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2018 in review

Chinese and US tech giants face growing political risks

Tougher regulations complicate business amid concerns about personal data

Tencent Chief Executive Officer Pony Ma and Alibaba Executive Chairman Jack Ma chat at the end of an event marking the 40th anniversary of China's reform and opening up at the Great Hall of the People in Beijing, China December 18, 2018.   © Reuters

TOKYO -- Major Chinese and U.S. information-technology companies are under growing political pressure around the world amid what has come to be called "techlash" -- a tide of anti-IT mood that has risen in 2018.

The Chinese Communist Party and the government held a ceremony on Dec. 18 to mark the 40th anniversary of the nation's "reform and opening-up" policy and honored businessmen Jack Ma Yun, Pony Ma Huating and others for their "outstanding contributions." 

Jack Ma is chairman of China's biggest e-commerce company, Alibaba Group Holding, while Pony Ma founded Chinese IT giant Tencent Holdings. At the ceremony, the two billionaire tycoons were awarded medals by Chinese President Xi Jinping, who is the head of the Communist Party.

On Nov. 26, the People's Daily, a newspaper closely related to the Chinese Communist Party, revealed that Jack Ma is a Communist Party member in an article introducing recipients of awards at the ceremony.  

It appears that the Chinese Communist Party has moved closer to major domestic tech companies in a bid to win them over, forcing Jack Ma to become embroiled in party efforts. But the Chinese government also moved to impose regulations on Alibaba and Tencent in 2018. 

Alibaba and Tencent dominate China's mobile payment market. Alibaba's Alipay and Tencent's WeChat Pay have a combined market share of more than 90%. 

The volume of data handled by Alibaba and Tencent increases every year. For the Communist Party and the government, the huge amount of data gathered through mobile payments is attractive. 

Chinese regulatory authorities made it mandatory for all smartphone-based settlement services, such as Alipay and WeChat PAY, to be operated via an organization called Wanglian, set up by the Chinese central bank and private-sector institutions, in late June. The step gives the government an effective tool to block unlawful transactions. However, it also means that all such mobile settlement data is available to the government. 

Accepting such regulations gives Alibaba and Tencent the benefit of keeping favorable relations with the Communist Party and the government, with their autocratic rule. Given the ambitions of Alibaba, Tencent and other players to push further into the U.S. and other overseas markets, however, concerns about Beijing's involvement with settlements data could cause alarm overseas. 

Meanwhile, U.S. IT behemoths, which enjoy a dominant presence worldwide, are now facing political headwinds as well. 

During U.S. congressional hearings in April this year into a serious security breach that leaked millions of users' personal data, Facebook founder and CEO Mark Zuckerberg said, "It was my mistake, and I'm sorry." The leader of the social networking giant, one of the world's most successful young entrepreneurs, was grilled for over 10 hours at the hearings. 

The release of personal data on 87 million users from Facebook, which came to light in March, prompted politicians to investigate the range of personal data the company collects and even the way it collects it. Lawmakers also questioned the company in earnest about its inability to prevent Russia from intervening in the 2016 U.S. presidential election via the internet and about its handling of so-called "fake news."

The scrutiny went beyond Facebook. Twitter and Google, which also handle large volumes of personal data, were also criticized by lawmakers. In December, Sundar Pichai, Google's CEO, was summoned to a hearing of Congress. 

In the U.S., however, lawmakers criticize IT giants mainly at hearings, which are regarded as political shows. In Europe, where the right to privacy is protected more strongly, stricter attitudes have been taken. The European Union put into force in May the General Data Protection Regulation, which sets out rules on the acquisition and management of personal data. In July, the EU imposed a fine on Google for violating the competition law.

This trend has spread to European countries. The U.K. announced in October the introduction of a digital tax, followed by a similar move by France in December. The digital taxes are targeted mainly at the four major IT companies which, including Apple and Amazon.com, are known as GAFA. 

The regulatory nets that are spreading over digital platforms in the U.S. and China show regulators' increasing vigilance against big IT companies that collect huge amounts of data. The tug of war between IT giants and lawmakers in 2019 could also affect the future of IT competition between the U.S. and China.

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