China’s government has been designating specific areas in which companies should lead, giving an unambiguous green light for private entrepreneurs to go after the next big thing, as long as it lines up with policy goals
Beijing’s regulatory crackdown has greatly discouraged risk-taking. Tencent’s hefty expansion into online education in 2019 is now a dead end, as is that whole industry, after sweeping new rules on the services that can be offered to school-age pupils were announced last year. Investors want nothing to do with Chinese fintech after Ant’s initial public offering was crushed by Communist Party leaders in late 2020.
Alibaba’s global business has grown rapidly, mainly because of the fast expansion of Lazada. But its retail operations abroad have contributed only about 5% of overall annual revenues since 2017 and are unlikely ever to make up a meaningful part of the Alibaba empire. Its prospects of breaking into developed markets in America and Europe are close to non-existent. Some of that pessimism is based on America’s increasing distrust of Chinese companies.
As customary sources of revenues come under further pressure China’s internet giants have gamely talked up a new stage of innovation—one in which the firms’ ambitions are. The government wants China’s future tech giants to make or design semiconductors and artificial-intelligence software, and run cloud-computing businesses.
Such top-down delegation of entrepreneurial activity cannot be completely written off, says David Hsu of the Wharton School in Pennsylvania. State-backed research and development is commonplace in even the most market-driven economies. The momentum building in China may eventually enhance the underlying technologies on which a new wave of enterprise will take root.
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