Odd Lots - Dan Wang Explains What China's Tech Crackdown Is Really All About

Episode Date: September 13, 2021

Over the last several months, Chinese authorities have undertaken a sweeping campaign of change. We've seen crackdowns on big tech and fintech companies (like Ant Financial and Didi), online education companies, and now even the playing of video games. Investors in key sectors have gotten clobbered by the new rules. So what is the goal and what is the endgame here? On this episode, we speak to Dan Wang, a China tech analyst at Gavekal Dragonomics, who breaks it all down.See omnystudio.com/listener for privacy information.

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Saturdays and Sundays starting at 7 a.m. Eastern. Make us part of your weekend routine on Bloomberg Television, radio, and wherever you get your podcasts. And welcome to another episode of the Odd Thoughts podcast. I'm Tracy Allaway. And I'm Joe Wisenthal. So Joe, it's been a pretty eventful summer here in Hong Kong. Yeah, I mean, that's my impression. I guess sort of like here too, but everywhere that Chinese money has touched this summer, whether it's China, it's, whether it's Hong Kong or whether it's U.S. markets, has been quite a wild ride, to say the least.

Yeah. So obviously, being in the Bloomberg newsroom, it's been kind of nonstop this summer. So we're talking about the crackdowns, of course, that the Chinese party has announced on various sectors of its economy. It started with targeting Ant Financial back in October. There was a lot of theorizing about why Ant, lots of people focusing on the data that Ant controls. But then this summer, it kind of just spun into a new level of intensity. And we saw China cracking down on for-profit education companies. We saw it coming after DD, the ride-hailing app, saying that they had to improve their labor laws. and also that Beijing, the city of Beijing, might actually take them over and kind of make them a state-owned enterprise or something like that.

It's basically been nonstop. And everyone is trying to figure out why now and what exactly is China trying to do. Yeah, that is sort of like the, I mean, you just sort of listed all of these things and each one of them on their own have been extraordinary. Like the D-D thing was crazy itself. Of course, that's like they're the like Uber type company. And wasn't that like, that was like within like three days of their US IPO, wasn't it? Like it was literally they IPO like out of Tuesday or something and then the following one day that was like, oh, we're cracking down. And then some of the companies like these private education companies, some of which are listed in the U.S., like their business models are like basically going to zero, right?

They're like, you're bad. You can't do what you do. I don't know if it's total zeros. But it has been extraordinary. But I still like don't feel like I understand like what is the end goal. here. Yeah. So I guess two things on that topic. So, you know, you mentioned the DD crackdown happens soon after the IPO. A lot of people are pointing out that this seems like China is sort of shooting itself in the foot. It's going after some of its most successful companies.

But on the other hand, you know, a lot of what China says it's doing is about improving quality of life. So it doesn't want people to spend loads of money on their education and have to be, you know, really competitive. It doesn't want, well, it wants to protect workers' rights for DD drivers and things like that. It wants to protect user data, you know, similar comments that we've heard in the West when it comes to Facebook and Google, right? So, but of course, people are very distrustful of those messages. There's lots and lots of theories going around about what exactly is going on. And today, I am very happy to say that we are going to be bringing back a long time Oddlotz guest. We're going to be speaking with Dan Wong. He's a technology analyst over at

Gavicle Dravichonomics. And of course, he's been on the show a couple times, one of the best commentators in my opinion when it comes to China's tech sector. So really the perfect person. Can't wait. Okay. Dan, welcome back. Well, it's not for nothing, Tracy, that Oddlots is my favorite podcast and Tracy Mike Joe, my favorite podcast hosts. Too kind, too kind, Dan. So I'm trying to think where to begin. Why don't we start, well, why don't we begin at the beginning, you know, the crackdown on Ant Financial in October. What was your initial thought about that one? Because I remember when it happened, people kind of thought this was an idiosyncratic event.

You know, there was something specific about Ant Financial, an offshoot of Alibaba, which is, of course, founded by, by Jack Ma. And so people thought this was all about that one company and maybe that one person, but, you know, almost a year later, it seems that there's a wider message here. I think the narrative has evolved since the early days of Ant Financial when about just before the U.S. election, the Ant Financial's IPO was halted by the Chinese authorities. And so if we draw the line from late October through to June, and now presently we're speaking in September, the first big shock was the Ant Financial IPO. And then the second big shock was the DDIIPO, as Joe mentioned, you know, facing a fairly severe regulatory crackdown in terms of having its

app pull from app stores about a couple of days after its IPO. And so I think when we thought about those two events in isolation, it was a really big shock, and we wondered what exactly was going on. But as this regulatory campaign escalated, as we saw more industries get taken on, I think paradoxically, I think I am at least a little bit more aware that there is more of a regulatory theme around governing these internet giants. And so if I wanted to, you know, put things into different buckets, I would put the first bucket, the first bucket would be made up of and financial and the D.D. IPOs in which the Chinese authorities were highly reactive in which they couldn't really control the timelines because these timelines were controlled by the companies in terms of the IPOs. And so they had to crack down pretty quickly and pretty hard. And then I would cite something like, you know, a second bucket made up of items. that are much better studied. And so in terms of something like the online education crackdown,

what we've read from the Chinese Ministry of Education is that the Ministry of Education surveyed around 19,000 education firms, around 700,000 children, and then over 150,000 parents, before they issued these pretty draconian regulations that more or less decapitated the online education. sector. We can also think of other antitrust issues here that have affected companies like Alibaba. We might also be able to think of some things like video games in which President Xi Jinping has been talking about video games for over the last four to five years. So I think

there is a little bit of, you know, maybe two or three different buckets here. The first bucket are the purely reactive stuff. There's a second bucket of antitrust issues prominently faced by Alibaba and Maytime Dianping. And then there's a longer-term issue with video games and online education in which the party state has decided, well, maybe we don't like these things very much. So already, this was really helpful. And, you know, obviously, coming at this, looking at this from an American perspective, it's always tempting to try to draw analogies. And when you look at sort of big tech in the U.S., you see a lot of politicians on both sides. the aisle with their complaints about Facebook and Amazon.

They're kind of, the complaints are different, some overlap, but there's, you know, complaints about the power that they have. And then you have a lot of regulatory actions that take place in the U.S. and Europe and these lawsuits that never seek to, that never really seem to amount to anything, like maybe there'll be a big fine or a bunch of states, attorneys general will, like, sue one of the companies. And then four years later, they have to make some change, whatever. But it doesn't really seem to do anything. Is the angst about the power of tech slash big tech in China comparable with the difference being that, well, they could do something about it, whereas politicians and regulators here can't get their act together?

Or is the angst something different? I think it is more a question of degrees. So first, I agree with you that the ferocity that the Chinese party state brought to bear on against these tech companies is, you know, nothing like. what the West would do. As best as I can tell, there are some irritating lawsuits that big tech is facing in the U.S. And then some minor fines, somewhat big fines that they are challenging in the European Union. But there hasn't been really, really substantial actions here, whereas the Chinese have acted much more severely. Now, I think I would cite, you know, in terms of the type of angs that the Chinese have,

I would want to put a framework of maybe four big slogans of the moment, as well as one theme of the moment. And here I'm really drawing on the work of my trigonomics colleagues. And I think the four big slogans that we've identified are first building the rule of law. This is something President Xi Jinping has talked about over the last three, four years, requires a pretty comprehensive regulatory framework for dealing with different companies. Second, I would cite dual circulation, which includes a theme to improve the functioning of domestic markets. Third, I would say there's something of family values here in which the country just really want families to have many more children. And then the big theme that we have been thinking about,

the fourth slogan that we've been thinking about right now is something called Common Prosperity, which has really exploded in the pages of state media, which is, in our view, something reduce inequality as well as social division. And so, you know, if you think about these broad interlocking programs, trying to make it easier for families to have children, trying to make the marketplace better regulated, arguably more fair, to reduce these antitrust issues,

to have common prosperity, which is a means to, you know, stop the wealthy from getting more wealthy and then to improve, I think what they call it is an olive-shaped distribution, an economic distribution that's shaped like an olive. You know, I think the tech companies are all implicated by each of these slogans. But it doesn't mean that tech companies will be the only companies that will be implicated by each of these slogans. I think right now the focus is on tech because tech companies are implicated by all four of these slogans. Now, one more big theme is the idea that I think Beijing has decided that, well, we are going to prioritize certain technologies over others. Now, I previously worked in California, and I haven't always bought into the idea that consumer internet companies,

like Facebook or SNAP really represent the peak of our technological civilization, that they are the shortest science that we live in some sort of technologically accelerating civilization. Sort of lamented that among my smartest peers who've graduated from very good schools are much more key work in hedge funds or asset allocation or the consumer internet companies instead of much harder technologies. And I think this is something that has upset Beijing as well. One very key line from a major speech that President Xi gave last year was that, well, we can tell that digitization is really important, as we've seen over COVID, but what we must never do is to lose our manufacturing sectors because the real economy is absolutely paramount. And as I've said multiple

times on odd lots before, the Chinese government really wants semiconductors, semiconductors, white-body aircraft, life sciences. These are much more the technologies that Beijing is targeting. And I think Beijing has sent this a signal, and in this case, initiated a very severe crackdown to say, online education, well, we're not sure that's as important as technology as, for something, for example, something like chemicals, video games. Children really shouldn't be playing too many of those. They should be working in clean rooms for semiconductors instead. I'm exaggerating a little bit there.

But I think that is a little bit more of the theme that China wants to do. Regulate the market better and then to prioritize the right sorts of technologies. Yeah. And I remember a couple days after one of the crackdown announcements, or maybe it was on the day, we did see Chinese listed semiconductor stocks just absolutely spiking. So there was almost a rotation out of consumer tech and into. semiconductors. And I have more questions about what exactly China is trying to do when it comes to its tech industry and overall economy. But before we get there, you know, you mentioned some of

the key phrases from party speeches, common prosperity, disorderly expansion of capital has been another one that's come up a lot. And I know you're on the record saying that you read a lot of the party speeches, probably all of them. And you also go. through like all the party, the official party reading materials like, you know, the magazines they produce and things like that. And a lot of investors don't tend to do that. So I guess my question is, like, should we be paying attention to party speak? Were there hints of this in party speeches or things that she had said previously? And do you think that the crackdowns are sort of changing the behavior of investors in the sense that they're going to be paying more attention going

forward. Tracy, doesn't everyone read the party's main theory magazine, Chilchasha, Translation, seeking truth, as many of us do. Seeking Truth is a magazine that comes out twice a month. Last year, I read every issue, and right now I'm still continuing the exercise. It's a beautifully laid out magazine. It features these thick pages, well-printed pictures, and a lot of the best writers in the party state. And every time I flip through it, you know, it's always led by a major speech or major essay by the general secretary of the Communist Party, Xi Jinping, in a font that's the distinct rest of the magazines.

And so if you haven't had the pleasure of holding one of these things, you know, I recommend it just for the tactile experience. alone. So, you know, I did read, you know, every one of Xi's speeches in Kyosha last year, which isn't as arduous in exercise as you might think, you know, one speech every two weeks, which usually isn't terribly long. He mixes a great deal of party speak along with some pretty straightforward and frank phrases that are easily comprehensible. And so, you know, that is a signature style. It's not actually that much work, I think, to include. engage with one speech every two weeks. And I think this is something that more of us should be doing. And really, for me, the exercise that, you know, for me, the meaning of the exercise is that it's

really important to see what the party state engages as priorities at the moment. So for example, you know, if they have five issues dedicated on party history, well, you know, maybe they're not thinking about, for example, some other big projects related to the environment, for example. And so getting a sense of what the major priorities are, you know, I think that is a decent way of getting there. It would be very reluctant to say that, you know, reading all of the party documents, reading Tiocia, reading the People's Daily, is an effective way to do investing. I think, you know, there are millions of these articles a day, can't possibly read them all. And there's also a lot of noise mixed in with these signals. Now, you know, when it comes to online education, I think what we

found noteworthy was that President Xi Jinping has been mentioning this a couple of years ago. In fact, it's published in his big compendium, the governance of China, volume three. And so, you know, this has been signaled for a while. And the signals really started to escalate over the last couple of months. And so I think that is a place where we could have had a bit of a fairer warning. The state media gave us fair warning if we only chose to engage it. But that's not to say that, you know, we have to be pouring over every people's daily article. But I think, you know, it is worth keeping in mind what's going on, what the party is saying, what the party is saying to itself, its cadres, and, you know, the broader world.

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On the East Coast, listen as you start your day. And on the West Coast, catch up in the evening. That's the Bloomberg Law podcast with me, June Grosso. Subscribe today wherever you get your podcast. I think there's something interesting you said. You mentioned that they took the survey. I think you said like 17,000 education companies. and that hundreds of thousands of students.

You know, the U.S. is characterized as a democracy where there is a sort of direct feedback mechanism between the voters and the government in theory. And obviously China is not characterized as such. But these actions that they take, such as going after the education companies, or such as going after a video game playing, various things like that to improve, like, family values,

as you put it, is there like this basic, like sort of like feedback mechanism where even though there aren't elections per se, as we understand them in the U.S., you still have this sort of like either direct or indirect response from the impulses that parents and families expressed towards what get turned into government law? There are two main sorts of feedback mechanisms that the party state really engages. So first, it maintains these open channels of petitioning where you can see, you know, people, usually elderly people lining up to, you know, voice their grievances and then tell, you know, the government what they're, they're mad about.

I mean, usually these things are higher prices of eggs or higher prices of gas or something, but, you know, that is, you know, one of these things that are out there. And then the other is that the party maintains these active, you know, groups of people that are actively soliciting people's opinions. And so this is, the survey was something that the Ministry of Education announced, you know, surveying 700,000 different parents. You know, I think it is something that's logistically possible by the Chinese bureaucracy to do. I'm also aware that, you know, for example, I currently live in Shanghai. And I know that the Shanghai government regularly hosts these, you know, grievance sessions just to tell them what's going on and, you know, what the problems are.

Now, whether this can be an effective replacement for democracy, I think absolutely not. You know, there's no mechanism for poor leaders to be removed by the people. This is all done, certainly all done by a party basis. But I think, you know, I would suggest that there is a lot of very active surveys of public opinion done by the party state, as well as, you know, active solicitation of views by different people. This actually leads to the other big question about all of this, which is why now? So, you know, there are these different explanations for why China is embarking on these various crackdowns, you know, perhaps quality of life explanations, perhaps solidifying control.

But at first glance, it doesn't seem to make much sense to be doing this in the middle of a global pandemic, when the economy is relatively fragile. China just sort of emerged from the trade war with the U.S., although plenty of people would say that under President Biden, relations have actually gotten worse between the U.S. and China. So what's your take on why now? Because they could have gone after these respective industries, presumably at any time in history.

That's a great question, and that's something I scratched my head. a bit as well. And so I think the first thing to note is that I think what the government realized last year over COVID was that, my goodness, a lot of people are using online services, for example, for food delivery or for our online education. And for the most part, the Chinese internet space has been, I would say, pretty minimally regulated until basically the last two, three years. I think over the last five years, you know, when I visited a bunch of tech companies when I was living in Beijing, you know, they would often say that they are fewer regulations relative to the

U.S. and relative to every other industry in China. And so I think, you know, I think the most important impetus is that the government realized how much more online everyone became last year in China. Probably something like this happened in the U.S. as well. And so they can't let this be an ungoverned space for much longer. The other, you know, why now issue is that I think much more broadly, my view is that China will not open its borders for at least 12 more months, potentially for many years. And I think that's because COVID is still ravaging quite a few parts of the world. And 99% of Chinese don't want to leave China right now. And so, there's sort of not that many costs to China for maintaining its border strut.

It more or less feels it can manage a lot of these problems. You know, it's certainly not ideal, but it can manage them. And it's better than letting COVID run free in Beijing, Shanghai, and everywhere else. And so, you know, if you remove this idea that this constraint that, you know, things can only be regulated after things are really good, I'm not sure that they believe that there is going to be a much better time than this. So again, you know, I'm lazily reaching for the U.S. analogies here, but, you know, you mentioned the sort of the antitrust aspect of all this and going after like the really

big companies. And I think like one of the sources of anxiety in the U.S. is just simply that like there are the big internet tech companies in the U.S., the consumer tech companies represent a major source of power and a company like Facebook. I mean, it's kind of like a government. They have like a Supreme Court and internal checks and balances of what can get published. I don't know how well it works, but it exists. And there's a perception that say like Mark Zuckerberg is as powerful as any other politician in the U.S. And I'm curious if in that bucket of regulation, that too is a source of the impulse in China, which is just that whether it's Alibaba or financial or some of these

other big ones, that this sort of pure political power or pure power that gets accumulated by some of these companies becomes big enough to rival the state or the party? I think that's definitely underlying motivations for this crackdown as well. What I wonder about is that I don't feel that there is a broad sense among the Chinese people that the CEOs of the major tech companies are as powerful as the politicians. But it's certainly worth acknowledging that the Communist Party cannot suffer any perception that major business leaders are able to challenge its authority. And I think it was certainly offended that Jack Ma was so impudent as to insult the

regulators in a major financial forum. The positioning here is, I think this is one of these, underlying motivations. Perhaps these tech companies are, you know, sort of the ponds of internal political struggles based on whose family owns which firm. These are some things that we understand not at all about. And I think from my perspective, from having lived in China for the last few years, is that this has been one of the main narratives from, you know, foreign media about why there's been a tech crackdown. I see a pretty considerable discrepancy here. I think for those of us who live in China are able to see the excesses of these companies on a daily basis, companies like

Me Tuan or the online education companies or Alibaba. Meanwhile, these companies are celebrated elsewhere as having their crime as only being too beloved. And so I think, you know, that's one of these underlying factors, but from a lot of people's perspectives, these companies have sort of been getting out of hand, and they should be regulated quite a lot more extensively, which the party state is doing. And to offer an example, I think a lot of the people, a lot of the parents I've spoken to a lot of the people around me would say that parents around them have been pretty happy about this online education crackdown. These online education firms have become become really good at playing parents off of each other, to engage in a zero-status game to

pay more for their children while making their children more miserable. I think a lot of what I see the government's efforts is to do a coordination game, to stop parents from competing with each other, and then to coordinate parents against their own children to make sure that they don't play too many video games because now they can say this is against the law. And so these are, I think, some of the other backdrops that are going on. So when the crackdown on education or education tech came out during the summer, I remember there was a bunch of commentary from people saying, like, this is so unexpected and so extreme, you know, China basically coming out and saying that for-profit education

firms are no longer, will no longer be able to generate profits, that it meant all of the China market was uninvestable. So I'm curious to get your take about what all these crackdowns actually mean for investment in various China sectors. And also, you know, you mentioned semiconductors earlier. And we know that China is very focused strategically on building up its semiconductor industry. And you've come on the show and talked about that quite a lot. But I can't imagine that it needs to squeeze capital out of consumer tech in order to get it into semiconductors. There must be plenty of money sort of going into that already. So I guess the question is, what does this mean for investment overall? And is this the best way to get more investment

into strategically important sectors? Probably not is my gut answer. But it's the way that that the party state has decided to do things. I guess the best way I can, you know, think about that action is, you know, if you sort of just signal to investors, online education, you know, you should not be deploying any more capital there. But maybe more importantly, signaling to the country's best and brightest in terms of the fresh grads. Now, I mentioned that, you know, at least when I was graduating from college some years ago, a lot of people, people still wanted very much to work in finance as well as consumer internet. And I think, you know, on the margin, if the party leaders, if the government is thinking,

well, for the marginal student who can move from Beta and Qinghua universities, China's best university, and stop them from going into consumer internet because they know that we in Beijing don't like it anymore, need to go work on much harder technologies, like life sciences and semiconductors in aviation, maybe I think that is another one of their motivations. Michael Lewis in Liar's Poker said that, you know, he thought he would get the marine biology student from Ohio State to pursue marine biology instead.

But instead, after he wrote Liars Poker, a bunch of marine biology students at Ohio State wrote to him and said, how do I get up to Wall Street? Well, you know, I think this is a little bit of what the government is trying to backed against. Now, with respect to what's going on with investors, I think certain types of VC funds could be facing pretty considerable challenges to their, how they deploy capital going forward. But actually, that's been one of the questions I've been investigating. And in general, when I speak to these earlier stage funds, VCs and PEs, they would say, well, you know, the crackdown has been

severe. But so far, it has been limited to these segments. And the Chinese consumer market is still very big. You know, there are things like health care. There are things like fashion. There are things like manufacturing of different goods that don't necessarily have to fall afoul of party directives. And more importantly, for folks involved in the industrial sector or the high technology sector, they're very pleased indeed. So I think these signals are doing something to show, well, you know, stop deploying capital in technologies we don't like, go do it in semiconductors instead. A lot of short daily news podcasts focus on just one story. But right now, you probably need more.

On Up First from NPR, we bring you three of the world's top headlines every day in under 15 minutes because no one's story can capture all that's happening in this big, crazy world of ours on any given morning. Listen now to the Up First podcast from NPR. Do you think there's going to be a sort of broader macro impact? Okay, so, you know, you mentioned the sort of sectoral potential rotation. Maybe some VC money reallocates towards the harder tech out there. Is there any sort of macro implication with trade flows? I mean, it's interesting that the DDIPO or the DD crackdown was right after a,

I believe that was a U.S. listed IPO. so there's going to be some change in terms of like where the money potentially comes from. Are you thinking about how this could affect China from that perspective? Yes. For now, I think it's a little bit too early to tell. But we've had someone like SoftBank publicly wondering whether they should still continue to put capital into China. And I think this is, you know, on the margin, one of these other things that are making people much more hesitant to deploy capital into China going forward. We have pretty regular opads from George Soros now in the pages of the journal or the Financial Times to talk about why investors should be legally barred from investing. There is this ongoing holding foreign companies accountable act in the United States, which might delist all Chinese companies who don't comply with PCAOB audits.

So I think this is one of these additional factors that are weighing on investor-sense. in China. So this is something else that I wanted to ask you, but one of the things that keeps getting brought up when talking about the crackdowns and China's macro economy is this idea of the German model. And maybe China is trying to pursue something like the German way, in the sense that there is particular German regulation that sort of tries to boost its manufacturing export sector and maybe limit some of its financial sector, although you can argue they've done that with varying degrees of success. But anyway, when it comes to the economic model that China is targeting now, like how do you see it? I think the German model is a pretty good

yardstick. I came across a new term to me recently, Rhineland capitalism, which is sort of this middle way that the Germans were promoting in the past. And I definitely see that China wants to do more with Germans. You know, I think at this point, Germany is one of the very few Western countries today that have any semblance of, you know, positive, warm feelings towards China, mostly because there's a very big autos and industrial sector making quite a bit of money here. Now, you know, being based in Shanghai, I spent quite a bit of time talking with Germany. Germans. The German industry here really is massive and they've taught the Chinese to do a lot of different things. And the Chinese, I think, have repaid some of the favor in terms of, you know,

outright talking about how they want to be more like Germans in terms of having more of an industrialized economy, in terms of having more Meitelstein companies, which are smaller, medium-sized companies that are really great at certain industrial niches. And then in terms of trying to build these vocational schools to make sure that kids can still work for great technology companies like Foxcon instead of terrible technology companies like Tencent. And so I think there is a little bit more of that sense going on. And especially with common prosperity, maybe we have a bit more of a more even income distribution like they do in Europe. So what are you watching for next? I mean, you know, that's sort of the question every, it seems like every week or every day,

there's something new, some new regulatory crackdown. I mean, that was sort of what's been striking about the last few months, just how it just seemed to keep snowballing. What are the signposts or areas that you're curious that we might see further action? I suspect that we won't have any more sectoral decapitations. Maybe there will still be some more things on the margin with video games. It's possible that they will crack down further. on things like real estate or with health care, but this is getting, I think, a little bit more

speculative. I think at this point, the framework for a lot of regulations is now fairly complete. They passed the data security law in June and the personal information protection law in August. A lot of this framework is mostly complete, and I think crucially for investors, now that we know what to, that there is this, you know, common prosperity dual circulation, family values and rule of law initiative going on. You know, I think we are, we do have our expectations set a little bit further. Now, for me, the biggest uncertainty is what's going to go next with the cyberspace administration. This is the CAC. And to me, this is, this is to me the most remarkable story of the last while in which, the CAC, which is a relatively new regulator, and I note crucially a party organization that has

arrogated to itself a great deal of regulatory powers. Now, the cyberspace administration, CAC is governed by the state council, but it is a party organization that is a dual party and state organization. And the director of the CAC is a vice director at the propaganda department, which is one of the most important party institutions there are. And so I think investors now are, you know, dealing with this very novel regulatory instrument that is now regulating IPOs, that is now regulating financial media,

that is now regulating algorithms. And I have no idea what is going to regulate X. I think this is one of these big uncertainties. You know, I think foreigners, foreign businesses, foreign investors are a bit more used to the sort of warm, state institutions like the National Development Reform Commission, the People's Bank of China, or the Securities Regulatory Commission, CSRC. But to be directly regulated by a party institution, this is to me very new and novel, and I don't know how to think about it.

So this is another thing I wanted to ask you about, which is, you know, as the tech crackdowns were unfurling, we did see a lot of people talking about what this means. for the future of the industry. So China is going after these big companies that are extremely well known, considered to be massive success stories, and then suddenly they're sort of, you know, being villainized by the state. What does that actually mean for tech in the sense of entrepreneurial spirit and whether or not people are going to want to go into that sector in the future? That's such an important point, Tracy. And I think what, you know, the worst outcome of this ongoing tech crackdown is that it completely

destroys the innovative and entrepreneurial spirit in China. Right now, I think it is too soon to say on what exactly will happen. You know, I would note that, you know, so far when I talk to, you know, friends who are entrepreneurs, you know, certainly not big success like on the scale of Jack Ma. What some would tell me is that they would love to have the problems of Jack Ma. That means that they've made it really, really big. And for now, China's crackdown has, whenever it comes to a personal level, it's really targeted the most elite dozen or two dozen figures that a lot of people can identify on a billboard.

And that hasn't really destroyed, I think, a lot of the will by people to still be a billionaire, although that they may not be able to have any confidence in the near term of what to do going forward. And again, I think I would situate a lot of these things as a sort of a spiritual, you know, almost a civilizational values question in which I think the Chinese government is accepting that not all. types of entrepreneurial hustle is good. I think now that China is sort of living through its own gilded age, many people have said this. And in the gilded age, there were a lot of hucksters and fraudsters out there. And I think that is a little bit of what Beijing wants to control. And so if it has to suffer some erosion of general entrepreneurialism, well, I think it is saying that you can't make profits by, say, creating financial risks as end financial and P-to-P loans

we're doing in its view, monetizing status, anxiety, and miscerating students through online education, or by destroying the eyesight and the free time of children through video games, I think that is a lot more of what Beijing is trying to do to lay down guardrails or these no-go zones, you know, go play everywhere else, but these things are off limits. Well, Dan, you've given us another excellent overview of all the things that are going on in China, and of course it is quite a lot at the moment. So thank you so much. Thanks, Dan. That was great. Always a joy. Thank you. So, Joe, it's always really great to have Dan on the show, and there's so much to take away

from that conversation. One of the things that sort of stuck out to me is this idea. And I don't think a lot of people outside of Asia necessarily understand this point. But like the degree to which big consumer tech is actually embedded in China is just on a different scale to where it is in the U.S. and the U.K. I know everyone uses Facebook, everyone uses Google and Amazon and things like that. But, you know, in China, like, we chat and financial. Like, these apps are basically like one-stop shops for living to the extent that like the government has to work with them quite extensively. And so from that perspective, you can kind of see why the CCP would view this as a problem. It's almost like de facto privatization of government functions.

Yeah, I thought that was a pretty interesting question. And I hadn't thought about that at all when you said, like, well, this is sort of a weird type of crackdown in the middle of still in an ongoing pandemic. And Dan's point, it's like this was kind of a wake up call, perhaps to the government of just how online the population is. I mean, obviously the size of these companies has been sort of known for a while, but perhaps it was driven. in home are greatly appreciated the degree to which. And, you know, it's kind of the same here, you know, the degree to which some of these mega tech companies become the best arms for services. I mean, I think, you know, it's like, think back to last April or March, there were a lot

of things you couldn't get, but you could like, you could always order something from Amazon throughout the entire pandemic. And so the degree to which large tech companies become like this sort of like lifeline is a pretty sort of fascinating thing. Totally. Well, the other thing that just struck me is, I, I found it very useful his like bucketing of these like different things. So there's like the antitrust aspect.

But also just this idea of like family values. And you know, it was interesting to hear him describe some of the feedback mechanisms that they get. And I remember it was like a few years ago. It was like one of those like five year plans or something. It was like, wasn't it like better growth, not faster growth? Something like that. Wasn't that some cliche that was going around? Yeah.

And I feel like some of the things you talk about like, making it easier to have families or making it easier for parents to tell their kids to not play video games on Monday through Thursday because it's against the law or it's going to damage their eyesight or whatever. It feels like perhaps in keeping with some of these other like sort of like promises and priorities that the government has laid out. Right. So those promises and priorities, you know, if they were being taken on in the West, like, you know, if you saw the United States government really tackling the antitrust issues with big tech, or if you saw the government actually cracking down on the high cost and competitive nature of education, you could see, like, they might

actually get some support. But the difference between China and the U.S. system seems to be about how these things are actually getting rolled out. So, you know, in China, you could wake up on a summer day and suddenly the government is declaring that education firms are no longer going to be able to generate profits. Whereas in the states, if you actually got something like that, and of course, you know, you would never get something as extreme. But if you had a measure that was sort of targeting education costs, it would be going through layers and layers and layers of government bureaucracy. And so you would have it sort of well flagged in advance. And I think that's probably one of the key differences here.

It's not necessarily what they're cracking down on, but it's the extremity and the way they're doing it. Yeah, the speed and ease and the sort of unilateral decision making because, right, you could never do it as fast. And I really do wonder whether there are people in the U.S. on either the right or the left. And I think there are who look at what China is done, especially with some of the big tech companies.

It's sort of like admiringly thinking like, you know, we've been wanting to do this forever. There's no mechanism because we could never agree on passing a law. And there would be like a million layers of courts and regulation and sort of like wishing they could emulate the ease with which China can do some of these things. Yeah, I'm sure there are some parents out there who think that limiting the amount of time people or kids can actually play video games is a good thing. All right. Should we leave it there?

Let's leave it there. Okay. This has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway. And I'm Joe Wisenthall. You can follow me on Twitter at the stalwart. Follow our guest on Twitter, Dan Wong. He's at Dan W. Wong. Follow our producer, Laura Carlson. She's at Laura M. Carlson. Follow the Bloomberg head of podcast, Francesca Levy, at Francesca Today.

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