China’s digital dictatorship

This is an audio transcript of the FT News Briefing podcast episode: China’s digital dictatorship

Jessica Smith
Good morning from the Financial Times. Today is Monday, September 20th, and this is your FT News Briefing.

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The submarine deal and the new security pact between the US, the UK and Australia continues to rattle global leaders. And as gas prices continue to surge, the UK’s biggest energy groups have asked their government for emergency help. Plus, we’ll talk to our global China editor about Beijing’s crackdown on its big technology companies and what the political endgame is.

James Kynge
The main impetus behind all of the new laws, the new grabs, you know, into companies like Ant Group are all motivated by this obsession with control that the Chinese Communist party has.

Jessica Smith
I’m Jess Smith, in for Marc Filippino, and here’s the news you need to start your day.

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The new security partnership between the US, the UK and Australia continues to ripple around the globe. The agreement is aimed at countering China’s influence in the region. China lashed out immediately describing it as playing geopolitical games. France is furious because it means Australia is reneging on a 50 billion Australian dollar deal to buy French submarines. France has recalled its envoys to the US and Australia and derided the UK as a fifth wheel on the coach. Washington, meanwhile, is making an effort to de-escalate the diplomatic crisis. Yesterday, US President Joe Biden asked for a call with French President Emmanuel Macron.

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The gas crisis in the UK and Europe continues to worsen. Yesterday, the UK’s biggest energy groups asked the government for an emergency package worth billions of pounds to help them survive surging gas prices. Today, Britain’s business and energy secretary is due to meet with energy suppliers to discuss the crisis. Prices have tripled since the start of the year to record highs. And last week, two fertiliser plants in the UK suspended production as a result. Here’s the FT’s energy editor, David Sheppard.

David Sheppard
This started at the tail-end of winter. Winter carried on in much the northern hemisphere deep into April this year, meaning people kept heating on. We burn through more gas than we normally would and drew down a lot of storage. But what would normally happen is that over the summer months, when people turn the central heating off and stop burning so much gas, the industry uses that opportunity to refill underground storage, for example. That’s not happened to the same degree this year. One of the big factors has been lower supply coming into northwest Europe from Russia. Some see signs that Russia could be trying to essentially squeeze the northern European market, boosting prices to effectively put pressure on the EU, and particularly Germany, to hurry up and approve the start up of the highly politically controversial Nord Stream 2 pipeline. That’s not the sole reason, you know. Russia potentially, yes, could be playing with things at the margin. Others just see signs that Russia has had to refill its own gas storage. But it’s true that gas supplies globally are quite tight right now.

Jessica Smith
That’s the FT’s energy editor, David Sheppard.

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In China, more than a billion people have an app on their phone called Alipay. It’s a phenomenally successful financial payments app that lets Chinese consumers pay for things online, in stores and it even offers loans. Here’s a Chinese TV commercial for Alipay. You can see a father and son in a clothing store, and the son’s trying on a sharp new suit for a job interview (Chinese ad plays in the background). He looks at the price and his face drops so dad offers to pay. Then the son looks up at the dad with a confident smile and says, “No problem, Dad. I can pay with Huabei”. That’s Alipay’s credit tool (Chinese ad continues). And then he says, “Next month, hopefully, I can earn the money back.” Dad’s proud of his son and wishes him good luck on the interview. And then the tag line, “With Alipay, life’s good” (fades into Chinese ad).

But Chinese regulators are making life very hard for Alipay’s parent company, Ant Financial. They’ve ordered Ant to split off Alipay’s lucrative loans unit and create a separate app. They also ordered Ant to hand over all their user data. James Kynge is the FT’s global China editor. He’s been following all the new regulations and policies Beijing’s pushed through to gain control of the country’s big tech companies and the data they’ve collected on Chinese citizens

James Kynge
Ever since about 2013, it’s been clear that Xi Jinping, China’s authoritarian leader, has wanted to do this. I mean, he said way back then that whoever controls data has the upper hand.

Jessica Smith
James, can you tell me a bit more about what Beijing is up to with its Alipay restructuring? Because as you’ve reported, and also as we just heard in the commercial, Alipay’s about a lot more than just online payments.

James Kynge
It’s connected to a much bigger array of services. And one of the main ones is something called Jiebei, which is a way of using the data that’s embedded into your mobile phone as a means to assess your creditworthiness, right? And then according to whether or not the algorithm thinks you’re creditworthy, it will say to you that it will lend you a certain amount of money at a certain interest rate at the tap of your mobile phone screen. But it has meant that Ant Group holds a huge amount of data far beyond just the data that it would have from being a payments app. And so what, according to this exclusive story by the Financial Times, what we think is happening now is that Beijing has said that they want to strip out the data from this operation and put it into a joint venture company in which Ant Group will have a stake, but it will not have the majority stake. The majority will be owned by several state-owned companies. And what this gives Beijing is access at any time it wants into this enormous trove of data of, you know, some of the most personal things that Chinese do every day.

Jessica Smith
And this is also happening after a long running and really high profile dispute between Beijing and Jack Ma, the founder of Ant Group. So now, with this deal, does it mean that Jack Ma caved in to pressure from Beijing?

James Kynge
Of course, Jack Ma caved, and so did the Ant Group, and so would any company, whether they’re state-owned or privately owned in China. There only is one boss in China, and that’s partly what this whole issue is all about. The Chinese Communist party is sending the signal that it is firmly in control. And if data is going to be such a big part of the way 21st century economies work, then it wants to be in control of that, too.

Jessica Smith
Do you have any idea who might be Beijing’s next target? And also, more broadly, what is this tech crackdown mean for other entrepreneurs and their ability to innovate? And what does it mean for foreign investors?

James Kynge
We don’t know which company might be the next target, but it’s absolutely clear by looking at the different laws that have come out and are now either in draft form or have already been adopted, this is a deep campaign with a long antecedence. And you get the sense that Beijing is going to pursue this until the end because you just never know which huge regulatory broadside is going to be blasted at you from which direction. Very little inkling of all of these laws and regulations and policies that have been issued over the last several weeks were telegraphed in any way at all. So, you know, it’s a very tough operating environment for these companies, that’s for sure.

Jessica Smith
So, James, if Xi Jinping goal is to create a high-tech authoritarian superpower. Does it look like he’s going to succeed? I mean, do you see anything that might trip him up,

James Kynge
The aim of of Xi Jinping to create what I called in this article, a techno authoritarian superpower, or as some other analysts call it, digital Leninism, is really a new frontier in the way that countries run. It’s far from clear to me or to the analysts that I spoke to that that this is something that can be done. On paper, it seems feasible, the idea that if you know what everybody’s doing at all times of the day, you can control them easier. That does seem logical to draw that conclusion. But does that in the end make the regime more sustainable? Does it in the end make it longer lived? I think those are questions that that really can’t be answered at the moment. But there has to be a chance that people will rebel against this because they don’t want to be suffocated by this very intrusive control. You know every movement they make can be monitored by the Chinese Communist party.

Jessica Smith
James Kynge is the global China editor.

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Before we go, the New York Metropolitan Opera has had a really hard pandemic, it’s had lockdowns and labour disputes and it hasn’t staged any live opera in 18 months. But curtains will rise again next week. And the piece chosen for this momentous occasion is not an old favourite like La bohème or Porgy and Bess (Opera plays). It’s a two-year-old opera called Fire Shut Up in My Bones. It’s a story of child abuse, desire for revenge and forgiveness. It’s by the Grammy Award-winning composer and jazz trumpeter Terence Blanchard. It’s his debut at the Met, and it’s also the Met’s first ever African-American composer.

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You can read more on all these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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