China’s technology regulation is part of a larger effort to become a “superpower”

GUANGZHOU, China – China’s recent moves to regulate the big tech giants are part of its broader effort to become a technological “superpower”, an expert told CNBC.

Like the US and the European Union, China is figuring out how to regulate the technology sector in many areas, from data protection to antitrust. China’s technology companies have grown, largely unregulated, to become one of the largest in the world.

And there are a number of regulations that have come into effect or are in progress.

In November, China’s central bank and regulators released a draft rule on so-called microcredits, which included provisions such as capital requirements for technology companies offering loans.

The State Administration of Market Regulation of China (SAMR) has also published a draft of rules with the aim of preventing monopolistic practices of internet platforms. It is one of the most comprehensive proposals in China to regulate large technology companies.

Last month, SAMR said it started an investigation into Alibaba because of monopoly practices.

And in October, China launched a personal data protection bill aimed at regulating how companies process user data.

All of these regulations are part of a larger effort by China to become a major global technological powerhouse, according to Kendra Schaefer, a partner at Trivium China, a Beijing-based research firm.

“Behind all of this, I think China understands that it is going to become a technological superpower … so it has to establish a solid regulatory base,” Schaefer told CNBC’s “Beyond the Valley” podcast.

“It has to establish that foundation in the way it regulates the company’s operations, but it also needs to establish that foundation in terms of data. In fact, data may be the most important regulations that it needs to establish.”

“All of these things are fundamental and are really just a kind of establishing a structure, a stepping stone from which China can develop and move faster.”

Beijing seems to have taken a tougher stance against the country’s technology companies recently. In November, regulators forced Ant Group, Alibaba’s financial affiliate, to suspend plans for what would have been the largest initial public offering (IPO) in the world, while the company dealt with regulatory changes. Last month, Alibaba and two other companies were fined for failing to make proper statements to authorities about previous acquisitions.

But that does not mean that Beijing is working against its technology champions, according to Emily de La Bruyere, co-founder of consultancy Horizon Advisory.

“These multinational technology companies are definitely the force enablers that China uses to extend its information and standards strategy globally. That is not going to change. We are not going to see Beijing turn its Big Tech the way Washington appears to be,” Bruyere told the CNBC by email.

“But Beijing will ensure that its Big Tech acts in accordance with its rules and regulations, connects to its platforms and serves its strategies.”

It is not just China that is bringing about radical changes in technology regulation. The European Union has been perhaps the most aggressive region in the world on this issue. Its framework of the General Data Protection Regulation, approved in 2016, sought to introduce rules on how user data was processed.

And in December, the EU introduced the Digital Markets Act and the Digital Services Act, which aims to bring tighter controls on the behavior of technology giants in various areas.

But the United States still needs to take a similar approach with comprehensive legislation around areas like data.

“We still don’t have good data regulation in the United States,” said Schaefer of Trivium China. “So we don’t have that basis, that kind of basic fundamental principles, on which we can regulate, not only our domestic companies, but also the foreign companies that arrive.”

“I think the fact that we don’t have this fundamental data policy is one of the reasons why we’re taking this bizarre and dispersed approach to trying to control incoming Chinese apps, like TikTok, targeting specific Chinese companies because we don’t have universal regulation. “

Schaefer was referring to the ongoing saga in Washington trying to get Chinese company ByteDance to sell TikTok’s American operations.