, during the Fifth Plenary session of the 19th Central Committee of the CPC, it was noted that common prosperity of all the people has made substantial progress and should be promoted as an important objective of the CPC as part of the long-term 2035 goals set out in the 14th Five Year Plan. This decision was endorsed on 11 January 2021 at a CPC seminar where it was emphasized that common prosperity is not just about economic growth but also about bridging the income gap between the rich and the poor; overcoming regional disparities between the urban and rural districts; addressing sustainable industrialization for a cleaner climate. The Statement from the seminar called for the promotion of all-round social progress and all-round human development, social equity and justice; and to ensure that the fruits of development benefit all the people in a more equitable way to enhance their sense of gain, happiness and security and move beyond a mere slogan.  However, Sha Hua (2021) views the recent implementation of the CPC policies as an effort to control the ever growing digital economy monopoly e-commerce platforms.

The recent (September 2021) engagement between the e-commerce platform companies and the Government is seen as forcing the companies to improve the conditions of the millions of contract workers servicing the digital economy. In the article the writer (Sha Hua 2021) acknowledges, however, that the engagement addressed the need to improve worker pay and benefit and adjust algorithms that breached antitrust, data security and worker’s rights. Despite the negative tone of the article the writer admits that the new policies are a new stage in China’s policy to redistribute the enormous wealth generated over the recent past. The writer further admits that the CPC’s focus on labour and worker’s rights is likely to benefit workers given that about 600 million workers earn about US$140 a month. The writer also reports that many digital economy firms are trying to organize worker unions.        

The digital economy presents a great opportunity for inclusion of the population that has been marginalized over the years. China and developing countries have an opportunity create frameworks for financial inclusion and also balance the needs of the consumer against the regulations faced by the digital industries and financial service providers. As financial technologies advance, the range of suppliers include traditional banks, mobile network operators, financial technology entrepreneurs, nonbank financial institutions, rural banks, savings and credit cooperatives (SACCOs), payment providers, credit unions, insurance managers, wealth managers, investors and other operators, with each serving a segment of the financial sector. In China many e-commerce platform companies are also financial service providers successfully supporting the needs of the low-income segment by introducing appropriate business models that factor in the abilities of the low-income consumer. These financial service providers understand that there is a willingness amongst the poor to pay for financial services that meet their needs. Sustainable product usage is achieved when both the consumer and supplier of financial services benefit from the structure and institutions supporting the sector.  Policies and regulations must support the drivers of financial inclusion from the consumer’s perspective that include:

•       Access to a financial product and awareness of how and where to access the product or service and by having an appropriate device to access the product/service and the network infrastructure.

•       Affordability reflects the true transaction cost affecting the consumer that is inclusive of the transaction charge; the cost of internet access and cost of transport (if necessary). Also, when promoting affordability, one must recognize the earning patterns of the low-income segment who receive income on an irregular basis.

•       Consumer education is inclusive of the level of literacy, numeracy, digital skills and financial literacy.

•       The influence a range of concerns such as awareness, the ubiquity of service, trust in the product/service, and having the necessary documentation influence the consumer’s ability to adopt the service.

•       There is a need to expand product offerings from payments services to a broader range of products such as credit, savings, insurance and wealth management.

From the supply perspective, policies and regulations must as well support the needs of the digital economy service providers to take into account the fact that:

•       The innovators must be technologically capable of having both the technical knowledge and financial knowledge to understand how their business idea solves a social problem. The financial service provider also requires infrastructure and tools to perform their craft.

•       The entrepreneur requires access to capital or collateral to gain entry to the market or secure a banking license.

•       The regulatory framework must be conducive to innovation, balancing innovation opportunities and risks to consumers.

•       In order to ensure that products are designed to meet the needs of the low-income segment, knowledge of local conditions and practices is required. Such knowledge is especially important given the lack of available data describing the conditions and behaviours of those in the low-income segment.

China’s new policies and regulatory frameworks attempt to address the issues of inclusion, innovation, consumer and worker rights and in the quest for common prosperity. The paper suggests that the model that China presents is seen as a threat to capitalist domination, and China and other socialist countries have become the target of a new cold war.  The developing world and other emerging markets see through the smoke screen of the New Cold War. With the Belt and Road Initiative (BRI) China is showing the world that there is an alternative way to development. China’s People’s Democracy has allowed for some capitalist growth under socialism, but it has prevented the wholesale development of monopoly capitalism with an effective system of state regulations to ensure common prosperity.

Although the focus of the new development agenda and common prosperity is national in nature it is now apparent that the success of the country’s new growth path is inextricably linked to China’s role in the global economy and a multilateral approach to development and global governance “to build a more equitable and just architecture that meets the common aspirations of all countries.” (President Xi Jinping; Wall Street Journal, 22.09.2015).  The new transformation agenda for a China’s economic transformation and upgrading will focus domestically on expanding domestic consumption, new types of industrialization, IT application, urbanization and agricultural modernization while pursuing green growth and creating new opportunities for balanced development for common prosperity. For developing and emerging economies multilateralism in the form of cooperation and an expanded role for new forms of trade and investment is fast becoming an integral component of China’s new development model. Consequently, as China takes on a more leadership role in the world the multilateral element of its new approach is set to become the catalyst for promoting international investment and the interconnected economy that will promote common prosperity within the new policy captured in the Belt and Road Initiative (BRI)

References

Blecher, M., 2019, Chapter 25 New Democracy ANU (pp. 155-160)), Australia

Chorzempa M. (2021), China's campaign to regulate Big Tech is more than just retaliation August 3, 2021 (https://asia.nikkei.com/Opinion/China-s-campaign-to-regulate-Big-Tec...)

Singh, P. J. (2017), Digital Industrialization in Developing Countries (A Review of the Business and Policy Landscape), The Commonwealth Secretariat.

Sha Hua, 2021; The Wall Street Journal, 17 Sep 2021, China casts itself as ally to workers in battle with Big Tech (https://www.livemint.com/politics/news/china-casts-itself-as-ally-to-w... )

Xi Jinping (Interview); Wall Street Journal, 22.09.2015, New York

Wheeler, T. (2021) (4 September 2021, https://www.brookings.edu/blog/techtank/2021/09/14/chinas-new-regul...).