Zhou Li, Assistant Dean of CKGSB Authors

The Framework for Success

March 16, 2021

Both the private sector and the state have a responsibility to society.

Over the past decades, the wired world of tech and business have come to dominate economies around the world, and nowhere more than in China and the United States. Interestingly, the power of these massive, almost monopolistic, tech giants, as well as their role and impact on society, are now finally being reconsidered in both places.

The star of private enterprise high-tech in the China world is Jack Ma, who launched China’s most valuable private Chinese company, Alibaba, in 1999. The company and its offshoots dominate e-commerce and digital money in China and have a growing influence in other places around the world, particularly Southeast Asia and Africa. But his latest venture, Ant Financial, hit a problem last November. The company’s initial public offering (IPO) planned for both Hong Kong and Shanghai would have been the largest in history but, at the last minute, the Chinese government canceled the listing.

Speculation afterward as to why the Ant Financial IPO was stopped focused on a speech Ma made in Shanghai in late October in which he was critical of China’s financial industry regulators. But it is more likely the cancellation was related to the growing concerns of the Chinese government about the huge impact that financial technology companies have, and a determination that they should operate in the interests of the public good and not solely in the interests of shareholders.

In early November, regulators unveiled draft antitrust regulations that resulted in a fall in the share prices of many Chinese tech stocks, and the government later fined Alibaba and two other tech companies for not reporting past acquisition deals, closing a regulatory gray area that China’s foreign-listed tech companies had enjoyed. Big Chinese tech companies such as Alibaba and Tencent had not previously had to seek explicit antitrust approval for such deals.

Meanwhile in the United States, large tech firms are also under pressure to be more transparent and responsive to the public good. In mid-December, the FTC and 46 states filed a joint suit against Facebook, stating that it was in effect a monopoly and demanding that it be broken up. It was an action which focused on the power that these massive tech companies have, and questioned the motives of Facebook and, implicitly, the motives of other major tech companies too.

Key sectors of China’s economy are dominated by state-owned enterprises (SOEs) and they operate fully within the system, with the policy goals of the system transcending profit as the main guiding principle. But China’s largest and most influential private companies, which tend to be in either the property or tech sectors, have been operating in a gray area. The articles of association of such companies stress shareholder value, but they are all, to one extent or another, linked to China’s highly centralized economic system.

None of the laws and regulations in any country around the world is capable currently of dealing fully and effectively with companies with the size and power of Ant Financial, Facebook, Google and Tencent. There has been much talk of anti-trust laws being used to address the role of the tech giants in the US, and in China the authorities are stressing the same need to impose limits on the activities of these giant companies. It is a synchronicity of trends addressing what is seen by the authorities in both countries as a lack of self-discipline on the part of private entrepreneurs, and a failure to consider the full social implications of their business activities.

Where self-discipline and self-regulation are absent, government regulation will emerge. Given the breakneck pace at which the tech world and fintech in particular have developed, the regulations are always behind. Capitalism—in fact, any system—at its extremes is a problem. As the current Secretary-General of the United Nations António Guterres has pointed out, 26 people in the world hold half of the world’s wealth, and while capitalism in all its various forms is global, the jobs and social issues created are local.

Ant Financial, a financial technology company that operates much like a bank, takes in funds and dispenses loans through its online platform. It started out as a provider of loans at reasonable rates to small and medium private enterprises, but it has latterly been widely criticized for charging high interest rates on many of its loans.

As China emerges from the pandemic, the role of private businesses in the economy is once again coming to the fore. The performance of the Chinese economy through the difficult months of 2020 showed how important the private sector is in maintaining employment and general economic development, and its role will continue to be bolstered in the difficult times ahead.

But companies need to know where to draw the line, to not take advantage of areas relatively unregulated and to operate to the clear benefit of society. The Chinese government in recent months has stressed two things: the importance of private enterprise to the maintenance and growth of the economy, and the need for all companies, from SOEs to private and foreign firms, to operate strictly in line with government regulations.

The biggest players in China’s corporate world are the SOEs, a group of companies with significant control and influence over major sectors of the economy—finance, energy, transport and construction—and the message from the center in recent times has been the flipside of the message being sent to private companies. While the first duty of the SOEs is to support policy directives, they are being told that they must also operate more on commercial terms and meet the requirements of the markets.

A rash of defaults and financial problems in 2020 involving SOEs has highlighted inefficiency and high debt levels, but it is a tricky problem to resolve because SOEs are so fundamental to China’s economy. A spate of regulations and announcements indicate that authorities have less and less patience for SOEs operating inefficiently.

Wang Min, President of XCMG Group, the country’s biggest construction machinery business, recently told the Financial Times that struggling SOEs in China were not worth rescuing because they could not survive without government backing. “The fall of state firms isn’t just a result of bad management, unclear strategy and inadequate entrepreneurship,” he said. “It also has to do with government mismanagement that puts [unreasonable] performance targets on these companies.”

“Let them die and don’t save them,” he added. “Government protection won’t create a good company [but] competition will.”

While the markets have to some degree interpreted Beijing’s decision to cancel the Ant Financial IPO as a negative in terms of corporate diversity, there is another way of looking at it: China’s economy, like all economies around the world, is facing significant challenges, and the authorities are concerned about the potential for economic or systemic disruption. Most experts agree that one sector that could cause a crisis in China’s economy is the finance industry in general and fintech in particular.

China’s small- and medum-sized enterprises were harder hit by the COVID-19 crisis than any other part of the corporate economy, but the majority were saved thanks to a very proactive response by the authorities, providing bridge loans and other assistance.

The new Dual Circulation economic policy is also encouraging everyone to focus on China’s domestic economy and make use of the massive potential of a market of 1.4 billion people. Many companies are investing in response to the opportunities that are being created by this policy.

Both China and the US have their own ways of regulating and controlling the activities of companies in the midst of the process. There has always been and always will be a framework of control within which companies must operate in any country, and the tech sector right now is the one which the world seems to have decided must be brought to heel.

Our Programs

Building Digital Ecosystems

Jointly offered by CKGSB and IMD Business School, this program offers a comprehensive understanding of successful digital ecosystems from both China and the USA through the latest case studies and cutting-edge research.


DateNov 6-10, 2023


Learn more

Luxury Management: Food, Fashion & Furniture

Global Unicorn Program Series

Co-developed by CKGSB and SDA Bocconi School of Management, this program unravels luxury management—particularly in the food, fashion and furniture sectors—and emerging technologies, such as Fintech and AI.


DateNov 13-16, 2023


Learn more

Emerging Tech Management Week: Silicon Valley

Co-developed by CKGSB, UC Berkeley College of Engineering, and IE Business School, this program equips participants with proven strategies, cutting-edge research, and the best-in-class advice to fuel innovation, seize emerging tech developments, and catalyse transformation within their organization.

LocationBerkeley, USA

DateNov 5-11, 2023


Learn more

Frontiers in Social Innovation

Global Unicorn Program Series

In collaboration with the Stanford Center for Professional Development (SCPD), this CKGSB program equips entrepreneurs, intrapreneurs and key stakeholders with the tools, insights, and skills necessary to lead a new generation of unicorn companies.

LocationStanford, California, USA

DateDec 11-15, 2023


Learn more