In today's Finshots we talk about why China is cracking the whip on homegrown tech companies

The Story

Didi Chuxing is the largest ride-hailing company in China. Some even call it the Uber of China — Maybe since they were partly responsible for driving Uber out of the country. They also happen to be an extremely profitable company and one of the few Chinese entities to have debuted on Wall Street after having raised some $4.4 billion from US investors. Didi had everything going for it.

Until the Chinese government pulled the plug.

A few days after the US IPO, Chinese regulators forced Didi off of all the app stores in the country. They also forced Didi to stop enrolling new customers. At least until the completion of a thorough cybersecurity review. Now the official line from the Communist party seems to suggest that Didi may have illegally collected and utilized Chinese users’ personal data. But considering they’ve also cracked the whip on a few other homegrown tech companies, you can clearly see that there is a pattern emerging.

They’re specifically targeting large tech companies that have gone to list on the US — like Alibaba for instance. And while on the face of it, this makes no sense, you have to pay close attention to what China is up to. Sure, the likes of Didi bring in foreign currency and carry the Chinese flag with pride. But China doesn’t need the money. Nor the validation. They need data. And they’ll go to extreme lengths to protect their digital assets.

Just look at what’s happening around you.

For the past few years, a data revolution of epic proportions has changed the way businesses think and function.

Netflix wants to build a recommendation strategy for its millions of users. Uber wants to foresee demand using rider patterns. Google wants to create the most powerful chess engine that has ever existed. And as a consequence, you’re constantly looking at developers building complicated models to glean insights from large data sets. Big companies training computers to solve problems using learning methods that mimic the human experience. And countries flush with cash, trying to expedite this process.

Didi and its ilk are part of this ecosystem. They’ve built products and services that collect and use vast amounts of user information. And while they’ve been very willing to share this data with state regulators in the past, China is still sceptical about its intentions. After all, private companies still dance to their own beat. And once you go public in the US, maybe outside pressure will get to you. Maybe you’ll succumb to US interests.

China cannot let this happen.

According to current projections, China is slated to hold almost a third of the world’s data by 2025.

A third!

As Bloomberg wrote — That’s like 10 trillion DVDs worth of data!

This gives them an enormous competitive advantage when it comes to advancing their interests — in domains like artificial intelligence, big tech, and pretty much everything that drives the modern economy.

Perhaps this Wall Street Journal article summarized it best —

For all his talk about giving markets a “decisive” role, Xi Jinping [the Chinese president] ultimately believes the state should lead. On the cusp of his elevation to Mao-like status, he aspires to use big data and artificial intelligence to correct the planning errors of the past and micromanage the Chinese economy while keeping tabs on its citizens.

And that’s the bottom line. Government intervention has never worked well in the past because the task simply proved too overwhelming. Bureaucrats failed to micromanage the economy because they didn’t have access to real-time information. They couldn’t stay on top because the free markets did it better. But with the data revolution, the old constraints may no longer apply. With digital currency, you can decide how people get to use their money. With surveillance, you can decide how people socialize with their communities. With better real-time information, you can decide how to lend to businesses and individuals. And the only common denominator here is 'data'. With data, you can do anything that you want and the real threat to these ambitions seem to stem from the ambitions of tech overlords like Didi.

The communist party doesn’t want to concede ground, even if it means showing homegrown companies who’s boss.

Anyway, that’s it from us today. We will see you tomorrow.

Until then…

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