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Calling it a bloodbath is an understatement.

On July 23, Chinese stocks traded in the United States plummeted as Beijing has issued new regulations to crack down on educational technology companies that provide services like tutoring. New Oriental, an institution where its correspondent spent most of his youth in Beijing, lost 60% when it opened the market. Others have seen their market capitalization decrease by more than 50%.

education technology sector is not alone in this free fall. Chinese large-cap internet companies have been in decline for weeks. This week by bing attempts to explain why the Chinese government has suddenly cracked down on everything related to the internet and how this could help us understand why its recent crackdown on cryptocurrencies is not really about cryptocurrencies themselves, but rather it is part of a much larger cleanup.

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No one got away

American politicians have complained for years that they want to crack down on big tech, but little has been done. While the Chinese government didn’t make much noise, once it decided to show its hand, it killed every internet giant in sight.

It started in April when the Chinese government decided to teach Jack Ma a lesson by killing Ant Financial’s IPO.

Things escalated in July, when Beijing prevented DiDi, the Chinese Uber, from acquiring new customers and threatened to remove its app from app stores. This happened two days after the company’s IPO in the United States.

Other internet giants have suffered a similar fate in a short time. Chinese antitrust regulators told Tencent, the conglomerate that owns the popular WeChat, de, renounces its exclusive music license rights, and fined it for prior misconduct. $ 78,000 fine was a pat on the back, but the gesture was clear and forceful: nothing will be too great to fail the regime.

More moving parts

re are many moving parts in the recent crackdown that has targeted various sectors. logic of government falls into three general categories:

Cleaning up the really bad stuff. Here, “education technology” companies have been hit the hardest and the entire industry is in danger of disappearing in the next few years. But this policy has the highest public approval. reality these days in China is that kids are being forced to go through increasingly expensive tutoring sessions outside of school in order to be competitive.

This has spawned multi-billion dollar tech companies that feed off parents’ anxiety that their children are left behind. caral became toxic when college fees became exponentially expensive and only well-to-do families were able to afford it. To promote its image as a government that defends the masses, the government has issued a strict ban that affects any mentoring organization. While most of these companies tend to provide other services, such as toys that teach robotics and SaaS products that help teachers by focusing on tutoring, the crackdown will reduce the basic income of these tech companies by 90%.

Breaking the monopoly. To Beijing, Internet giants are like free-range chickens: they can roam and grow as much as they want. However, they should never be allowed to take over the farm and once they are too large they should be consumed.

“Eating chickens” has become necessary for several reasons. First, the duopoly of Tencent and Alibaba is stifling competition. Tencent Ecosystem is made up of hundreds of companies covering social media, healthcare, media, games, and business software. He also owns a 21% stake in Meituan, the largest Chinese lifestyle app. Internationally, it also owns 12% of Snap and 5% of Tesla.

Alibaba is the same old story.

common perception in the Chinese tech industry is that these two Goliaths will take care of all the tech startups, leaving no room for potential disruption or competition.

Capital control. On the surface, the case against DiDi appears to be related to information security. Ultimately, however, it is the so-called floating rate entities (VIEs), which allow Chinese companies to list on the US stock market.As China struggles to build its own capital market, see one of Choosing to go public on a US stock exchange is deeply humiliating for your national giants. So the government came out with a new policy against any Internet company that uses VIE’s loophole to go public, further isolating Chinese capital from the rest of the world.

Perception matters

Perhaps most importantly, it’s not about the damage Big Tech has done, but about the perceived influence wielded by these new titans. Yes, there is a monopoly, but it could also be argued that there is a great deal of duopoly and competition between the giants.

But what is really dangerous, from a government point of view, is the perception that big technology is too big to fail and therefore not subject to government scrutiny. That narrative would inevitably undermine the Chinese government’s full control over the economy, which is undesirable as President Xi continues to try to strengthen his grip.

And this is where cryptocurrencies come in. damage that cryptocurrencies have done to Chinese society is minimal. However, due to its unlicensed nature and proximity to the Western world, cryptocurrencies in China give an impression that China is a free market and can tolerate new Western ideas. This is inherently contradictory with what the government defends and with an ideology to which it does not want to expose any citizen. Due to this danger, the government believes that it should crack down on cryptocurrencies.

current restructuring reminds me of 2009, when China first banned Facebook, it defined what the Internet is and is not in China. This time around, the tech giants must collaborate and redefine what the Internet is. business is and is not.

Did you know

“金 主 爸爸” or “Gold Daddy” is commonly known as “sugar daddy.” But in China’s internet business, golden dads are investors who provide essential capital to grow a business. two biggest fathers of gold are none other than Tencent and Alibaba. Since the last name of the founder of both companies is “Ma”, many have just called them Daddy Ma.

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