Authorities announced a series of regulations targeting China’s largest tech companies over the past three days, in a show of force that will affect working conditions for delivery workers, foreign funding from education companies, and monopolistic behavior.
These new rules targeted some of China’s hottest software sectors — especially those with large American investment. The educational regulations, for instance, essentially bans tutoring companies from making profits, raising money, and listing on stock exchanges. The Chinese government said the move was due to the education sector being “hijacked by capital.” These kinds of startups had attracted American investors like Sequoia and BlackRock, and previously earned a valuation from JPMorgan of more than $100 billion. That estimate was revised to $24 billion on Monday, according to The New York Times.
“The worst-case became a reality,” JPMorgan analysts wrote. “It’s unclear what level of restructuring the companies should undergo with a new regime and, in our view, this makes these stocks virtually uninvestable.”
The news has also wiped billions from publicly-traded companies like Chinese e-commerce giant Meituan, which offers ride sharing, food delivery, and travel booking. The company’s stock dropped 14% on Monday, following the news of regulations.
Regulations for delivery companies cover a broad range of labor issues, including a mandate that workers are paid at least the minimum wage according to where they’re working. The new rules also require less stringent algorithmic management to allow more time for deliveries, as well as access to social security and insurance.
Notably, these labor reforms are specifically targeted towards gig workers employed by software companies, rather than employees of hardware and semiconductor firms known for egregious labor conditions.
This slate of new rules is meant to bring tech firms that have reshaped China’s cities to heel with national priorities, speculators say. Columnist Noah Smith wrote this movement could reflect China’s desire for its tech industry to be more invested in hardware and semiconductors, which hold more international influence than software.
The central government also crushed Jack Ma’s Alibaba empire after he criticized the regulators, and ripped ride-hailing giant DiDi from app stores after a U.S. IPO.
A New York Times article suggests the regulations are about power: The central government is reminding increasingly-influential tech firms who sets the agenda. This is being done by ensuring tech companies don’t bury small businesses run by low-income citizens, while also refocusing the tech sector on international competition with the United States.
No matter the intent, the outcome is the same. These regulations make China’s tech sector less appealing to outside investors, while strengthening domestic rules around how some workers are treated. And China’s tech firms know exactly who is boss.
Dave Gershgorn @DaveGershgorn
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