China’s Communist Party is all in on the power of technology
  • Wed, 10/25/2017 - 16:59

In the southern Chinese metropolis of Shenzhen, young men and women dart in and out of gleaming silver high rises that house offices for countless local startups in the city’s Nanshan neighborhood. At lunch time, crowds gather at artisanal cafes with names like “Inno Valley” and “Tea + Maker.” Also sprinkled throughout this ultra-modern tech park: cheerful Communist Party propaganda.

Ads promoting the latest mobile phone brand appear next to signs urging pedestrians to join the Communist Youth League. Street-art style renditions of the hammer and sickle pepper the plaza walkway. Across the street from Tencent’s soon-to-open headquarters sits a new sculpture that arrived in the months ahead of the just-concluded 19th party congress. It’s a metal cube that features the slogan: “Follow our party, start your business.”

Ubiquitous brand messaging from the party that once warned against the “spontaneous forces of capitalism” might seem out of place at a technology park. But the artwork at Shenzhen Software Industry Base is the perfect symbol for the Communist Party’s growing interest in both expanding and controlling China’s tech and internet sectors.

At the 19th party congress, president Xi Jinping said in a speech that sets the tone for the years ahead that China would “develop a market-oriented system for technological innovation in which enterprises are the main players.” At the same time, for the party to be “politically strong,” he said it must “adeptly apply information technology, including the internet, in our work.”

Made in China 2025

Under Xi, the party has played a more active role in encouraging tech and internet entrepreneurship. The stakes are high. Growth has slowed in China, and it must restructure its economy away from its inefficient coal and steel sectors. The high tech and internet sectors mark a new opportunity to provide jobs for the next generation of Chinese citizens, and also grow new globally recognized multinational corporations.

“China has been trying to move up the value chain, avoid the middle-income trap, and get into cleaner industries,” said Graham Webster, who researches China’s internet policy at Yale University. “High tech development is really a core objective.”

Under the slogan “Made in China 2025,” the government has encouraged domestic companies to develop indigenous technology. Earlier this year, China announced plans to become a world leader in artificial intelligence by 2030, and triple its output of industrial robots to 100,000 by 2020. In recent years, officials with backgrounds in the aerospace industry have received promotions to key positions, and Xi Jinping appointed a close ally as the country’s new internet czar. New regulations, such as a cybersecurity law implemented in June, are also helping domestic tech firms in the arena of cloud computing over foreign rivals.

Local governments have responded in kind to the government’s top-down guidance. Numerous cities across China established venture funds, incubation spaces, and tech parks—just like Shenzhen Software Industry Base—to boost local internet startups. Beijing, for example, spent $36 million to turn what used to be an alleyway full of bookstores into Innoway, an office park that houses hundreds of startups.

Even before this policy push began, Chinese internet companies have been well on their way to becoming economic and cultural powerhouses. Jack Ma’s e-commerce giant Alibaba and social media behemoth Tencent are among the world’s most highly-valued listed companies, with market caps approaching $450 billion, not far off Amazon’s.

These companies have thrived in part due to the government staying out of the way, and in part due to policies that gave them a leg up, even if that wasn’t the intended aim. The Great Firewall, China’s wide-ranging restrictions on access to major foreign news and social media sites, has protected Chinese internet companies from international competition within their own borders.

But it’s not just jobs or economic growth the party is seeking. Increasingly, it’s using tech’s enormous potential for surveillance, and that presents both opportunities and risks for Chinese tech firms.

A lucrative and tricky tech terrain

China’s calls to develop a “social credit system” to rank citizens on their trustworthiness (paywall), have been paralleled by the development of credit-scoring systems from Alibaba and Tencent. While these efforts remain separate for now, it’s possible central and local governments will tap into data from those apps.

Meanwhile, private artificial intelligence companies have raisedhundreds of millions of dollars to develop technology for the public sector. Beijing-based Sensetime, for example, sells software to local governments to help identify jaywalkers. iFlytek, an artificial intelligence company based in Hefei, Anhui province, provides voice-recognition technology for one of China’s Amazon Echo clones, as well as to police bureaus in Xinjiang, where the government closely monitors the minority Uighur population.

Yet it’s costly for Chinese internet companies to censor information to the exacting degree the government wants. While automated software is part of the effort, hiring human censors is on the up, and millions work in such jobs, Reuters has reported. Then there’s the reputational harm that comes when news of censorship spreads widely. In July, when Nobel peace prize winner Liu Xiaobo died in custody, the Toronto-based Citizen Lab, which researches the internet and civil rights, put out a widely-publicized report detailing censorship on Tencent’s chat app WeChat and Sina Corp’s microblog Weibo. (Western tech giants are also facing increasing criticism over their role in the public sphere).

Quartz reached out with queries to search giant Baidu, Alibaba, and Tencent, but didn’t receive replies by the time of publication.

Other times, the party will publicly wag its fingers at tech firms. In July, party newspaper The People’s Daily published an editorial calling Honor of Kings, a phenomenally popular mobile game published by Tencent, “poison” for keeping youngsters glued to their phones. The column alone caused Tencent to lose about $14 billion in value on the Hong Kong stock exchange. Tencent responded by saying it would enforce time limits for players aged under 12 years old.

“China needs to innovate, but the party needs to keep itself at the center of that innovation, maintaining the necessary social and political controls,” said David Bandurski, who researches Chinese propaganda at the China Media Project. (The China Media Project is affiliated with the University of Hong Kong’s journalism school, which also partners with Quartz.)

Paranoia could backfire

Signs have emerged that the party aims to be more directly involved with corporate governance at China’s internet companies.

Over the past year, ahead of the congress, the government has shut down dozens of apps for livestreaming. In September, the Cyberspace Administration of China (CAC), one of Beijing’s main internet watchdog agencies, released a set of rules requiring group chat owners on chat apps to register using their real names—which prompted panic among some chatroom administrators. Also that month, the government fined some of China’s largest social media platforms for distributing information it said violated rules against pornography and violent content.

“It’s a priority of the Chinese government to maintain information control,” said Yale University cyberspace researcher Webster. “So periodically it probably makes sense for them to make a demonstration—when certain companies are straying or not fully implementing the requirements.”

Media reports suggest that Communist Part units at private companies—once a bureaucratic formality with a vague role—have increased their influence over day-to-day business. Executives at foreign multinational companies have complained anonymously to international newspapers that these committees have been involved in decision-making over investments and new facility locations.

And this month The Wall Street Journal reported the party’s efforts to exert influence might extend even deeper: internet regulators reportedly held talks with Tencent and Weibo over possibly taking small stakes in the companies (paywall).

Christopher Balding, a professor of economics at HSBC Peking University Business School, argues that the party’s apparent desire to have more direct involvement in its tech jewels might backfire. In his view, most of China’s large tech companies achieved success by largely “flying below the radar” and avoiding politics. If instead, businesses are forced to “follow the party” more closely, as the signs in the Shenzhen tech park instruct, they could ultimately fail to become the global corporate giants the government hopes them to be.

One way they could be stymied is by being unable to acquire technology they need, if they’re perceived as too close to the Chinese government. Earlier this year, an effort by a private-equity fund to acquire a US semiconductor firm was vetoed by president Donald Trump because the fund was backed by Chinese state-run firms. And if social media companies remain forced to censor content ever more aggressively, overseas users may be reluctant to embrace them when they try to expand.

“That paranoid need for control will be very problematic as they try to develop some of these industries which rely on creativity and innovation,” he said.

Categories: