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

Tracy Alloway (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:16)

And I'm Joe Weisenthal.

Tracy Alloway (0:18)

So Joe, it's been a pretty eventful summer here in Hong Kong.

Joe Weisenthal (0:24)

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 itself, whether it's Hong Kong or whether it's US markets, it has been quite a wild ride to say the least.

Tracy Alloway (0:44)

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 Didi, 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.

Joe Weisenthal (1:51)

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 Didi thing was crazy itself. Of course, that's like the Uber type company. And was it that like, that was like within like three days of their USIPO, wasn't it? Like it was literally, they IPO'd like on a Tuesday or something, and then the following Monday, there was like, oh, we're cracking down. And then some of the companies like these online or these private education companies, some of which are listed in the US, like their business models are like basically going to zero, right? They're like, you're banned. 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?

Tracy Alloway (2:34)

Yeah, so I guess two things on that topic.

So, you mentioned the Didi crackdown happened 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, 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 really competitive.

It doesn't want, well, it wants to protect workers' rights for Didi drivers and things like that. It wants to protect user data.

Similar comments that we've heard in the West when it comes to Facebook and Google, right? 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 Odd Lots guest. We're going to be speaking with Dan Wang. He's a technology analyst over at Gavekal Dragonomics. And of course, he's been on the show a couple of times. One of the best commentators, in my opinion, when it comes to China's tech sector. So really the perfect person.

Joe Weisenthal (3:49)

Can't wait.

Tracy Alloway (3:49)

Okay. Dan, welcome back.

Dan Wang (3:53)

Well, it's not for nothing, Tracy, that Odd Lots is my favorite podcast and Tracy Mike Joe, my favorite podcast host.

Joe Weisenthal (4:00)

Too kind, too kind, Dan.

Tracy Alloway (4:02)

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 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.

Dan Wang (4:45)

I think the narrative has evolved since the early days of Ant Financial when about just before the US 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 Didi IPO, as Joe mentioned, you know, facing a fairly severe regulatory crackdown in terms of having its app pulled from app stores about a couple of days after its IPO.