China has hinted a relaxation of its tech crackdown, but a policy reversal is not imminent

Liu He, China's vice-premier, vowed assistance for the technology sector and plans for internet companies to go public following a meeting with top executives.

China has shown hints of softening its crackdown on the technology sector, which has eroded the worth of its most notable enterprises by billions of dollars.

However, analysts stated that Beijing's recent upbeat language should not be interpreted as a change in policy.

Linghao Bao, a tech analyst at Trivium China, told CNBC's "Squawk Box Europe" on Tuesday, "I believe the large IT businesses will have a grace period for the next six months."

"However, this is not a true U-turn on the tech crackdown; the long-term picture has not yet shifted. Because Beijing has previously determined that it is a bad idea to let large IT businesses go amok because it fosters unfair market competition... "Wealth will become increasingly concentrated at the top, and it will begin to affect politics," he said.

Therefore, the IT crackdown will persist for the foreseeable future.

Beijing has instituted harsher regulations on its domestic technology sector since the end of 2020 in an effort to limit the influence of some of its largest corporations.

Since late 2020, China has increased scrutiny on the technology sector and introduced a slew of new regulation that has tried to rein in the power of its domestic giants. Analysts say that while there appears to be sign of this crackdown easing, there will not be a complete U-turn in policy.
Since late 2020, China has increased scrutiny on the technology sector and introduced a slew of new regulation that has tried to rein in the power of its domestic giants. Analysts say that while there appears to be sign of this crackdown easing, there will not be a complete U-turn in policy.
Kevin Frayer | Getty Images News | Getty Images
 

In the past sixteen months, regulations in sectors ranging from antitrust to data protection have taken effect rapidly. The changes have caught overseas investors off surprise and triggered a significant sell-off in the shares of local heavyweights such as Tencent and Alibaba.

However, Beijing has suggested that some of the surveillance on the tech sector may be eased as its economy faces pressure from Covid's revival and subsequent lockdowns.

In other indications of softening, Chinese officials met with some of the country's top technology executives on Tuesday.

China's Vice-Premier Liu He vowed support for the technology sector and plans for internet companies to go public following the meeting.

In April, Chinese President Xi Jinping presided over a meeting of the Politburo, the highest decision-making body. The Politburo vowed to encourage the "healthy" growth of the so-called platform economy, which encompasses internet enterprises operating in social media and e-commerce.

After Didi's disastrous initial public offering (IPO) last year, Chinese IT companies have mostly refrained from going public. Beijing launched an investigation into the company's cybersecurity shortly after the IPO, charging that the corporation improperly acquired customer data.

On Tuesday, Chinese technology stocks rose after analysts at JPMorgan raised their outlook on a number of internet companies and stated that a number of the sector's most significant concerns have "diminished." The increase in stock prices continued after Liu's remarks.

In spite of Beijing's more reassuring statements, many are skeptical that there will be a significant adjustment in policy.

"I do not believe that regulatory actions will cease in reality. According to Charles Mok, a visiting scholar at Stanford University's Global Digital Policy Incubator, several ministries still have the responsibility to implement all the updated and enhanced legislation.

Even if certain reversals occur, it may be too late to undo the damage. For instance, even if they allow more listings abroad, investor confidence is now destroyed, and international market scrutiny and animosity cannot be regained."

Mok stated that it will be tough to make a U-turn because the regulatory scrutiny has been led by the top of China's political hierarchy.

"This appears to be quite similar to the problems they are experiencing with zero-Covid. Mok stated, "You know it's wrong, but you can't accept it, you can't change course, and all you can do is pay lip service and hope for the best."

Zero Covid is China's policy to eradicate the coronavirus from the mainland by using stringent measures, such as citywide lockdowns and widespread testing. Since late March, the industrial and financial powerhouse metropolis of Shanghai has been under lockdown. China's economy has suffered from its zero Covid policy.

Mok said that the motives for China's regulatory tightening had also not altered.

"Much of the 'tech crackdown' campaign was truly rooted in the desire to expand state control of the digital economy and all the data in the trade, and there is no way that the party would consider these measures to be less vital in light of the current crisis," he stated.

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