People often think that regulation stifles innovation. That’s probably why China’s decision to tighten its regulatory grip on its homegrown internet sector sent the shares of some of the country’s tech companies on a bumpy ride. But far from being a hindrance to innovation, could regulation unleash a fresh wave of innovation?
After all, China's moves so far have sought to root out monopolistic practices and encourage competition. China had adopted a relatively hands-off approach towards its own internet sector for years, allowing companies to grow from the small and nimble players they once were to today’s tech monopolies. And as most students of economics should know: it’s monopolies that stifle innovation.
With China’s leaders saying little about any underlying intention behind their move, there are plenty of theories going around. Perhaps it’s best to view China’s actions through the lens of its goals – one of which is to become a leading global technological superpower by 2050. For this vision to come to fruition, there must be fertile ground for innovation. And for China, this may mean having to thin the dense canopies of the trees, so that the plants beneath them can grow.
Here, we have rounded up the views of our Asia experts all around the globe on the matter.
Much is being said about China’s crackdown on its tech industry. And yet, behind all that noise, there’s nothing new about what China has done. Many governments around the globe are pushing for stronger legislation and more aggressive enforcement of antitrust law. China has merely been playing catch-up with the developed world after years of loose regulatory oversight.
There’s a growing consensus around much of the world that internet platforms have enjoyed a consequence-free environment for far too long. Many governments want to put in place stronger regulations for ‘Big Tech’, but there’s a significant variation in the nuance, speed and intent of regulatory response across regions.
For many investors, China’s crackdown on its internet sector represents a fundamental shift away from the government’s previous ‘hands-off approach’ towards its burgeoning tech industry. The first major sign of this shift occurred last November, when regulators pulled the plug on the IPO of Ant Group – a fintech offshoot of tech giant Alibaba.
Tighter regulatory scrutiny for China’s internet companies has formed a significant factor in their underperformance this year. The first shot across the bow was the last-minute postponement of the Ant Group IPO in November 2020 (Alibaba’s fintech arm), which was followed by broader anti-trust investigations into Alibaba’s e-commerce operations.
The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.
This document is marketing material and is not intended as a recommendation to invest in any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication. The information provided is for illustrative purposes only, it should not be relied upon as recommendations to buy or sell securities.
Where individuals or the business have expressed opinions, they are based on current market conditions, they may differ from those of other investment professionals, they are subject to change without notice and are not to be construed as investment advice.
