China signals easing of tech crackdown but don’t expect policy U-turn

China has shown signs of easing its crackdown on the tech sector that has wiped billions of dollars of value from its most important companies.

But analysts said Beijing’s recent positive rhetoric should not be confused with a policy shift.

“I think big tech companies will have a grace period for maybe the next six months,” Linghao Bao, technology analyst at Trivium China, told CNBC’s “Squawk Box Europe” on Tuesday.

“However, this is really not a reversal of the tech crackdown, the long-term outlook has not changed yet. Because Beijing has already come to the conclusion that it is a bad idea to let big tech companies rage.” because it creates unfair competition in the marketplace…wealth will be concentrated at the top and will start to influence politics,” he said.

“So the tech crackdown is really here to stay for the long haul.”

Since late 2020, Beijing has introduced tougher regulations on its domestic tech sector in a bid to limit the power of some of its biggest companies.

Since late 2020, China has tightened oversight of the tech sector and introduced a series of new regulations that have tried to curb the power of its domestic giants. Analysts say that while there appear to be signs of an easing in the crackdown, there will not be a full policy reversal.

Kevin Frayer | Getty Images News | Getty Images

Rules in areas ranging from antitrust to data protection have come into force rapidly over the past 16 months. The moves caught international investors off guard and sparked a dramatic selloff of domestic titan shares from Tencent to Alibaba.

But Beijing has signaled that some of the scrutiny of the tech sector may ease as its economy faces pressure from a resurgence of Covid and subsequent lockdowns.

On Tuesday, Chinese officials met with some of the country’s top tech executives in further signs of appeasement.

Following the meeting, Chinese Vice Premier Liu He pledged to support the technology sector and plan the IPO of Internet companies.

It comes after Chinese President Xi Jinping chaired a meeting of the Politburo, a top-level decision-making body, in April. The Politburo has pledged to support the “healthy” development of the so-called platform economy, which includes internet companies in areas ranging from social media to e-commerce.

Even if there are reversals, it may be too late to reverse the damage.

Charles Mok

Charles Mok, Visiting Scholar at the Global Digital Policy Incubator at Stanford University

Despite these more soothing tones from Beijing, experts doubt there is a huge shift in policy.

“I don’t believe the regulatory actions will really stop. Various government departments still have mandates to enforce any regulations that have been changed and tightened,” said Charles Mok, visiting fellow at the University’s Global Digital Policy Incubator. from Stanford.

“Even if there are reversals, it may be too late to undo the damage. For example, even if they allow more overseas listings, investor confidence is already lost, and the review and Nor can the hostility of the foreign market be reversed.”

Mok said that because the regulatory review has been led from the top of China’s political hierarchy, it will be difficult to turn back.

“It seems very similar to the debacles they’re facing with zero-Covid. You know it’s wrong, but you can’t admit it, you can’t reverse course, and you can only pay the end lips and hope for the best,” says Mok.

Zero Covid is China’s policy to eliminate the coronavirus from the mainland through strict measures including city-wide lockdowns and mass testing. The economic and financial power of Shanghai has been in confinement since the end of March. China’s zero Covid policy has weighed on its economy.

Mok added that the motivations behind China’s regulatory tightening have not changed either.

“Much of the ‘tech crackdown’ campaign was genuinely rooted in the motivation to increase state control over the digital economy and all commerce data, and there’s no way that in the current crisis, the party thinks that these checks are now less important,” he said.

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