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A trader works during the IPO for Chinese ride-hailing company Didi Chuxing on the New York Stock Exchange floor on June 30. Photo: Reuters
Opinion
The View
by Richard Harris
The View
by Richard Harris

US, China assaults on Big Tech add fear and risk for global investors

  • The increased scrutiny of ride-hailing service Didi Chuxing is just the latest tale in a global movement to avert and break up monopolies
  • Monopolies being broken up are not always bad news for investors, but the actions taken by governments suggest scant regard for the rights of shareholders
The misnamed Euro 2020 football tournament ended on Sunday with England again valiantly losing on a penalty shoot-out – the footballer’s way of tossing a coin. There is a tiny difference between success and failure, big money versus less big money and anonymity versus notoriety.
Sadly, there were some ignoramuses who racially abused the talented, young black players who missed the back of the net from the penalty spot. The mainstream media first tackled the unidentified racist Twitter twits but then rounded on social media. Whereas many things in the United States are blamed on “the Chinese” and in China on “the Americans”, both sides are now blaming “Big Tech”.
The technology sector has been the darling of investors for the last decade. The digital revolution has disrupted and reshaped human lifestyles in the last generation more than any in history, and that is not hyperbole. The response is for central government power to grow globally, with commercial and military security becoming part of everyday life.
A few days ago, the French Competition Authority fined Google €500 million (US$593 million), the latest in a series of fines dating back to 2018. In March 2013, Microsoft was fined €561 million for failing to provide an alternative to its Internet Explorer browser. The Group of 20 is under pressure to enact a global minimum tax plan, which is aimed directly at tech firms.
Apple and Google are being sued by customers, state governments and service providers. Even former US president Donald Trump is suing Facebook, YouTube and Twitter over their decision to ban him from their platforms. US President Joe Biden has appointed the British-born anti-monopolist Lina Khan as his head of the Federal Trade Commission, the US competition regulator.
Lina Khan, testifying during a Senate committee hearing on Capitol Hill in Washington on April 21, was sworn in as head of the US competition watchdog, the Federal Trade Commission, last month. Photo: Pool via Reuters

This is all-out attack on tech companies, ironically in return for being so successful in becoming national champions, making intergenerational fortunes and becoming so powerful that big government is forced to take notice.

This growing opposition to what a year ago were the jewels in the crown of global capitalism pales before the kind of headwinds that Chinese technology companies now face. Social media companies have long been required to be more social than media, and even then some of the tall poppies have been cut.
The postponement of Ant Financial’s initial public offering last November was the first sign that the Chinese regulators were more willing to feel the collars of top tech firms. Most recently, the whip has fallen on Didi Chuxing – China’s answer to Uber – which decided to list in the US, normally the best place to pick the deep pockets of global investors.
In an extraordinary turn of events, the listing came under heavy fire from right-wing US politicians aligning with Chinese regulators in their opposition to the IPO. Two days after the placement, to the horror of those now not-so-deep-pocketed investors, the Cyberspace Administration of China launched an investigation about the security of the company’s data.

Didi’s holds a 90 per cent market share of all car bookings in China, and the potential treasure trove is the data on trips, locations and even audio recordings of each ride. It illustrates the risk that all tech companies face – that their data could be mined for security information by the wrong people. Other regulators are tackling Didi on alleged high costs for drivers and arbitrary price changes.

A potentially fatal move against the company was the security agency’s order that Didi’s app be removed from domestic app stores for “seriously violating laws on collecting and using personal information”. A ride-hailing company with no app is like a pub with no beer.

These attacks on big tech could lead to the kind of antitrust break-ups the US saw in the days of big steel and big telecoms. Antitrust in 2021, however, is a global phenomenon with an estimated US$1 trillion wiped off the value of Chinese tech stocks this year.

But we should shed no tears for investors, who have done very well out of the counters. It is more a case that the tide had gone out rather than long-term problems with the sector. Monopolies being broken up are not always bad news for investors; it often releases more value for investors over time as less corporate money is taken up in attempting to get ageing chief executives into low-level space.
China’s actions towards its technology champions have been surprisingly draconian, more capricious than the moves in the West. It is true that antitrust movements often have scant regard for the rights of shareholders, but to have no regard is not the way to attract future investment. Investors like to see some boundaries to action and to be able to put a rough floor on what they might lose, but the Chinese actions seem bottomless and almost an own goal.

They engender fear, not confidence, and add risk premium to what should be a nice long-term earner for investors. International investors in Chinese stocks like to see themselves as minority partners sharing in the economics while the Chinese authorities see share ownership as power and control. It is another gulf in philosophy that is splitting the global economy in two.

Richard Harris is chief executive of Port Shelter Investment and is a veteran investment manager, banker, writer and broadcaster and financial expert witness

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