Angela Huyue Zhang
Says More…
This week in Say More, PS talks with Angela Huyue Zhang, Director of the Center for Chinese Law at the University of Hong Kong and the author of Chinese Antitrust Exceptionalism: How the Rise of China Challenges Global Regulation.
Project Syndicate: Last November, you wrote that new draft guidelines for tech platforms – especially the requirement that users opt in to personalization – could cause significant harm to tech companies. But to what extent might the new guidelines benefit consumers? The rules coming into force on March 1 also target companies that use algorithm-based recommendations in their services but include only an opt-out requirement. Does that strike a better balance between the interests of consumers and tech companies?
Angela Huyue Zhang: My guess is that the opt-out requirement won’t have much of an impact on Chinese tech companies’ business operations. Most Chinese consumers probably won’t opt out from recommendation and personalization services, either because they simply don’t bother to take the extra step or because they don’t realize it is an option. The opt-in requirement, however, could have a drastic and disruptive impact on platform businesses.
But the introduction of such a requirement may not turn out to be as good for consumers as one might assume. As I note in my commentary, when Apple began prompting iPhone users with the opportunity to opt out of tracking, 84% took it. If a similarly large share of Chinese consumers opted out of personalization, collecting and using personal data would become much more costly for both platforms and merchants. The increased cost would eventually be passed on to consumers, with currently-free apps introducing charges and merchants increasing the prices of their products. While surveillance capitalism has been widely criticized, it is important to remember that consumers cannot have their cake and eat it.
PS: You have often highlighted the institutional dimension of Chinese regulation, noting that “a department’s mission and objectives determine its stance and approach toward regulating businesses.” For example, you argue that the Cyberspace Administration of China has “big regulatory ambitions.” What hurdles must the CAC overcome to achieve its objectives? What does a strong CAC mean for China’s tech companies?
AHZ: In China, a patchwork of regulatory bodies at the central and local levels share authority over data governance. The CAC is the central coordinator of the legislative initiatives and enforcement actions among these different agencies – a task that demands significant manpower and resources. Given this pivotal role, the CAC is a very powerful regulator of the digital domain in China.
That might not be good news for China’s innovators. If the CAC intervenes excessively into cyber governance – a distinct possibility – it will likely become more difficult for Chinese tech firms to thrive. This could potentially curb not only the growth of consumer internet businesses but also progress in artificial intelligence, which requires the collection of vast amounts of data.
PS: As you pointed out last March, China’s regulatory crackdown began after an October 2020 speech by Jack Ma, the founder of Alibaba, in which he criticized financial regulators for being too risk-averse and hampering the financial sector’s development. Did he have a point? What flaws in China’s existing regulatory regime would you like to see corrected most urgently?
AHZ: I do agree with Jack Ma on one point: regulating fintech is different from regulating traditional banks. But he failed to advance a detailed proposal for how China’s financial regulators should approach fintech. Moreover, I share the concerns of Chinese financial regulators that Ant Group’s lending business carries some serious moral-hazard risks.
I think the most fundamental flaw in China’s existing regulatory regime is inadequate due-process protection for businesses and individuals. To hold agencies accountable, we need more transparency in the regulatory process and more opportunities for public participation and consultation. Above all, Chinese regulatory authorities need to ensure that their activities are in line with the administrative procedure law.
BY THE WAY . . .
PS: In your recent book, Chinese Antitrust Exceptionalism: How the Rise of China Challenges Global Regulation, you point to ways Chinese antitrust law can be used to counter aggressive US sanctions. What immediate opportunities should China be seizing?
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AHZ: With its increasing aggression in exercising long-arm jurisdiction, sanctioning Chinese tech firms, and hampering the supply of critical components to China, the United States is provoking China. Antitrust is a powerful weapon that China can use to retaliate, because it enables Chinese regulators to hold up offshore mergers and to intervene in overseas business activities, as long as such activities affect Chinese consumers in some way.
Already, it is becoming more difficult for US companies to obtain antitrust clearance for mergers relating to critical sectors such as semiconductors. For example, Qualcomm’s proposed acquisition of NXP and Applied Materials’ attempt to acquire Kokusai Electric collapsed, because the parties could not obtain approval from China in time.
PS: In your book, you also highlight the importance of economic exchanges between China and the West to ease tensions and even forestall conflict. As it stands, however, American regulators, in particular, are making life harder for Chinese firms. How sound is the logic of their approach, from an economic and regulatory standpoint, and how might it affect the trajectory of US-China competition?
AHZ: I think US efforts to hurt China economically are self-defeating, at best. Far from depleting Chinese dynamism, US sanctions and boycotts have generated a “Sputnik moment” in China, mobilizing a whole-of-country effort to close the technological gap through progress in areas like semiconductors, biotechnology, and advanced robotics. While China remains decades behind in some areas (such as semiconductors), widespread awareness among both public and private actors of the importance of self-reliance – together with significant investment in achieving it – means that progress is likely to accelerate.
By driving away Chinese firms, Western governments are losing leverage over China. At the same time, China is increasing its leverage over Western businesses, as it continues to open up its domestic market to foreign investors in many sectors, from finance to the automobile industry.
PS: Friedrich Nietzsche once wrote, “What does not kill me makes me stronger.” Last May, you applied the aphorism to Big Tech, which you called the “regenerative starfish of our times.” By contrast, some smaller businesses have struggled to adapt to stringent regulatory demands under the European Union’s General Data Protection Regulation. What will it take to create a more level playing field in the tech sector?
AHZ: One promising tool here is antitrust law, which could prohibit tech giants from acquiring nascent rivals and prevent them from creating “walled gardens” that place their rivals at a disadvantage. But antitrust alone will not be sufficient, as it is often too little too late.
In fact, the EU is now seeking to introduce new legislation to make up for the shortcomings of competition law. Two proposals that are being deliberated – the Digital Markets Act and the Digital Services Act – would impose more responsibilities on Big Tech, thereby helping to level the playing field. It remains to be seen whether they will be effective – or have unintended consequences.
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