Issue 111

China's nationalising data

Delivered on 03 May 2021 by Justin Pyvis. About a 3 min read.

To be honest, I'm surprised it took this long:

China said thirty-three applications, including map navigation software provided by Baidu Inc. and Tencent Holdings Ltd., violated regulations, with most collecting personal information that weren’t relevant to their services.
In March, the administration published rules that banned mobile app operators from declining to offer basic services to customers who refuse to provide "unnecessary" personal information, and it vowed to "concretely protect" the rights of internet users. The rules went into effect on Saturday.

China has started to rein in its internet companies on concerns over their growing influence in every aspect of Chinese life, as well as the vast amounts of data they’ve amassed through providing services like online shopping, chatting and ride-hailing.
The government is also said to have proposed a state-backed venture with some of the country’s biggest e-commerce and payments platforms that would oversee the lucrative data they collect from hundreds of millions of consumers.

In China, the Communist Party always comes first. The rapid rise of Chinese Big Tech companies appears to have caught President Xi Jinping somewhat by surprise. The establishment – particularly the heavily state-controlled banking and finance sector – was being rocked and it was a completely spontaneous, market-driven disruption. Certainly not ideal for a 'centrally planned' economy, and not a good look for Xi Jinping when Jack Ma, the founder of Alibaba, was being paraded around the world as a capitalist symbol of success in deeply communist China.

Having cut down tall poppies such as Jack Ma (who has made one public appearance since Xi Jinping was personally involved in the government's cancellation of his planned public offering of Ant Group), the focus is now on regaining control of a new commodity: data.

Yes, China's government has a 'great firewall' that at least in theory prevents its citizens from being exposed to ideas from the outside world (in reality that's impossible). It also controls most of the domestic scuttlebutt by monitoring and censoring every conversation in essential social apps such as WeChat.

But where the Communist Party let its guard down was in finance. In the past it was easy: China's banks were all either state owned or private in name only, with the government exercising control over them directly or via the heavy hand of regulation. But with the emergence of Alipay in particular, over half of China's population decided it didn't need to use the traditional banking system as much, and:

"Once people's money moves from conventional bank accounts into their virtual wallets, much of it doesn't return."

Given that Alipay was privately owned and operated as a non-bank payment company, it was effectively unregulated. That meant it could out innovate and compete the state-owned banks, which "did much of their work with state-owned enterprises, ignoring small firms that could use more capital".

So here we are. Last week we saw that China's new digital currency was not a disruptor to be feared but a platform upon which the likes of Alipay will soon have to operate. Now there's a "state-backed venture" being considered, which will further tether China's biggest e-commerce and payments platforms to the Communist Party. Xi Jinping will once again be able to track every transaction and exert full control over to whom credit is allocated, with the stated aim of "concretely protecting" the rights of internet users nothing but a facade.

China's nationalisation of data and the creation of a digital currency are not a risk to dominant fiat currencies such as the US dollar, nor are they a risk to cryptos. If anything, the opposite is true and Xi Jinping should be careful not to suffocate one of the most vibrant sectors in China with his latest power grab.

Issue 111: China's nationalising data was compiled by Justin Pyvis and delivered on 03 May 2021.