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COVID19 and a need for a paradigm shift in the field of academia

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Almost four months of 2020 have just been passed till now but all these months went like a  ride on a roller-coaster. From Bush fire in Australia to global pandemic, consecutively, the world is undergoing unprecedented events. On January 2nd, bushfire in New South Wales, Australia came to limelight due to its exceptional effects on the environment and livelihood in Australia. Due to this bushfire, at least 33 people died including 4 firefighters, more than 11 million hectares (110,000 sq. km or 27.2 million acres) of the bush, forest and parks across Australia has burned, more than 2,000 homes destroyed, and almost 1 billion animals died including rare species (Source: BBC and NYT). The second most prominent event was the upsurge of Iran-USA contention that had brought a perilous turn in the global politics and made people predict about the onset of third world war.  The conflict escalated after the killing of Iranian major General Qaseem Soleimani in a drone strike by the US on January 2nd. As a retaliation act, Iran launched ballistic missiles at two military bases in Iraq. Additionally, a Ukraine International Airlines flight 752 crashed in Tehran, killing all 176 people aboard as collateral damage due to the human error instigated by this panicking situation.

Primarily, the most dramatic and preeminent chapter of 2020 is the outbreak of global pandemic the spread of novel Coronavirus (nCoV-19) commonly known as  Corona Virus or COVID-19.  A respiratory disease whose common symptoms are cold with fever, cough and difficulty in breathing. Believed to be originated from the Chinese city of Wuhan at the end of 2019 but soon it became a nightmare for the whole world. On January 30, 2020, the World Health Organization (WHO) declared the outbreak a Public Health Emergency of International Concern. On February 11, the new coronavirus disease was given a name COVID-19 and on March 11, WHO declared the novel coronavirus outbreak a global pandemic. Until now(Data on April 24, 2020, source: WHO official website), there are 2,631,839 confirmed cases of COVID-19 and 182,100 deaths, reported to WHO. Owing to the contagious character of the virus the world came under lockdown, businesses closed, events cancelled, tourism terminated, flights suspended making life paralyzed all over the globe. It has affected the whole world without any discrimination of race, colour, religion or nationality leaving all states in the same boat of helplessness and frustration Even the strongest nations having nuclear capabilities and veto powers seem feeble. De-facto, statistics illustrate that most developed nations are the most affected ones. At the moment,  the US, the superpower of the world has the most coronavirus cases. Until now US has more than 830,053 confirmed Covid19 cases and more than 42,000 deaths have been reported (resource: WHO).

Whilst the spread of Coronavirus, multiple controversies have also begun to circulate among masses especially on social media stating this virus manmade, bioterrorism, and a bioweapon. A fresh wave of blame-game among the global powers commenced by accusing each other for generating this virus. Russia and China believe that this is a bioweapon created by the US to halt the Chinese economy as there is already a trade war going on between China and the US. On the contrary, the US and Israel believe that it’s been created by China in a suspected lab of Wuhan. Further, some of the media reports had linked it with the battle between superpowers and 5G internet. As a response to these controversies, scientists condemned rumours and warned people to stay away from misinformation and accusations.

Moreover, there is a debate in all circles about the post-Covid19 world. Several scholars are predicting a new world order and economic recession such as  the former U.S. Secretary of State Henry Kissinger wrote in his article in Washington Post that “The Coronavirus Pandemic Will Forever Alter the World Order”. However, some experts are foreseeing progress in the field of Artificial intelligence and information technology.     

Putting all the controversies aside as there is yet not sufficient evidence available to prove about the origin of the virus that either it is natural or manmade, plus it’s too early to forecast post-Covid19 scenarios but it’s somewhat clear that it is going to fetch drastic changes in the years to come in terms of social, political, health and even governance system. Furthermore, it emanates questions for the field of academia that what has to be done in future research and is it time for researchers for a paradigm shift in their area of research? Academia is certainly an integral part of the society that can help in reshaping future. The recent episode of Covid19 has revealed the significance of research on non-traditional security(NTS) issues. It has unlocked new horizons for scholars in the field of academia to explore underlying non-traditional security threats and their consequences. Nontraditional security threats can be defined as “ the challenges to the survival and well-being of peoples and states that arise primarily out of non-military sources, such as climate change, resources scarcity, infectious diseases, natural disasters, irregular migration, food shortages, people smuggling, drug trafficking and transnational crime. These dangers are often transnational in scope, defying unilateral remedies and requiring comprehensive – political, economic, social – responses, as well as humanitarian use of military force”.(Source: Caballero-Anthony, M. (ed.). 2016. An Introduction to Non-Traditional Security Studies–A Transnational Approach. Sage Publications, London.). Given the present scenario, It is a high time for researchers to invest their time and energies more towards the non-traditional Security threats as from the existing pandemic, it became evident that non-traditional security threats are real and can be more precarious than traditional security threats. Scholars can play their inevitable role by conducting in-depth research specifically designed for NTS concerns, should determine the possible future threats and devise a plan of action to deal with any such situation in the future so that precious lives can be saved and repercussions could be lessened. It is a prerequisite to find gaps in the existing literature about NTS and fill it by experimenting it under diverse theoretical frameworks and methodologies to discover apt solutions. Exploring NTS doesn’t mean that traditional security threats would be overlooked entirely rather, the purpose is to recognize the justified acceptance of NTS in the international arena to avoid any potential prospect hazards.

Nontraditional threats entail nontraditional methods and solutions to deal with it. Global leaders need to understand that it’s not the right time to play blame-games rather, differences aside, a global joint concerted effort is necessitated to handle such a strenuous challenge. Billions of dollars have been spent every year on military and weapons to safeguard states nevertheless,  the recent pandemic has exposed that all these billion dollars are in vain against such trial. It’s high time to make concessions in the military budget and invest more on public health and research facilities specifically concerning NTS.

The recent pandemic has shunned the world and has brought extraordinary changes notwithstanding, global powers having nuclear weapons and satellites in the space couldn’t be able to save themselves from this global pandemic. Governments need to learn from each other about how to manage and deal with such circumstances to curtail the aftermaths of such pandemics. They also need to devise a collective plan of action with the help of researchers, to deal with any such situation in the future. It has been witnessed that surprisingly nondemocratic governments like China and Russia performed better than democratic ones in tackling the situation.  It needs to be discovered that what were the key factors or procedures that made them more efficient. The global public health policy is indispensable to be formulated to improve the health care system of every country. Regulations concerning public health, bioweapons and governance in times of pandemics and other calamities should inevitably be framed with the help of academics and ought to be implemented through international and regional organizations. Covid19 is truly global and know no borders hence, to fight against it, we need to be united as well. In this war against coronavirus, we are all together and can win only with unity and cooperation. As UN Secretary-General Antonio Guterres said “What the world needs now is solidarity. With solidarity, we can defeat the virus and build a better world”.

Aamna Khan is currently a final year PhD student majoring in International Relations at SIPA, Jilin University, China. She is an independent researcher and writer for various national and international media outlets. Her research interests include Counter terrorism, Peace and Conflict Studies.

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Potential of Nanotechnology

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Emerging technologies such as AI, robotics and cyber have been in the limelight in defence and military domains since the 1950s; however, nanotechnology has not had a fair share of publicity. The global nanotechnology industry has a rapidly expanding market with an estimated worth of USD 2.4 billion in 2021 and is forecasted to reach USD 33.7 billion by 2030. This is due to the growing use of nanotechnology in various sectors such as urban farming, precision agriculture, medical, engineering, energy, security, defence, environment etc. While nanotechnology has proven tremendously beneficial for the civilian sector, it has valuable offerings for the military industry as well.

Nanotechnology is being used to develop nanoweapons which are miniaturised versions of weapons ranging from about 1-100 nanometres. A practical example of this is evident in the reduction of drone size from about 4 feet to the size of a honey bee. Such weapons would fit in the bags and pockets of the soldiers. Louis A. Del Monte, in his book ‘Nanoweapons: A Growing Threat to Humanity’, commented on the size of nanoweapons and termed them ‘nanobots’ with destructive potential.

The reduced size and enhanced spectrum of nanotechnology have allowed the development of highly sensitive nano-thermal and chemical sensors that can be of great value to military operatives. Nano-communication devices can be an effective tool for surveillance missions. For instance, nanotechnology has allowed video tracking and monitoring using 35x optical zoom nano multi-eye lens, real-time nano-radar and nano-eye cloud storage. Such technologies could be helpful for militaries to operate even in bad weather conditions and work around blind spots. Additionally, nanocomposite materials have good potential for the aerospace industry due to their lightweight and extended durability under high pressure and at high speed. Nanotechnology could also significantly impact space-based intelligence, communication, imaging and signal processing. In the longer run, most military technologies would be dependent on nanomaterials. Nanotechnology is also being evaluated for its use in unmanned platforms and robots. The applications of nanotechnology could also enable the development of  mini-nukes, weighing about five pounds and carrying an explosive power of 100 tonnes of TNT. Such an evolution in weapons can provide a competitive edge to the militaries around the world

To ensure a competitive edge, arms exporters are under tremendous pressure to outrun the others in winning this global nano-arms race. There is significant competition between the United States (US) and China in nanotechnology. By comparing the two countries’ progress in nanotechnology using documented and published research, it can be established that China is ahead of the US, with more than 42% of globally published research articles (about 85,700) on nanotechnology. However, Louis A. Del Monte, in his book titled ‘Genius Weapons’, claimed that the US enjoyed a ‘substantial lead’ in nanoweapons. He stated that this was a critical component of its ‘Third Offset Strategy.’ Conversely, he was also wary that the world would catch up with the US’ technological developments within a few years. Countries like India, Iran, South Korea, Germany, Japan, United Kingdom (UK) and Russia have shown great interest in nanotechnology.

India, in particular, is right behind the US and China in nanotechnology. Indian Defence Research and Development Organization (DRDO) has established several nanotechnology research institutes to pursue interdisciplinary research. Institutes such as the Centre for Nanoscience & Nanotechnology (UIEAST)  in 2005, Centres of Excellence in Nanoelectronics (CEN) since 2006, Centre for Nano Science and Engineering (CeNSE) in 2010, Nanoscience Centre for Optoelectronics and Energy Devices (Nano-COED), and several other research labs are working in various areas of nanotechnology. Furthermore, India is also the third-largest producer of research papers on nanotechnology, behind China and US. Additionally, employees of DRDO have published books on the subject, such as a book on ‘Nanotechnology for Defence Applications’, which discusses the potential of nanotechnology for the defence sector. The Indian defence forces have been eager to deploy nanotechnology on the battlefield and are working to propose a blueprint for its use in future warfare.

The Government of Pakistan founded the National Commission on Nano Science and Technology (NCNST) to assist universities and research centres in establishing nanoscience labs. There is tremendous potential for the development of nanotechnology in the private sector. Moreover, there are a few universities that have established research centres to conduct nanotechnology research. Despite these initiatives, the potential of nanotechnology in Pakistan has not been explored fully. Apart from lack of capital and human resource, Pakistan’s weak patent distribution is also one primary reason for this lag. The concentration of patents within the weapon-developing states limits the interested states such as Pakistan. To address this bottleneck, there is a need to fund the representation of Pakistani patents at international nanotechnology conferences and markets. This would assist in securing space for learning and sharing of knowledge as well as prowling commercial contracts, which could become a great source of revenue for Pakistan. Although less spoken of, nanotechnology is a fast-emerging province of knowledge and could significantly impact the future of warfare across the globe.

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Expanding Information Technology: A boon or bane?

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The proponent and opponents of tech innovation argue about the blessings and harms of the expanded technological advancement in the global arena. From Hunter-gatherer societies to modern-day’s post-capitalist societies; the art which has indisputable progress for humanity is the art of technology and change. Technological change provides the economic base and societal revolution in the general. Regardless of unprecedented changes in facets of communications its expansion could turn into cyber warfare, data privacy rights, political malice, and a threat to democracy.

Discussing the inverse logic in the first place; there is not an iota of doubt that expanded information technology has revolutionized the healthcare industry across the globe. The people from Nigeria can connect to New York for medical consultancy with little effort. It has changed the paradigm of the health sector with potential phase. Secondly, in the Political arena, the concept of e-governance evolved. Automation and information technology can be used to collect records and data statistics to make new and efficient policies for the public by using evidence-based policies. Regardless of robust socio-economic and socio-political changes in the structure of society information technology posited a major setback to the overall growth of society.

The threat of individual liberty due to mass surveillance is circulated everywhere with the dawn of excessive information technology. People have lost the true independence and liberty to choose and to decide about themselves. Google and media giants have placed the autonomy. The cannibalization of jobs is also a melting point with the advent of information technology. Humans’ cognitive skills are outperformed by artificial intelligence. One of the most lethal problems which are caused by expanded information technology is inequality; the flow of information technology led revenue from the south towards Silicon Valley. All the data of the world is owned by a minutus majority which is problematic. A small data elite can capture the entire globe within clicks. The autocratic hold of data by companies can put a major threat to the independence and rational decision-making of individual as well as collective states. The prior economic inequality was less potent than the subsequent data inequalities between North and South.

Democracy which is based on the trust factor is plagued by cyber-attacks and disinformation. Public opinion is engineered in the firms where the analysis of public behavior through different apps like Candy Crush can be used to mold and shape their opinions of the favorite leader. The democracy which stands over the general will is compromised by manufactured consent. Boot camps and lobbying big data tailor-made the wishes and preferences to make political campaigns for voting and triumphing the preferred members. The manipulated biases are justified through echo chambering by advertising all the biases and prejudices of humans to confirm their biases for political agendas. Democracy replaced by populism due to expanded information technology. The other side of democracy is based on communication. It was the improved communication in the society that established the democratic governances in different parts of the world, but with time, the malfunctioning communication due to a matrix of misinformation can halt the global growth and sustainability of democracy.

Yuval Noah Hariri argued that the biggest threat to the working class is not exploitation but irrelevance in the 21st Century. In the past technology couldn’t replace human intellectual abilities but artificial intelligence can overshadow the cognitive skills of human beings. These cognitive skills were peculiar human traits that empower them to main positions in companies and firms but the modern expanded technology has outnumbered this peculiar trait. Now robots and automated machines can do a good job of hiring and recruiting people than humans. Due to this reason, humans have become irrelevant with the cannibalization of jobs.

Every decision is owned by algorithms which are moral decadence. Google owns preferences and likes and dislikes mechanisms for humans. It is a big moral dilemma that expanded technology posed over human authority and autonomy. The unique decision-making of humans is replaced by tech-based decision powers. The margin of independent thinking has declined in the 21st Century. It is argued by scholars that the ultimate goal of Google is to outsource every decision of humans to Google.

Due to expanded technology, multi-national companies and firms are becoming stronger and more sovereign than entire states. For example, the Apple Market Value in 2021 was $2274.34 billion and Microsoft’s net worth was $1988.67 billion quart triple the entire GDP of any nation in Asia. The digital elites have become super humans which is a global threat to governance in third-world countries. The owner of big firms can sabotage and challenge the governance of any small country for the collective goodwill of their companies. State sovereignty has been diluted and replaced due to the more powerful Leviathan traits of big data firms.

The possible remedies to expanded technology are many. The democratization of data is a way forward in which the concentration and autocratic hold of all the data chains can be diluted into different units by breaking up Big Data like Google and Facebook. For example, Rockefeller Oil Company was diluted into 34 companies when it became a giant holder of all the oil supply in Europe. In the same vein, Big Data can be distributed into different units for democratization purposes. Secondly; strict government regulations and oversight mechanisms can be used to control Artificial Intelligence research. The expansion of IT should be controlled and ethical otherwise it can be a potential threat to humanity.

Modern information technology has changed human lives in general but the flip side of negative outcomes can’t be overlooked. The ethics and innovation should be balanced otherwise the corporates will monopolize all data and algorithms for ulterior motives. Technological advances present significant opportunities for progress and advancement of human beings from nuclear deterrence to communication. But the long-lasting negative consequences are many which proved modern technology a bane rather than a boon. It is high time across the globe to re-consider the ethical side and controlled expansion of information technology before it becomes an uncontrollable fact for human beings to survive and sustain in the 21st Century. The balance between expanded technology and human growth should be discerned in contemporary times.

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China’s Big Tech: From Free Development to Strict Regulation

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After a decade of explosive growth, China’s tech sector lost hundreds of billions of dollars in less than two and a half years of the state’s large-scale regulatory campaign. China’s five largest Big Tech companies lost nearly 50% of their combined market capitalization. While in 2020, Tencent had larger capitalization than Facebook and most other American companies, today America’s Apple with its market value of $2.7 trillion exceeds the capitalizations of Tencent, Alibaba, Baidu, Meituan, JD.COM, and Pinduoduo combined. Following the start of the regulator’s probe into its activities, DiDi alone lost over 90% of its market capitalization. Generally, China’s tech sector lost its former foreign investor appeal. In the first quarter of 2022, investment into it fell by 42.6% in quarterly terms or by 76,7% in annual terms. Over 200,000 employees were fired from internet companies over the last year.

Nonetheless, it would be a mistake to think that Chinese authorities wanted to stifle the development of China’s tech sector. Beijing successfully applied its regulatory measures to address almost all its problematic areas in the sector’s development. Chinese authorities demonstrate their commitment to creating a fully controlled regulatory environment for the so-called platform economy. Regulatory measures are intended to increase the social responsibility of businesses and bring companies and their activities compliant with national security demands.

Recently, due to a national economic slowdown brought by the COVID-19 pandemic, as well as uncertain external conditions, Chinese authorities are eager to show both businesses and investors that there will be no political pressure put on Big Tech. Vice Premier of the State Council Liu He supported the platform economy and expressed his hope that tech companies will play a constructive role in reviving national economy. Liu He, who is considered one of China’s top officials in charge of the economic bloc (along with Premier Li Keqiang), also welcomed businesses to attract financing at both domestic and foreign capital markets. By doing so, Beijing likely wants to revive investor optimism and demonstrate that China is far from anathematizing tech giants.

Nonetheless, the already adopted regulatory measures should not be expected to weaken. Given that for the last decade China’s tech sector has been developing practically regulation-free, it is now clear that the past development dynamics will no longer be. Using regulations, Chinese authorities drew red lines for China’s Big Tech. Chaotic capital expansion, monopolist practices, and uncontrolled use of data are categorically prohibited to businesses by rules that can no longer be broken. Those companies that want to attract financing and actively work on international markets without leaving the domestic market will likely have to look for additional compromises. One possible scenario is transferring a certain share of a company to the state and appointing party officials to the company’s board of directors, thereby granting more control leverages and making their activities more transparent.

The last decade is often called the golden era in the development of China’s technological sector. Over a short period of time, many companies have grown from small startups into international tech giants. Back in 2020, six out of the world’s ten largest unicorn companies (i.e. companies with a capitalization over $1 billio) were Chinese. ByteDance Ltd. still remains the world’s most expensive startup, with a capitalization of $140 billion. However, 2021 marked a turning point in the development of China’s Big Tech: within a year, China’s technological sector lost more than $ 2 trillion in capitalization amid toughening regulations. Although Beijing has shown some leniency to tech companies, the long-term trend for tough sectoral regulations is likely to remain. To better understand the logic behind these changes, we need to follow the transformation of the state’s development priorities that determined the regulations for tech companies.

National Innovations and National Champions

Even though China had established its “global factory” status by the late 1990s-early 2000s, the share of added value created directly in China was small: 14.5% for electronics and computers, 28.1% for telecommunication equipment, and 27.5% for home appliances. China maintained its status as a “global factory”, entrusted with overseeing “knock down” assembly, simple, labor-intensive, or environmentally harmful manufacturing. China’s authorities realized that given the growth of China’s economy and of its population’s income, this development model would inevitably drive China into a middle income trap. On average, China’s GDP per capita in 1995–2005 grew by over 10% annually, while in some years, for instance in 1994 and 1995, it reached up to 25% and 29%. Obviously, the existing economic development model (i.e. exporting finished products manufactured through an abundance of cheap labor force) ran its course. The best way out of the predicament was seen in increasing the share of added value, diversifying specific advantages, using innovations as an important economic development resource, and also gradually transforming the growth model by using the potential of China’s colossal domestic market.

In 2006, China published its 2020 Medium to Long-Term Plan for the Development of Science and Technology. This plan noted the importance of national innovations as the main goal of developing science and technology in the next 15 years. Plans involved stimulating national innovations through investment, tax benefits, and targeted funding. A major part was assigned to public procurement. Thus, China developed its first paradigmatic document defining the state’s subsequent policies and priorities focused on developing technologies and innovations. This document launched the growth of “national champions”, or private tech companies that were looked on favorably by the state and enjoyed every consequent priority in the state’s policies. This was a form of mutually advantageous cooperation: a business was given certain preferences, while local authorities, first off, demonstrated consistent compliance with the policies proclaimed by central authorities, and secondly, met their own region’s needs for economic development. Provinces competed in attracting the largest numbers of tech companies. Often, provincial authorities concluded exclusive partnership agreements with a locally headquartered company. Such a company gained direct access to the regional market and was also prioritized when it came to participating in governmental contracts. Virtually every large Chinese tech company (Alibaba, Tencent, Huawei, Inspur, etc.) had the exclusive partner status in one or even several Chinese provinces, and essentially became a monopolist provider of the goods and services it specialized in. Additionally, these companies received major subsidies from local authorities, which sometimes covered over 30% of their expenditures. Later, “national champions” became a means of self-expression not only for local authorities, but for some national regulators as well. This, in particular, explains the apparent lack of coordination between the People’s Bank of China and the China Securities Regulatory Commission. The latter approved the IPO of Ant Group, Alibaba’s financial technology subsidiary, in record time, while China’s Central Bank saw this IPO as a source of systemic risks for the stability of China’s financial system.

It would, however, be a mistake to suppose that preferences and subsidies granted by the state were the main factors for China’s growth of internet giants. The companies that subsequently grew into tech giants built their business on meeting the current market needs; they managed to predict the trends in market development. For instance, Alibaba and Tencent were founded when no more than 2% of Chinese were internet users. In 2005, the figure climbed to 10%, then to over 30% in 2010, and today, China has nearly 1 billion internet users, which is more than the combined population of the US and the EU. Alibaba correctly focused on the tremendous potential of e-commerce and on the unmet consumer demand, particularly in China’s rural areas. Tencent, in turn, adapted internet services to Chinese customer preferences, thus significantly improving customer experience. Ant Financial, Alibaba’s financial technology subsidiary, started developing mobile payments; this subsidiary was established because a trust problem between customers and suppliers necessitated creating an online version of banks’ letters of credit to be used on Alibaba’s e-commerce platform.

It is also important that China’s tech companies operated in a relatively closed domestic internet space with severely limited competition from foreign players. Nonetheless, foreign investors rated very highly the objective market prospects of China’s tech companies. For instance, Alibaba’s IPO brought in $21.8 billion, and the entire company was valued at $167.8 billion at the time it went public.

China’s authorities tried not to limit the development of tech companies in any way, sometimes even disregarding their own legislation. For instance, Chinese law prohibits involving foreign capital in China’s internet sector, yet China’s internet companies circumvented this prohibition by establishing so-called Variable Interest Entities (VIE); companies were registered mostly in offshore account, bearing the same name, along with a claim to the assets and profits of the parent corporation. China’s authorities primarily cared about tech companies handling the urgent tasks of facilitating economic growth and social development. For instance, internet companies fill in all the gaps that emerged in the online space following the ban on popular foreign internet services; they create a favorable environment for internet users and improve user experience. “China’s internet” has replicas of all popular international services such as Facebook, Google, Twitter, WhatsApp, Wikipedia, Quora, and YouTube; consequently, “China’s internet” developed as a “thing in itself”, discouraging users from using circumvention tool to access banned resources.

E-commerce services benefited small business development while also handling the important social task of creating jobs and overcoming poverty. In 2014–2017 alone, online retail in rural China grew from $27 billion to $189 billion. The so-called Taobao villages (named after Alibaba’s domestic online trading platform) helped farmers establish their own channels for selling their goods, thereby creating about 840,000 jobs. In turn, Ant Financial, Alibaba’s financial technology subsidiary, issued 100 billion yuan worth of loans to 2 million people from the poorest rural areas in a single year.

Overall, financial technology companies were helping to resolve the problem of giving several hundred million people with no credit history access to financial products. Traditional banks preferred to work with large state enterprises to whose aid the state would come should things go south, while loans to small business and individuals were issued on a leftover principle. Consequently, China’s authorities viewed financial technology companies as a quick way of handling the growth problem of small and medium-sized business that, however, accounted for nearly half of the national GDP growth and over 60% of urban jobs.

The state prioritized the role of the internet sector in furthering socioeconomic development in its Internet Plus action plan, which was first announced by Li Keqiang, the Premier of China’s State Council, in 2015. Presenting the annual report on the government’s activities, Li Keqiang said that the Internet Plus plan would entail broadly integrating internet services with traditional economic and industrial sectors. According to the Premier, this plan would guarantee the internet’s decisive role in optimizing the locations of manufacturing factors and to give economic development a new impetus. The plan envisaged lowering barriers for tech companies’ IPOs, accelerated construction of digital infrastructure and related high-tech manufacturing facilities, and introducing cloud computing technologies and big data into the work of governmental bodies.

The leaders of tech companies increasingly influenced the opinions of China’s top state officials. Tencent’s founder Ma Huateng, for instance, became a member of the National People’s Congress. Incidentally the very phrase “Internet Plus” was used by Ma Huateng even before Li Keqiang announced the program. Therefore, some speculate that the head of Tencent influenced the formation of the new concept of digitalizing the economy. His competitor, Jack Ma, the head of Alibaba, repeatedly spoke about the importance of big data as a new source of economic growth. His recommendations were allegedly reflected in the 13th five-year development plan (2016–2020). Whether or not this is true is impossible to verify, but a separate article is devoted to introducing a national big data strategy.

In any case , China’s tech companies set new world records as they developed at lightning speed during the 12th and 13th five-year plans. The P2P lending sector, for instance, grew by over 200% annually. Alibaba and Tencent virtually became monopolists on China’s mobile payment market, with each company having over 700 million users. Before the pandemic, the revenues of DiDi, China’s vehicle-for-hire company, grew by more than 10% annually. Alibaba’s Yu’e Bao, an asset management product which offered an extremely low entry threshold of just 1 yuan, became the world’s largest money market fund by the late 2010s,, managing about $9 billion. With time, it became clear that tech companies could no longer develop unsupervised as their activities began to generate systemic stability risks. The sanctions against Alibaba, which ended with the cancellation of its IPO and a record $2.8 billion fine, are often taken as the starting point of the “regulatory winter”. Indeed, Alibaba’s case became the largest in China as regards the amount of financial penalty assessed. However, the first regulatory steps had been taken long before this case. All the potential risks posed by tech companies and, accordingly, all regulatory steps taken in their regard can be divided into three parts: combating chaotic capital expansion; anti-monopoly regulations; and threats to data security.

Chaotic Capital Expansion

Back in 2017, China’s President Xi Jinping in his address to the 19th Congress of the CPC proclaimed that China had to win “three difficult battles”: a battle against poverty, a battle against environmental pollution, and a battle against financial risks. These risks began to emerge after 2008 when Beijing decided to offer $585 billion. worth in economic stimulus money. The funds were supposed to go to the economy’s real sector and to infrastructural construction. However, central authorities contributed only one third of that amount; the rest had to be contributed by local governments. Since local authorities could not legally take out loans directly from banks, they relied on affiliated companies, local government financing vehicles (LGFV) that essentially acted as creditors.

This created a colossal demand for loanable funds, and the banking sector could not fully meet it, partly because of regulatory restrictions. . Hence, so-called shadow banking began to develop. CEIC Data reports that from 2008 to2017, shadow banking in China tripled from 20% to 60% of the GDP. Shadow banking is generally understood as off-balance sheet assets of traditional banks meaning loans issued by trusts, pawnshops, and micro lenders. The general problem with these schemes is, as the name suggests, that they are conducted out of sight of banking supervision, and therefore, may pose risks to the stability of the financial system.

This is, for instance, exactly what happened with P2P lending platforms. Their numbers in China peaked at 5,000, while they only numbered in dozens in other states. After one of the largest platforms, Ezubao, defaulted and 900,000 investors lost $7.3 billion, regulators began to look closely into the specifics of China’s P2P platforms. It turned out that instead of being merely informational go-betweens connecting creditors and borrowers, as is the case everywhere else, Chinese P2P platforms acted as quasi-banking structures: they accumulated investors’ funds guaranteeing them high returns and issued their own loans. In 2018, the Executive Group’s Office for Special Risk Management in Internet Finance issued “Notifications on Greater-Intensity Normalization of Online Asset Management and Establishing Supervision.” In particular, this document notes that currently active P2P platforms must: obtain a license to work; stop creating reserves out of investor funds,;act solely as intermediaries between creditors and borrowers; cap loan total costs at 36% interest rate (China’s supreme court capped total loan cost in 2015);operate solely via a depository bank; and cap loans per single borrower at 200,000 yuan for natural persons and 1 million yuan for legal entities. Companies were given a year to ensure they were compliant with the new norms. However, not a single company could become compliant, and by 2021, China had no P2P platforms at all.

In September 2020, China’s Central Bank announced comprehensive regulatory measures to regulate the activities of all tech companies offering financial services. Under these rules, any company that is not officially a financial enterprise, but has two or more financial divisions, should be registered as a financial holding. To be licensed, a company should have registered capital of at least 5 billion yuan. The new regulations extend to non-financial companies managing commercial banking bodies with assets totaling over 500 billion yuan, and to non-financial companies managing non-banking financial bodies with assets totaling over 100 billion yuan. Such companies should request a license from China’s Central Bank and, if this license is issued, add “financial holding” to their name. If a conglomerate is denied a license, it must sell or transfer its shares and control of its financial divisions. These rules cap loans issued to natural persons at 300,000 yuan and loans issued to legal entities at 1 million yuan. Simultaneously, a loan cannot exceed one third of a person’s average income for the last three years. Finally, new rules mandate that micro lenders may not attract bank funds or stockholder funds in amounts exceeding the amount of the company’s net assets. Also, the amount of funds attracted by issuing bonds and by securitization may not be more than four times the company’s net assets. Additionally, if a micro lender or an internet finance platform issues a loan together with a bank or other financial institutions, the micro lender’s or the internet finance platform’s share in the loan should be no less than 30%.

These rules appeared before Alibaba’s founder Jack Ma delivered his seditious speech at the Bund Summit financial forum in Shanghai. So, while the cancellation of Ant Group’s $37 billion IPO is often labeled as regulators’ “revenge” for Jack Ma’s arrogance, a much more likely reason seems to be that Ant Group did not comply with the new regulatory rules. Ant Group’s placement memorandum for investors said that consumer loans and loans to small businesses brought in 39.4% of the company’s revenues. For example, as of June 2020, outstanding loans issued via Ant Group’s platforms totaled 1.73 trillion yuan (261 billion dollars.). About 98% of these funds were either underwritten by banks or securitized. In other words, Ant’s balance sheet carried only 2% of loans. Traditional banks and investors carried risks for all the other loans that had in fact been issued by Ant Group.

In December 2020, the Politburo of the Central Committee of the CPC announced at its meeting that China would combat “chaotic capital expansion.” Rénmín Rìbào, the party’s main newspaper, explained that chaotic capital expansion refers to the logic of gaining profits at any cost, when development is detrimental to public interests. Therefore, a purely economic component was augmented by a social factor motivating Beijing to regulate the tech sector. In the thinking of Chinese authorities, financial stability goes hand in hand with the needs of building a harmonious society. Therefore, regulation means not only minimizing risks for the financial system, but also eliminating factors that provoke social instability.

Steps taken to combat the online education market fit into this framework as well. China’s State Council first mentioned the need to regulate online education and reduce school studentworkload back in 2018. Already in 2021, Chinese authorities first prohibited foreign investment in education and then mandated converting all online education tech platforms into non-commercial organizations. The two largest players on the market, Yuanfudao and Zuoyebang, were fined $389,000 for misleading marketing practices. Needless to say, these restrictions came as a shock to a sector that had accumulated at least $100 billion in investment. Nevertheless, as declining birthrates create serious demographic problems, regulating the sector that averagely consumes,30% of families’ annual income, and exacerbates social stratification between urban and rural populations became a political priority.

The food delivery sector also began to pose certain social instability risks. On the one hand, it was rapidly gaining popularity: from 2016 to 2020, the number of people ordering food online doubled to 400 million people. Two companies, Meituan and Ele.me, were virtually monopolists in this area. However, in an effort to take over the largest possible market share, each company tried to use its competitive edge aggressively through algorithms that optimize logistics This manifested primarily in delivery times and the range of foods offered. However, media and social networks eventually began to report horrendous labor conditions of delivery personnel who had to break traffic rules and work overtime if they wanted to meet rigid delivery deadlines; most importantly, the companies fined delivery personnel for smallest delays regardless of objective circumstances such as traffic, weather, time of day, etc. In 2021, an official from the Beijing Municipal Human Resources and Social Security Bureau went to work undercover for one of the companies and personally ascertained the harsh working conditions. Two months later, China’s State Administration for Market Regulation (SAMR) and six other state agencies developed regulations mandating that food delivery services extend basic social guarantees to their employees, including minimal wage-compliant earnings, and the ability to form trade unions. Additionally, companies were prohibited from using the harshest algorithms and were mandated to give employees more time to complete every delivery. Also, companies were mandated to set up special rest and food areas for employees and issue them special gadgets (like smart helmets) that would enable them to use their smartphones hands-free. Later, eateries complained about food delivery aggregators charging excessive fees. In February 2022, Chinese authorities mandated that companies reduce fees charged to food businesses.

Combating chaotic capital expansion applied to the online games market, too. Back in 2018, China’s authorities suspended issuance of approval for new games by relevant regulators, and in 2019, the authorities prohibited people under 18 from playing games after 10 p.m. They also mandated that companies ensure compliance with these requirements via, among other things, compulsory user identification. In August, China’s largest state media labeled games as “spiritual opium,” and soon the authorities prohibited children under 18 from playing online games for over a combined total of three hours a week. Tencent, the largest manufacturer of online games, was forced to increase its expenditures on complying with new regulations (including user verification). In 2022, the company’s revenues demonstrated negative dynamics for the first time since its 2004 IPO. Additionally, as a goodwill gesture, the company promised to earmark $7.7 billion for social “universal welfare” goals, another slogan China’s leadership frequently reiterates.

Anti-monopoly Regulation

Officially, China adopted anti-monopoly legislation back in 2008, and China’s Supreme Court heard the first anti-monopoly case of two Chinese IT-companies (Qihoo 360 Technology Co. Ltd. and Tencent Holdings Ltd.) in 2014. The two companies marketed rival products (antiviruses 360 Safeguard by Qihoo and QQ Doctor by Tencent) and used dubious competitive practices. Ultimately, Qihoo upgraded its 360 Safeguard product and it started blocking QQ’s pop-up ads. Tencent, in turn, also upgraded its QQ messenger, and it stopped working on computers that had the 360 Safeguard antivirus installed. In other words, consumers had to choose “one out of two”, a phrase that will be incorporated into Chinese antitrust law for several years… Although China’s Supreme Court recognized that these actions caused some harm to businesses, the specific economic damage, expressed in the loss of the customer base, was considered insignificant back then. The existing antimonopoly legislation of the time was too general and did not account for the specifics of internet business.

In November 2020, two weeks before an antimonopoly probe was launched against Alibaba, draft antimonopoly rules for internet companies were published. They were adopted in less than six months with minimal changes. Under these rules, a monopoly means practices, including digital platforms, that deliberately limit the compatibility of their own products with competitors’ products. Forcibly routing internet traffic and blocking a competitors’ hyperlinks for the purpose of restricting client access is prohibited. Additionally, the practice of “choosing one out of two” when online marketplaces prohibited sellers from simultaneously cooperating with other online trading platforms is held to be inadmissible. Fake advertising, paid-for client reviews, and other misleading information was prohibited as well.

Additionally, harsher measures were adopted for antimonopoly regulation of companies working with online payments, internet finance, and financial technology. Under these rules, any non-banking company holding over half the market, or two companies holding over two thirds of the market, or three companies holding over ¾ of the market will be subjected to an antimonopoly probe. Should China’s Central Bank notice any signs of monopolism undermining the principles of business security, efficiency, fairness, and reliability, it may file a grievance with relevant antimonopoly bodies and spearhead an antimonopoly probe even if the company’s business does not comply with the above criteria.

The verdict in the Alibaba case was the most high-profile outcome of an antimonopoly campaign. The company was fined a record amount of $ 2.8 billion, which totaled 4% of its 2019 annual turnover in China. China’s State Administration for Market Regulation found that Alibaba had systematically violated antimonopoly regulations: it forced sellers selling goods on its e-commerce platform to work solely with Alibaba’s platform. Trading on other e-platforms was forbidden; otherwise, the company threatened to hide the seller’s goods in its search results and to cut them from any promotion campaigns.

After the demonstrative punishment of Alibaba, top managers of all the largest Chinese internet companies were summoned for a talk with the regulator. They were reminded that monopolistic policies were inadmissible. Later, almost every one of them was fined for various violations of antimonopoly legislation: for exclusive agreements on distributing musical context (Tencent), for failure to disclose information about mergers and acquisitions (Baidu, Shenzhen Hive Box), and for promoting inaccurate information that misleads customers (JD.COM). Another major case involved food delivery service aggregator Meituan, who was fined $530 million for exclusive agreements and for using its monopoly to force customers to choose “one out of two.”

Antimonopoly regulation of China’s tech companies stemmed from the objective need to whip into shape the market environment and create conditions for healthy competition. This process was closely tied to combating “chaotic capital expansion”, analyzed above. China’s tech giants aggressively used non-competitive methods to push out smaller players. For instance, when China introduced regulations for financial technology platforms, Alibaba’s subsidiary Ant Group and Tencent’s WeChatPay service were virtually monopolists in the mobile payments market. These companies divvied up a market of 1 billion users, although officially another 233 Chinese companies were licensed to engage in the same activities. Beijing knew that without requisite regulations, tech giants would become a backbone force hard to control even at the level of state. For instance, even though China’s Central Bank mandated that all mobile payments operators process transactions using a specialized clearing platform controlled by the regulator, companies repeatedly violated requirements for relevant supervision of capital movement. Finally, looking at the global practice that involved EU and US authorities conducting antimonopoly probes against global giants such as Amazon, Beijing realized it was time to act. Some may even go so far to say that China managed to catch up with and overtake its international partners. Today, China has instituted a very strict regulatory regime for tech companies; this is particularly true for protecting, processing, and transmitting data.

Data as a National Asset

In 2013, ex-NSA employee Edward Snowden publicized information about American secret services using vulnerabilities of IT systems throughout the world to garnish intelligence information. This made China ponder the influence data may have on national security. In 2017, Cybersecurity Law went into force mandating, among other things, storing all data on Chinese users in China. Subsequently , technological confrontation with the US had an even greater influence on Beijing’s data policy.

The US has a competitive edge (fundamental research, qualified personnel, hardware/firmware) in practically all key technologies such as artificial intelligence, while China outstrips the US only in quantity and quality of data. This led to Chinese authorities placing a particular emphasis on regulating turnover of data as a crucial national asset. In 2021, China passed the “Data Security Law” and “Personal Information Protection Law” (PIPL). Under these laws, data is viewed as a national asset, another production factor on par with labor, land, capital, and technology. Data is also categorized by importance: regular data, key data, personal data. Cross-border transmission of key and personal data is rigidly regulated. This procedure may be conducted only after this data has been comprehensively checked by appropriate authorities.

Under PIPL, the confidentiality of user personal information was further stringently protected. The law mandates that the multitude of mobile apps and services have no right to deny their services to a user who refused to submit their personal information, except for the cases when this information is absolutely necessary for the proper functioning of an app. Users now have the right to receive specific information on how, where, by whom, and for what purpose their personal information is used. Companies must obtain user informed consent to use, store, and process their personal information. Users may revoke their consent at any time. The laws rigidly regulates cross-border data exchanges. If a company accumulates a large array of data about Chinese citizens, then, before conducting any data exchange with foreign partners, this company must undergo a strict cybersecurity check and obtain approval from the appropriate Chinese authorities.

China’s vehicle-for-hire company DiDi was the main “victim” of the new data protection legislation. DiDi launched its IPO on the New York Stock Exchange just when the relevant data security legislation was in the works. Merely a few days after DiDi’s $4.4 billion IPO, China launched a probe against DiDi regarding its compliance with data protection standards. The company was mandated to remove its apps from app stores and stop attracting new users. The probe against DiDi – concluded only when the company announced it was delisting itself from the American exchange.

The demands of US regulators to disclose information raises security concerns to Chinese authorities. The US demands that all companies listed on American exchanges grant the Public Company Accounting Oversight Board (PCAOB) unobstructed access to audit and accounting reports. Previously, Chinese companies ignored this demand citing Chinse legislation that prevented them from disclosing such information to international partners and regulators. In 2020, however, the US passed the Holding Foreign Companies Accountable Act (HFCAA). Under this act, should any company listed on American exchanges fail to provide data and accounting reports for three years, it will be forcibly delisted. China’s vehicle-for-hire company DiDi works on the domestic market and accumulates sensitive data concerning movements of millions of Chinese citizens. Naturally, such a company launching an IPO with the potential condition of transmitting these data to the US is a very risky step. Although the authorities did not publicly say so, from a regulator’s point of view, the main condition for companies like DiDi to continue operating is to prevent uncontrollable cross-border transmission of data.

As for domestic information security, Chinese authorities started regulating the use of algorithms by companies. The State Internet Management Office together with the Ministry of Industry and Information Technology and the Ministry of Public Security announced measures that have been in place since 2022. Under these rules, companies must not use recommendation algorithms for illegal purposes, for instance, for undermining national security. News sites whose work is based on algorithms must undergo a special licensing procedure; recommending fake news is prohibited. Additionally, companies are mandated to inform users about the recommendation service’s basic principles, purpose, and operating procedures; users should also have the option to opt out of receiving recommendations created through the use of algorithms. Companies also must provide users with the option of choosing or removing tags the algorithm uses to form recommendations. Finally, users may not be subjected to price-based discrimination based on an algorithmic analysis of their online behavior.

***

After a decade of explosive growth, China’s tech sector lost hundreds of billions of dollars in less than two and a half years of the state’s large-scale regulatory campaign. China’s five largest Big Tech companies lost nearly 50% of their combined market capitalization. While in 2020, Tencent had larger capitalization than Facebook and most other American companies, today America’s Apple with its market value of $2.7 trillion exceeds the capitalizations of Tencent, Alibaba, Baidu, Meituan, JD.COM, and Pinduoduo combined. Following the start of the regulator’s probe into its activities, DiDi alone lost over 90% of its market capitalization. Generally, China’s tech sector lost its former foreign investor appeal. In the first quarter of 2022, investment into it fell by 42.6% in quarterly terms or by 76,7% in annual terms. Over 200,000 employees were fired from internet companies over the last year.

Nonetheless, it would be a mistake to think that Chinese authorities wanted to stifle the development of China’s tech sector. Beijing successfully applied its regulatory measures to address almost all of its problematic areas in the sector’s development. Chinese authorities demonstrate their commitment to creating a fully controlled regulatory environment for the so-called platform economy. Regulatory measures are intended to increase the social responsibility of businesses and bring companies and their activities compliant with national security demands.

Recently, due to a national economic slowdown brought by the COVID-19 pandemic, as well as uncertain external conditions, Chinese authorities are eager to show both businesses and investors that there will be no political pressure put on Big Tech. Vice Premier of the State Council Liu He supported the platform economy and expressed his hope that tech companies will play a constructive role in reviving national economy. Liu He, who is considered one of China’s top officials in charge of the economic bloc (along with Premier Li Keqiang),also welcomed businesses to attract financing at both domestic and foreign capital markets. By doing so, Beijing likely wants to revive investor optimism and demonstrate that China is far from anathematizing tech giants.

Nonetheless, the already adopted regulatory measures should not be expected to weaken. Given that for the last decade China’s tech sector has been developing practically regulation-free , it is now clear that the past development dynamics will be no more. Using regulations, Chinese authorities drew red lines for China’s Big Tech. Chaotic capital expansion, monopolist practices, and uncontrolled use of data are categorically prohibited to businesses by rules that can no longer be broken. Those companies that want to attract financing and actively work on international markets without leaving the domestic market will likely have to look for additional compromises. One possible scenario is transferring a certain share of a company to the state and appointing party officials to the company’s board of directors, thereby granting more control leverages and making their activities more transparent.

From our partner RIAC

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