Agility Over Stability: China’s Great Reversal in Regulating the Platform Economy

Abstract

This paper develops a new theoretical framework to analyze Chinese regulatory governance by considering the strategic interaction between four key players involved in the regulatory process: the top leadership, the regulators, the firms and the public. By focusing on China’s great reversal in regulating the platform economy, I argue that China’s volatile style of policymaking is deeply ingrained in its authoritarian governance, where power is centralized in the top leadership who also suffers from a chronic information deficit. This often leads to a policy control mechanism that fluctuates between very lax and very harsh enforcement. More specifically, I show how government support, firm lobbying and bureaucratic inertia together contributed to a lag in regulating online platforms. When a crisis loomed, the top leadership quickly mobilized all administrative resources and propaganda to initiate a law enforcement campaign against tech giants. However, without strong judicial oversight, aggressive agency interventions create the risk of over-enforcement and administrative abuse. Thus far, China’s reorientation of its policy control has significantly bolstered its regulatory capacity across various fronts including financial, antitrust and data regulation. By exerting greater oversight over platform governance, the government has pressured tech firms to transfer their wealth to their users and the public to combat income inequality. The government’s heavy-handed approach has also afforded it great leverage to nudge tech firms to prioritize on cutting-edge technologies, and to steer them away from foreign stock markets, thus reducing reliance on the West for both technologies and capital. Despite the campaign’s immediate impact, it remains to be seen whether it will bring about lasting changes, especially in light of the persistent lobbying from tech firms and the risk of regulatory capture. At the same time, the volatile policy swing has itself generated risks and uncertainties for both social welfare and global investment, which in turn could cause turmoil to domestic social and financial stability.