It’s about rules, standards, and governance: after the 2021 regulatory effort to produce a set of rules for much of the tech sector, China is about to implement them. Since in some cases these are stringent regulations, such as those on data or—more recently—on financial products, livestreamers and influencers, one will have to observe the ways in which this legislative apparatus will end up affecting the entire sector.
The background for this process is the usual Chinese search for the “next big thing,” heedless of possible “bubbles” and of some mishaps that took place in 2021 (for example, the difficulty in recapitalizing some companies, especially those involved in facial recognition systems).
One of the sectors attracting the highest attention from media and investors is a classic of science fiction literature and film, namely that of self-driving flying cars. In the West as well, this is a sector into which a lot of money is flowing: research published by the car manufacturer Porsche claims that “by 2035, the business of flying vehicles will have a turnover of $32 billion.”
Porsche is said to be planning its own model. In the final weeks of last year, the Chinese startup HT Aero raised $500 million in funding for a project to build vehicles that can both drive on the road and fly. In July, HT Aero unveiled a passenger drone that can stay airborne for 35 minutes at speeds of up to 80 mph (but it appears that this model will not be commercialized).
China seems to be preparing for this new business with swift steps: in December, the Civil Aviation Administration of China (CAAC) said it was about to speed up the process of certifying the airworthiness of self-piloting flying cars, as the industry awaits the green light to commercialize its products.
On the waiting list, in particular, there is the first product from the startup EHang Holdings Ltd, listed in the United States with headquarters in Guangdong; another Chinese company at an advanced stage of development is Xpeng (while the rest of the world is certainly no mere spectator, including Italy: Volocopter, for example, has already presented a project of an electric flying and self-driving cab; or Japan, where flying motorcycles are already on sale, for now at the prohibitive price of €600,000).
Another sector to watch in China will be that of open source software, according to a great expert in the field (as well as investor), Kevin Xu, who on his Interconnected blog wrote: “Recently, the Ministry of Industry and Information Technology (MIIT, China’s main regulator of its tech industry) released a new set of development planning guidance. ‘Open source’ is prominently featured; the term was used 27 times.”
Work is being done on China’s first open source foundation, OpenAtom, which “explicitly sets a target of building 2-3 open source communities with ‘global influence’ by 2025.” As of today, China boasts the second-largest developer community in the world, with a thriving open source ecosystem. According to Xu, the three projects to watch out for are Baidu’s Apollo (autonomous driving), Huawei’s OpenHarmony (operating system) and Alibaba’s OpenXuantie (semiconductor design).
It will also be a crucial year for the virtual yuan, China’s digital currency that is already in an advanced stage of testing and which has led to the banning of cryptocurrencies and mining activities within the country. China’s aim is to internationalize the e-yuan, to enter the business of digital payments (for now controlled exclusively by Alipay and WeChat) and to centrally manage a sort of blockchain with Chinese characteristics, within which NFTs (non-fungible tokens) are beginning to flourish.
In the midst of this usual Chinese fervor (which has not escaped the new mania of the “metaverse,” whatever it ends up being, which has garnered interest from the most active Chinese companies in the digital sector), 2022 will also put to the test the extensive regulatory framework developed in 2021: the law on privacy, the law on data security and the law—still at draft stage—on the control of algorithms. At first, these regulations seemed to impact mostly foreign companies (especially with regard to the obligation to keep data in China, in the name of digital sovereignty) and private companies that have been put to the test by a terrible 2021, which came with fines, failed IPOs, stock market crashes and the exit of many workers.
Nina Xiang, writing in Nikkei Asia, for instance, rightly believes that another element to be taken into account is the policy direction decided by the government, which is to bring private companies to heel so that their activities fit with what they see as the broader needs of the entire country. But, writes Xiang, “if entrepreneurs and investors only focus on sectors encouraged by the government, it will start to sap the overall vitality of China tech’s innovation machine. Innovation does not do well when chained inside a cage. To sum up, the next year will see the beginning of a new era of China Tech 3.0. The internet boom in the 1990s and early 2000s and the ensuing mobile internet and artificial intelligence boom represented a kind of gold rush, with all the alluvial gold already picked up. Going forward, we can expect muted growth and greater operational hardship.”
All true; however, those booms from past decades were themselves largely “pushed” by the government: it was simply the case that at that stage, the direction of private business activities was aligned with the government’s desires.
Today, after a divergence of interests has become obvious, Beijing is demanding that these companies pay their due: after helping them grow in the past, they must now contribute to the “common prosperity” touted by Xi Jinping in a speech on August 17.
For this reason, the semiconductor sector is one to follow with great attention, taking into account that this is a strategic sector being jeopardized by the trade wars with China, another thorn in the side of Beijing’s futuristic vision for 2022.
