Tech Giants in China Feel Strain as Xi Tightens Grip

BEIJING — For the past decade or so, China has defied the truism that only free and open societies can innovate. Even as the Communist Party has kept an iron grip on politics and discourse, the country’s technology industry has grown to rival Silicon Valley’s in sophistication and ambition.

President Xi Jinping’s tilt toward strongman rule could put all that to the test.

As Xi starts his second term, the Chinese government, which once viewed the internet primarily as a threat to its stranglehold on information, is harnessing big tech companies’ capital and knowledge to realize its broader goals for the country.

At a time when the Trump administration is moving to counter China’s tech prowess, Beijing’s heavier hand could pose its own threat to the country’s competitiveness, and to the innovation that has transformed Chinese firms into global heavyweights.

For China’s government, WeChat, the country’s most popular messaging and social media service, has become a key tool for policing what people say and do. Political activists have reported being followed based on WeChat conversations; chat records have turned up as evidence in court. The e-commerce titan Alibaba, meanwhile, is helping city authorities manage traffic.

The police have used technology from WeChat’s parent company, Tencent, to monitor crowds at public events. JD.com, Alibaba’s main rival in online shopping, is helping China’s military to upgrade its procurement and logistics systems, state media reported recently. (A JD.com spokesman said, however, that its military cooperation was limited to the procurement of goods available to all customers on its site.)

In scientific research — a focus for Xi as economic growth becomes harder to sustain — tech giants have joined with government institutes to run labs in fields like quantum computing, deep learning and human-computer interaction. Soon, Chinese citizens may even be able to use their accounts on Tencent’s and Alibaba’s apps as digital versions of their national ID cards.

U.S. tech firms also do business with governments, of course. And they, too, are sometimes asked to hand over user data to law enforcement agencies.

But in the United States, disagreements can be hammered out in court. China’s judiciary is controlled by the Communist Party. Making themselves useful to the government is often the price that Chinese firms must pay for regulatory and financial blessings — even for the very right to exist as a business.

“If you see the situation clearly and are able to move in sync with the state, you will get great support,” Wang Xiaochuan, chief executive of the internet search company Sogou, said in a recent interview with Phoenix Satellite Television. “But if it’s in your nature to say, ‘I want freedom, I want to sing a tune different from the state’s,’ then you might suffer, more so than in the past.”

Phoenix subsequently removed that portion of the interview from its website. A Sogou spokesman declined to comment.

Chinese tech companies have found a variety of ways of moving in sync with Beijing. Last year, they injected money into a struggling state telecom carrier, precisely the kind of company they had long sought to disrupt.

Regulators picked Tencent and Ant Financial, an Alibaba corporate sibling, to build credit-scoring databases, though their role in those efforts has since been curtailed. Still, their systems and data would be key, analysts say, for China’s ambitions to build a broader “social credit” system that would track people’s financial activities, police records and other public behavior.

Until recently, Tencent’s website said its cloud services helped the Communist Party “standardize and streamline party-building work.” But that page was removed after The New York Times asked Tencent about it. The original web address now points to a page that describes how Tencent can help local governments manage data.

“He’s scared the absolute bejesus out of everyone, which doesn’t normally work in tech,” said Ryan Manuel, a fellow at the University of Hong Kong, referring to Xi, who has been more willing than past leaders to purge officials and arrest high-profile businessmen. “That fear is the antithesis of creativity.” For many years, as Chinese companies became major players in online services, telecom gear, drones and more, the government neither boosted them nor meddled much in their operations. Now, though, as Beijing aims to make China a world technology leader, it is trying to steer private companies more directly, particularly in research and development.

The government’s “Made in China 2025” plan, which seeks to upgrade national capabilities in electric cars, robotics, semiconductors and other advanced industries, is a big factor behind the spiraling trade tensions with the United States.

In areas such as supercomputers, satellite navigation and drones, Xi has pushed Chinese companies to work alongside the military to chase breakthroughs. At a speech last month in Beijing, Xi said that the internet and information technology represented the “most dynamic and promising area for civil-military integration,” according to the state news agency Xinhua.

China’s internet titans have already been roped into the government’s plans to lead in artificial intelligence. Alibaba was designated, in November, as the national champion for developing “smart city” infrastructure. Tencent was picked to fill that role in medical imaging; search giant Baidu is to lead for self-driving cars. A fourth company, iFlytek, was named to spearhead voice recognition.

Divvying up an industry before it has matured risks stifling competition, though. And shoehorning companies into specific activities could discourage them from exploring others.

“Having the state define and pick winners and losers is not how long-term sustainable innovation really happens,” said Tai Ming Cheung, a professor at the University of California, San Diego, who studies technological development in China. Countries that have tried it, from the Soviet Union to Japan, “haven’t really fared well over the long run,” Cheung said.

China’s record is mixed. In the 1960s and ‘70s, Mao’s “two bombs, one satellite” program helped the government develop a nuclear bomb, a ballistic missile and its first satellite. More recently, state guidance has helped Chinese companies gain ground in high-speed rail and renewable power. In other fields, including flat-panel displays and cars, the country’s industrial policy has flopped repeatedly.

For China’s tech giants, working with Beijing has become more important for another reason: Xi has tightened China’s controls on the internet and moved with remarkable force against companies that step out of line.

Sina Weibo, a service that resembles Twitter, lost some of its appeal as a raucous forum amid a coordinated crackdown early in Xi’s tenure on what regulators called rumor-mongering. Last month, regulators clamped down on Bytedance, one of China’s most successful startups, shutting down its humor app and ordering it to clean up “vulgar” content on several of its other apps.

As a result, tech potentates are trying harder than ever to keep the leadership happy. On the third floor of a gleaming Tencent high-rise in Shenzhen, the Communist Party makes its presence within the company literal.

A chart on the wall shows how many employees are party members (more than 8,000 this year). Another display lists the monthly schedule for employees’ party education. (This month’s offering: training sessions on “New Era, New Thought, New Journey.”)

Tencent’s mascot, a jaunty winking penguin, appears throughout with a hammer and sickle on its chest.

Growing numbers of tech industry leaders have also joined the National People’s Congress, China’s rubber-stamp Parliament, and the People’s Political Consultative Conference, an advisory group.

In December, Jack Ma, Alibaba’s executive chairman, announced that the company had started a $1.5 billion poverty relief fund. At a news conference before this year’s legislative session, Pony Ma, Tencent’s chief executive and a returning member of the congress, offered suggestions for improving schools and health care.

“The general secretary’s remarks were very sophisticated and contained a lot of information,” Pony Ma said after discussing innovation with Xi, according to state media, using one of Xi’s official titles. “I filled a full six pages with notes.”

Ma continued: “This is a new opportunity for the rapid development of our innovative companies.”