In its earliest iteration, the Cyberspace Administration of China (CAC) used to police the country’s Internet for pornography and sensitive online content. Now, the low-profile agency holds the future of tech firms hungry for initial public offerings (IPOs) in its hands.
Around since 2011, the CAC has burst into prominence over the past few weeks, doing what powerful financial regulators could not by extending its oversight to overseas IPOs, all with the backing of the Chinese State Council.
Under new rules unveiled this month, any company that wants to go public abroad would need to seek CAC approval if they have more than 1 million users. No agency has held such explicit gatekeeper powers before.
Illustration: Yusha
The watchdog — which operates under the Central Cyberspace Affairs Commission chaired by Chinese President Xi Jinping (習近平) — is now at the forefront of Beijing’s attempts to wrest control over one of its most valuable resources: data, the quintessential fuel for a global struggle with the US to dominate the technologies of the future.
“The CAC is now going to the front of the stage upon Xi Jinping’s calling,” said Feng Chucheng (馮楚城), cofounder and partner at research firm Plenum in Beijing.
The government needed to rein in “disorderly expansion of capital, and the Internet companies fall squarely under this warning,” he said.
The agency’s prominent new role in China’s tech crackdown follows months of probes led primarily by the Chinese State Administration of Market Regulation antitrust watchdog, and financial regulators including the People’s Bank of China. It wields a broad mandate to rein in the influence of the country’s largest corporations, focusing on the way they have employed data to shore up their dominance and thwart rivals.
Authorities are also considering establishing a government-backed joint venture with some of the country’s biggest e-commerce platforms to oversee the lucrative data they collect from hundreds of millions of customers, Bloomberg has reported.
More broadly, the crackdown shows how technology is quickly turning into the next major battleground in a clash of superpowers, with implications that could potentially reshape the global economy for decades to come.
With the US lobbying other nations to prevent China from obtaining technology such as advanced computer chips and Xi undertaking a national project to develop them, stringent data security controls risk further disrupting supply chains, balkanizing financial markets and forcing countries to pick sides.
The CAC on July 2 launched a cybersecurity probe into Didi Global Inc, demonstrating how the once-obscure agency is flexing its muscles in ways that could upend capital markets and overhaul the country’s most successful businesses.
The Didi inquiry, which came days after the ride-hailing giant’s US$4.4 billion US listing, set in motion a US$130 billion stock sell-off and forced high-flying start-ups including Alibaba Group Holding Ltd-backed LinkDoc Technology Ltd and Tencent Holdings Ltd-backed Meicai to halt their plans to go public.
The agency then broadened its crackdown, redefining a rarely used rule to require that any company holding data on more than 1 million users must now apply for cybersecurity approval when seeking listings in other nations.
That kind of data could be “affected, controlled and maliciously exploited by foreign governments,” the CAC said in a statement on July 10.
“It’s a necessary change,” said Mark Greeven, a professor specializing in China technology at IMD Business School in Lausanne, Switzerland. “There needs to be a department that deals with big tech, in particular platform businesses, and takes them seriously. For the businesses like Alibaba and Didi, their game is changing. The time of easy business is gone.”
After the government gave it expanded powers at the beginning of this month, the CAC plans to revise rules for overseas listings.
Companies that are already public are to be held accountable for keeping their data secure, the State Council said.
About 70 private firms based in Hong Kong and China that are set to go public in New York might eventually be affected, data compiled by Bloomberg showed.
Bankers say they expect the majority of Chinese IPOs bound for US exchanges to be suspended or diverted to other venues.
Chinese on-demand logistics firm Lalamove is considering shifting its planned US$1 billion US IPO to Hong Kong, Bloomberg News reported, becoming potentially one of the first firms that filed confidentially in the US to reroute to Hong Kong.
The CAC has become emboldened in part because of the state’s push to entwine the importance of data with national security, said Rogier Creemers, assistant professor in Modern Chinese Studies at Leiden University in the Netherlands.
Beijing does not “want an app with data about Chinese individuals to be held by a foreign-owned company and be shopped abroad and used for espionage purposes,” he said.
At its inception, the agency — also known by its Chinese name, the State Internet Information Office — was charged with asserting control over China’s social media, curtailing online debate and instituting stricter rules on content. It flourished under former CAC director Lu Wei (魯煒), who took over in 2013, growing and absorbing other cybersecurity departments.
In 2014, the watchdog began dispatching delegations to international cyberevents and brokering meetings between Xi and technology chieftains such as Facebook Inc cofounder Mark Zuckerberg and Apple Inc chief executive officer Tim Cook. It also established an international Internet conference in the town of Wuzhen, China, that attracted industry leaders from around the world.
However, Lu was removed from office in 2016 on charges of corruption, so Xi appointed Xu Lin (徐麟), a longstanding party official, as his replacement.
The Chinese president had wanted the CAC to become a highly centralized agency for content regulation and cybersecurity policy coordination, and the agency soon expanded its policy and regulatory coordination capacity “across Internet content sectors and broadly the entire cyberspace,” Feng said.
Under Xu, the agency also recruited and promoted more cyberspace and technical professionals to replace propaganda officials. Current CAC Director Zhuang Rongwen once worked as an engineer, before becoming a vice minister at the propaganda department. Two of the four deputy directors also come from the telecommunications and information technology industry.
“The authorities are taking a triage approach by investigating the businesses that can do the most damage from a cybersecurity perspective,” said Carly Ramsey, a director at Control Risks in Shanghai.
Zhuang took the helm in 2018 and has long stressed the importance of data as a critical national asset.
In an op-ed written in the state-owned People’s Daily in 2019, he said that data “will have a significant impact on economic development, governance and everyday life.”
“The capability of controlling data is a key measure in a country’s competitiveness,” he wrote.
Even before Didi’s IPO, the agency had already put China’s tech billionaires on notice. In March, it issued new rules regulating what types of personal information the different kinds of apps should and should not collect.
The regulator swiftly followed up by rapping hundreds of apps for illegally gathering user data, although in most cases, the companies were given time to rectify their issues instead of being penalized right away.
As early as three months before Didi’s debut, the CAC and other regulators asked the ride-hailing giant to delay its offering because of concerns over its huge trove of data, people familiar with the matter have said.
Didi ultimately went ahead with the offering, raising US$4.4 billion in the second-largest debut by a Chinese corporation in US history and setting in motion the crackdown on its operations, as well as on foreign IPOs.
The CAC’s action “goes beyond the punitive measures taken by China’s antitrust authority,” said Lu Xiaomeng (魯曉萌), director of geotechnology at policy consultancy Eurasia Group. “Both the antitrust campaign and the cybersecurity crackdown have signaled Beijing’s intention to rein in major tech platforms to ensure they fall within the party line.”
The broad crackdown is likely to be painful in the short term and the stakes are high, said Kendra Schaefer, a partner at Beijing-based strategic advisory consultancy Trivium China.
The digital economy is projected to grow to 55 percent of China’s overall economy in 2025, up from about 38 percent now.
“What China will do is leave the tech companies in an extreme state of uncertainty for two to three years,” Schaefer said. “What they are thinking is, this is our growth engine. If we don’t get the rules in place, this is going to spiral out of control.”
The term “assassin’s mace” originates from Chinese folklore, describing a concealed weapon used by a weaker hero to defeat a stronger adversary with an unexpected strike. In more general military parlance, the concept refers to an asymmetric capability that targets a critical vulnerability of an adversary. China has found its modern equivalent of the assassin’s mace with its high-altitude electromagnetic pulse (HEMP) weapons, which are nuclear warheads detonated at a high altitude, emitting intense electromagnetic radiation capable of disabling and destroying electronics. An assassin’s mace weapon possesses two essential characteristics: strategic surprise and the ability to neutralize a core dependency.
Chinese President and Chinese Communist Party (CCP) Chairman Xi Jinping (習近平) said in a politburo speech late last month that his party must protect the “bottom line” to prevent systemic threats. The tone of his address was grave, revealing deep anxieties about China’s current state of affairs. Essentially, what he worries most about is systemic threats to China’s normal development as a country. The US-China trade war has turned white hot: China’s export orders have plummeted, Chinese firms and enterprises are shutting up shop, and local debt risks are mounting daily, causing China’s economy to flag externally and hemorrhage internally. China’s
During the “426 rally” organized by the Chinese Nationalist Party (KMT) and the Taiwan People’s Party under the slogan “fight green communism, resist dictatorship,” leaders from the two opposition parties framed it as a battle against an allegedly authoritarian administration led by President William Lai (賴清德). While criticism of the government can be a healthy expression of a vibrant, pluralistic society, and protests are quite common in Taiwan, the discourse of the 426 rally nonetheless betrayed troubling signs of collective amnesia. Specifically, the KMT, which imposed 38 years of martial law in Taiwan from 1949 to 1987, has never fully faced its
When a recall campaign targeting the opposition Chinese Nationalist Party (KMT) legislators was launched, something rather disturbing happened. According to reports, Hualien County Government officials visited several people to verify their signatures. Local authorities allegedly used routine or harmless reasons as an excuse to enter people’s house for investigation. The KMT launched its own recall campaigns, targeting Democratic Progressive Party (DPP) lawmakers, and began to collect signatures. It has been found that some of the KMT-headed counties and cities have allegedly been mobilizing municipal machinery. In Keelung, the director of the Department of Civil Affairs used the household registration system
RSS