Michael Sainsbury
November 2, 2017

Emperor Xi and the tech giants

Trade

Emperor Xi and the tech giants

Xi Jinping: The tech giants know where their next bowl of rice is coming from

It is already last month’s news that Chinese leader Xi Jinping emerged triumphant from the 19th Communist Party Congress as the effective one-man ruler – some would say dictator – of the world’s largest economy and Australia’s biggest trading partner.

What hasn’t been so widely noted, in Australia especially, is the strong push that Xi made for innovation policy as he laid out his program for the next five years.

In his keynote ‘work report’ to the Congress on its opening day on October 18, Xi said innovation was the primary force that was driving development and the strategic underpinning for building a modernised economy.

"We will strengthen basic research in applied sciences, launch major national science and technology projects, and prioritise innovation in key generic technologies, cutting-edge frontier technologies, modern engineering technologies, and disruptive technologies," he said.

He broadly noted that China would improve its science and technology, product quality, aerospace, cyberspace, and transportation, as well as for building a digital China and a smart society.

The official English version of Xi’s speech still has not been made available by Chinese authorities, an unusual delay already causing some disquiet.

While private enterprise continues to drive the majority of the economy, it is the state’s top-down push that still ranks priorities for the country and makes clear where the rewards will be. In China, smart private operators follow the state’s lead.

In a top-down system like China’s, the movements of senior party and government personnel are key indicators of where things are going.

All top cadres are officially appointed by the Party’s powerful Organisation Department (with Xi’s blessing) – a body whose most senior official Zhao Leji grabbed one of the five available slots in the elite seven man standing committee of the central politburo (so far, no women in its 68-year history) where Xi is ranked Number One.

Since his coronation as China’s latest modern day emperor, Xi has quickly busied himself filling slots made vacant by retirements (the present rule of thumb is anyone who finished their current term over 68 years old), and promotions into the elite Politburo Standing Committee (PBSC).

One of the key jobs in China is general secretary of the Municipality of Shanghai. It is a job that both Xi and one of his predecessors in the top job in Jiang Zemin held previously.

It is virtually a guarantee of promotion into the PBCS. As well as Xi and Jiang, its past two leaders were also in the top tier: Yu Zhengsheng, who had to retire from the PBSC last week and Hen Zeng – freshly promoted to the latest PBSC.

The latest appointee to run China’s premier financial hub is Li Qiang, a cadre who was previously Xi’s own private secretary, and who also worked with him in the wealthy southern province of Zhejiang.

It is telling, that in the summary of the first batch of new appointments made by Xi, the short summary in the official state-media wire Xinhua of Li’s priorities said that “innovation” would be his key priority.

Another noteworthy, if expected, appointment was that of Hu Chunhua, who was replaced this week as the party secretary of the economically and technologically critical southern province of Guangdong, as one of three Vice-Premiers.

Hu, who remains in contention to replace Xi Jinping should he step down in 2022 as recent practice would dictate (although many commentators believe he will seek an unprecedented third five-year term), has presided over the transformation of Guangdong.

All this focus on innovation is naturally heartening, and would appear to open the door to opportunity for Australian tech and innovation players. But it is China’s own big – and some of the emerging – tech firms that will continue to be the real winners.

As noted previously in InnovationAus.com, these are the big four Chinese internet/multimedia firms are Alibaba, Baidu, Tencent and Sina – along with computer maker Lenovo, telecoms groups Huawei and ZTE, and emerging mobile device makers like Oppo and Xiaomi.

All of these companies and their founders/chief executives are squarely lined up behind Xi. If you want to understand just how much these firms have fallen into line (and how they know which side of the plate their rice will be put) consider this:

For the Party Congress, Tencent, which operates China’s ubiquitous mobile messaging application WeChat, developed a new propaganda app called ‘Excellent Speech: Clap for Xi Jinping’.

This app included a ‘game’ where users had 19 seconds to press the screen and applaud as many times as possible during Xi’s speech. It went viral, and by the time Xi’s speech has finished it on October 18, it was played, whether out of real enthusiasm or irony, over 400 million times.

And despite the Party’s notorious national internet censorship program known as the Great Firewall of China, and despite the active campaign by Beijing to methodically remove the network and product technology from international tech firms, the sheer size of the market keeps these international companies coming back.

To underscore both his own message, as well as a mark of the desperation of major US tech companies seeking to grab their slice of the market of 1.3 billion people, one of the first groups that Xi spoke to after his triumphant coronation on October 25 was a party of tech leaders.

On October 30 at Beijing’s Tsinghua University Xi met with Facebook founder Mark Zuckerberg – who has famously been learning Mandarin – and Apple’s Tim Cook, whose iPhoneX is only a week away from release in China. Both are among a group of advisors to the storied institution’s business school.

“Every year this trip is a great way to keep up with the pace of innovation and entrepreneurship in China,” Zuckerberg said on his Facebook page after the meeting.

China’s tech giants are compliant to the wishes of the Party – and any Australian company trying its hand at the market had better be too.

But so deep-set is the suspicion and lack of trust in China that the Party also announced ahead of the Congress that it would take a small stake in all China’s major companies of at least one per cent.

Just in case.

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