China’s regulatory crackdown is good news for startups aligned with CCP goals

Watching the Chinese technology sector over the last week has been a fascinating exercise. The Chinese government took on entire industries like edtech while also coming down on individual companies (Tencent, Meituan) in a broad effort to change the country’s technology landscape.

The sum of the financial damage is easy to understand. The NASDAQ Golden Dragon China Index, for example, which tracks U.S.-listed companies that do their business in China, fell from a 52-week high set earlier this year of 20,893.02 to 10,672.37 yesterday. You can also track the decline in value of various Chinese technology companies both on-shore and on foreign exchanges if you want to get an even fuller picture of the financial carnage.

It’s common among commentators and analysts to draw a direct line between the blocked Ant Group IPO last year, the ensuing fall from grace of Chinese entrepreneur Jack Ma, and the latest news out of the Chinese Communist Party’s (CCP) regulatory bodies. That’s reasonable. Things are changing in China, and the regulatory landscape of tech work in the country won’t be the same from here on out.

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We’ve explored the moment a little, noting last week that edtech investment could slow in the country provided that the government went through with its plan to force tutoring companies to go nonprofit. The government then did so, and more, also blocking tutoring companies from being formed, going public, raising external capital from foreign sources and more. It was comprehensive. Natasha Mascarenhas has a great read on the matter here.

So, bad news for startups? After all, if edtech investment could slow in the face of regulatory changes, what about other technology-influenced areas of business?

The negative case is somewhat easy to make. The positive case is more interesting. Some market watchers are making the argument that by taking on some of China’s largest technology companies, more room could be cleared in the country for smaller companies to snag a piece of business.

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