My Take | When entrepreneurship is discouraged, all of China suffers
- Among the many casualties of a tech sector clampdown is entrepreneurship, which had been a key source of China’s economic vitality
- In an environment where executives are ashamed of their strengths, trust in private entrepreneurship can quickly evaporate
The era of exceptional growth in China’s tech sector is drawing to an end, as evidenced by the widespread revenue slowdown, profit decline and job cuts among the country’s once-high-flying tech champions.
The implications of crushed enthusiasm for the tech sector could go beyond just a direct hit on stock market valuation; it could have a lasting impact on China’s social ideology and the country’s future direction.
Among the many casualties of a tech sector clampdown in China is entrepreneurship, which had been a key source of the nation’s economic vitality. After all, if aspirations to create large and successful businesses are not encouraged or even punished by the government, why bother to try? Why not just “lie flat”?
The 2021 financial reports of many Chinese Big Tech firms, released in recent weeks, looked either disappointing or boring. But there are whispers that some Chinese tech executives were happy to see “bad” business results because their foremost priority is to show the general public and authorities that their companies are actually not that big, not that profitable, and not that influential, so that there will hopefully be less scrutiny.
In an environment where executives are ashamed of their strengths, trust in private entrepreneurship can quickly evaporate and drag the whole society into a mode of “economic conservatism”.
A growing number of Chinese youth, particularly the best educated, now consider an “iron rice bowl” – a career with a steady government salary – as ideal work, rather than a position in the private sector. This stands in stark contrast with the early 1990s, when Deng Xiaoping’s support for the market economy persuaded many of China’s most ambitious young people to leave the state sector for what was painted as a more exciting, although less certain, future in the private economy.
If China keeps treating private capital as a source of chaos that must be brought under rigid control, the country’s Big Tech firms will struggle to fit into the broader social and economic structure. In turn, these companies may turn their businesses into low-margin utility services, a change that would upend their fundamental value, or lead to the split-up of tech giants into smaller units.