Despite an easing of regulatory campaigns targeting major technology firms, new regulations and private sector oversight suggest Beijing plans to manage technological development with a firm hand for the foreseeable future. These changes will increase compliance and reputational risks for Chinese technology firms and their Western partners. Since early January, Chinese regulators and Communist Party leaders have called off long-standing investigations into the tech sector, partly to kickstart economic growth following China's economic slowdown of 2022. First, the head of China's Central Banking and Insurance Regulatory Commission (CBIRC) noted on Jan. 7 that the campaign to "rectify the financial businesses of 14 platform companies" had concluded. And the Central Commission for Discipline Inspection revealed on Jan. 10 that it had removed the platform economy from its list of focus areas for anti-corruption investigations in 2023. State investigations into particular companies have also wrapped up lately, as authorities on Jan. 13 ended their 18-month ban on ride-hailing giant Didi Global Inc. posting its apps on Chinese app stores, following an investigation into its June 2021 initial public offering. And on Dec. 30, 2022, the CBIRC allowed fintech giant Ant Group's online lending subsidiary to increase registered capital by $1.5 billion after a year-long investigation into the company's financial activities. At the elite level, too, support for the sector is growing, with Premier Li Keqiang on Jan. 13 urging the state market regulator to "support the healthy and sustainable development of the platform economy." These developments coincide with Chinese leaders expressing concern about the economy following China's lackluster 2022 gross domestic product growth of 3.0%, significantly below Beijing's goal of "around 5.5%," as well as comments about sparking economic growth in part by easing tech sector investigations.

• The investigations were meant to bring tech companies back in line with state authority following years of relative impunity for the sector's leading companies, and they began with Ant's suspended IPO in November 2020 following founder Jack Ma's disparaging comments toward financial regulators. The government's subsequent regulatory scrutiny on Ant Group — as well as Tencent, JD.com, Pinduoduo and countless other tech giants — effectively ended the Wild West era of Big Tech in China, whereby tech companies could gather and process data, conduct mergers and acquisitions, and innovate freely with few restrictions from Beijing. 
• The exact reason for the crackdown is still not entirely clear, as Beijing's explanations (e.g., concerns about data security) are often only the tip of the iceberg. But it seems the investigations were prompted by Beijing's displeasure with the industry's lack of political loyalty (evidenced by Ma's comments), control over data at the expense of the state, disregard for regulators' ideas about best practices on tech norms, and lack of alignment with China's long-term innovation goals. 

However, other moves to extend Beijing's reach in the tech industry suggest that state scrutiny of the sector will continue through different means. On Jan. 13, Chinese state-owned companies bought "golden shares" (typically 1% stakes that allow board membership with veto privileges) in two Alibaba subsidiaries, one related to television and film and the other to research and development, according to the Financial Times. State-owned firms are also in the process of securing golden shares in subsidiaries of gaming and social media giant Tencent. On Jan. 18, state news outlet Beijing Daily announced the Transportation Ministry was launching Qiangguo Jiaotong, an umbrella platform hosting digital payments giant AliPay, superapp WeChat and dozens of ride-hailing services. It will offer ride-hailing services to the general public, starting with state employees, in order to "maximize the protection of user data security and personal privacy." The article claimed the platform will eventually capture over 90% of the ride-hailing market. Additionally, Beijing over the last year has continued to pass laws regulating the behavior of tech companies, including an expansion of the anti-monopoly law (June 2022) and a draft update to the counter-espionage law (December 2022), which mandates participation by Big Tech and logistics companies in enforcement and public monitoring for espionage threats.

This state impingement on private sector activities and expansion of regulations shows that heavy state oversight is here to stay, which will weigh on the tech sector's growth. Beijing intends to use its golden shares to maintain state control over the tech sector, especially over content moderation, and guide private sector innovation priorities as authorities navigate China's transition to a high-end manufacturing and services-based economy, which is made all the more difficult by U.S. efforts to limit China's access to key technologies and bar Chinese national champions from global markets. Growing regulation, likewise, is meant to align corporations' research and development strategies with state industrial policies and rein in the corporate excesses of Big Tech's Wild West era. And oversight of ride-hailing services is just one part of Beijing's broader plan to firmly establish data sovereignty, whereby the Chinese government oversees data flows within and out of China just like it oversees territorial sovereignty. This data oversight will help prevent negative narratives about China's political and economic activities (e.g., CCP infighting and ceaseless population decline) from propagating at home and abroad.

This new normal of greater state intervention in the private sector and regulatory scrutiny will stifle innovation outside of state-sanctioned sectors, as well as spawn compliance and reputational risks for Chinese tech firms and their Western partners. This persistent regulatory scrutiny and government participation in the private tech sector may stifle innovation as compliance burdens grow and investment flows are closely watched, even if oversight of mergers and acquisitions helps protect smaller innovators from death by buy-out, which could pour cold water on China's global leadership in new technologies. Notable exceptions to this stifling environment for investment will be fields in which Beijing's innovation interests overlap with those of the private sector — particularly in "strategic emerging industries" like artificial intelligence, smart manufacturing, new energy vehicles and biotechnology — where access to state resources and smoother licensing processes will accelerate development horizons. But even in these industries, new regulations may pose compliance burdens, depending on how much enforcement leeway Beijing offers. This heavy oversight may also constrict the talent pipeline from Chinese universities to Big Tech, as companies like Alibaba and Tencent are no longer viewed as the places where youthful tech dreams become reality and new products swiftly come to market. In the West, Beijing's use of golden shares and umbrella companies for industry oversight will only deepen fears (especially in the U.S. Congress) that China's ostensibly private tech sector is just another arm of the CCP, further raising the prospect of new investment restrictions or outright bans on Chinese companies from the U.S. market, as is currently happening with TikTok, in whose parent company (ByteDance) Beijing already has golden shares. At home, Beijing will need this greater influence over Big Tech to manage renewed social unrest following the anti-"zero-COVID" protests of Nov. 25-27, 2022. This need will prompt deeper public-private collaboration on public surveillance and content management, as well as foreign media scrutiny and concomitant reputational risks for Western companies working with Chinese tech giants as accusations of aiding and abetting the Chinese government multiply, regardless of their veracity.