China regulators rebuked over erratic tech policies

Beijing's multi-years efforts to rein in the tech sector have come in for a rare rebuke, with a leading communist party newspaper calling for "a more predictable and stable system" of regulation.

The editorial in the party school newspaper Study Times on Wednesday came in the wake of a wild selloff of gaming stocks ten days ago following the promulgation of new rules limiting time and money that could be spent in games online.

The government walked back the decision after three days, but not before Tencent, China's most valuable company, was marked down 12%, and rival Netease dropped 26%. Both stocks are still trading below their level on December 22 when the new rules were announced.

A senior official in the National Press and Publishing Administration was reportedly sacked early this week over the incident.

The front-page Study Times editorial complained about the "shortcomings of the pendulum between inadequate supervision and overly strict supervision" of China's platform economy.

It did not specify any agency or particular policy but warned that domestic platform firms faced "a complex and severe environment at home and abroad," with slowing growth and a widening gap with foreign rivals.

"Insufficient flexibility"

"The insufficient flexibility of regulatory mechanisms has become increasingly apparent," it said.

Since late 2020 the Chinese government has made a series of regulatory assaults on the once seemingly unstoppable tech sector, targeting ecommerce, ridesharing, social media, online education and gaming, among other areas.

Worsthit has been Alibaba, once Asia's biggest company, which was slapped with $2.8 billion fines and which is trading 75% below its peak two and a half years ago. 

A prominent op-ed calling out government decision-making is unusual in China's heavily policed information environment, where official media devote far more space to extolling Xi Jinping's thoughts than criticizing his policies. There are unlikely to be any follow-ups.

We can read it as likely reflecting wide unease among senior officials at the continued strikes against tech companies at a time when the economy has slowed and foreign investors are staying away.

It may perhaps result in a more measured approach to rule-making for the digital economy.

But we've been here before. Two years ago Beijing called a truce after a year of tech-bashing during COVID that helped drive thousands of job cuts and slashed profits.

The sledgehammer tactics stopped, but Beijing has not altered in its determination to keep the tech giants on a short leash. National security and data security will continue to have primacy over economic growth.