The relationship between the Chinese government and its private tech sector can appear mystifying. Beijing seems to be asserting more control over Chinese tech giants, for example, by cracking down on Alibaba and Tencent for growing too powerful. At the same time, the Chinese leadership recognizes that it must also allow some degree of independence for firms to be efficient and profitable.

To China’s leaders, this position is not paradoxical. As Xi Jinping recently remarked, “We encourage the development of private businesses. When they encounter difficulties [and] confusion arises,” the Chinese Communist Party (CCP) provides “guidance” so that “they can develop boldly and with confidence.”

What constitutes “difficulties” is up to the CCP to decide, and so are the methods for course correction when private firms are “confused.”

To put this idea into practice, the government is taking the carrot-and-stick approach. For example, in September 2020, the CCP Central Committee issued a document, signaling to private firms that they should “unswervingly follow the Party and devote themselves to development.” The following month, Xi personally intervened to block the $34 billion initial public offerings of Alibaba’s Ant Group, further tightening his grip on China’s private tech sector. Now, Ant is in talks with Chinese state-owned firms, which may result in a joint venture with access to Chinese consumer data.

Recent research from Georgetown University’s Center for Security and Emerging Technology (CSET) shows that alongside the more coercive measures, the government also uses financial incentives such as venture capital financing, tax incentives, and subsidies to ensure that private firms prioritize China’s technological goals. One government-sponsored group that distributes such incentives and facilitates public-private collaboration is the Artificial Intelligence Industry Alliance.

Read the full article at The Diplomat.