After years of thriving under Beijing’s relatively light hand, China’s fast-growing technology sector is facing an unfamiliar situation: stepped-up government scrutiny.
Chinese companies are accustomed to obeying government orders, but in recent months pressure to fall in line with Beijing’s mandates has intensified, people working at tech companies say and government actions show.
Powerful companies including Tencent Holdings Ltd. TCEHY -1.25% , Beijing Bytedance Technology Co. and ride-share company Didi Chuxing Technology Co., and others have all been slapped for infractions involving objectionable content and consumer safety.
The government-affairs team at one of China’s biggest internet companies has shifted its focus to working more closely with the Communist Party, instead of high-level ministry bureaucrats, underscoring the growing influence of party control in the tech sector, a person familiar with the situation said.
At another tech company a manager said pressure has increased. “We don’t dare to do anything that the government doesn’t agree to,” the manager said. “The consequences could be very grave.”
The woes of heightened scrutiny are compounded by China’s economic downturn. Costs to meet new regulations are pinching companies as consumers spend less.
Leaders of tech companies in China regularly demonstrate their fealty to Beijing, lacking the same degree of leeway to push back against political leaders as in the U.S. and other democracies.
Alibaba Group Holding Ltd. founder Jack Ma, Tencent’s chief executive Pony Ma and Baidu chief executive Robin Li were among the dozens honored this monthfor their contribution to China’s market reforms in a government ceremony attended by President Xi Jinping.
They each published essays in the July issue of China’s internet regulator’s official magazine describing how their technologies can help the government build a safer cyberspace.
Tencent’s Mr. Ma further emphasized that message in November at the state-hosted internet conference in Wuzhen, near Shanghai.
“We will make our company stronger and better, increase investment in both frontier and basic science and technology, and realize the dream of vitalizing the country through network, science and technology,” he said in a speech.
The closer scrutiny of tech companies comes as Mr. Xi seeks to restore the Communist Party’s pre-eminence as a force in people’s lives and to establish that the Party—and not the private sector—is charting the course for China’s future.
It comes as jitters grow among private businesses over China’s economic downturn and Beijing’s tightening control. In a move to ease concerns, Mr. Xi met with a group of executives, including Tencent’s Mr. Ma and Baidu’s Mr. Li in November, where he assured that private-property rights would be protected and that the government would treat private and public sectors fairly.
Tech companies remain key to China’s economic growth, however, and among technology investors, there are many who remain optimistic.
“Chinese entrepreneurs are still very aggressive,” said Harry Man, a partner at venture firm Matrix Partners China. “And very much want to win.”
That said, the tech clampdown has raised fears that the growth of China’s tech sector could be stymied.
“They produced disruptive, powerful, and estimable business models,” said Sebastian Heilmann, a professor at the University of Trier in Germany who has written about Chinese politics and technology. “If this is not possible in the future anymore, it will come to hurt the whole technological push and scientific push of China for global leadership.”
The Cyberspace Administration of China, the Ministry of Culture and Tourism, which oversees content-related issues, and the information office of the State Council, China’s cabinet, didn’t respond to a request for comment.
Outside China, regulators in the U.S. and Europe are also debating how to deal with the influential power that companies such as Twitter Inc., Facebook Inc. and Alphabet Inc.’sGoogle wield over people’s lives.
But China differs fundamentally, since the government has the power to shut down companies and even entire industries at will. Chinese regulators haven’t greenlighted the sale of new online games titles since March—hammering Tencent, which reported a sharp decline in smartphone-based gaming revenue in its latest quarterly earnings.
The company didn’t mention the government’s freeze on videogame approvals in its prepared earnings remarks, suggesting that Tencent wanted to avoid agitating the government, according to a person familiar with the company’s approach.
A Tencent spokeswoman didn’t respond to a request for comment.
China’s cyber censor in November issued new rules to control online speech. Video live-streaming, a popular service in China especially among the youth, was also targeted in August when the government issued new guidelines mandating that their content is “healthy.”
Ride-hailing company Didi has come under fire after two deaths of female passengers, which police said came at the hands of Didi drivers.
As a part of an industrywide audit, government officials worked inside Didi’s headquarters in Beijing for days in September and interviewed employees, the government has said. In October the company said it was hiring 1,000 Communist Party members as role models for customer service.
China’s economic slowdown could lead government officials to ease up on tech companies, said Bruce McConnell, vice president at EastWest Institute, a New York think tank.
Yet the trend of expanding government oversight will likely continue as the influence of tech companies on Chinese society keeps expanding, said Mr. McConnell, a former U.S. Department of Homeland Security cyberspace expert.
“Uncertainty is not something the Chinese political system is very comfortable with,” he said. “The days of the Wild West are ending.”
By Yoko Kubota
Wall Street Jornal