In a recent interview with Angela Huyue Zhang, a law professor from Hong Kong who is set to teach at the University of Southern California this fall, I was struck by her insights on interpreting the logic and patterns behind China’s tech regulations. We discussed how the Chinese government often vacillates between regulating tech too heavily and not enough, how local governments go to great lengths to protect local tech companies, and why AI companies in China are currently receiving more government support than other sectors.
One particularly interesting aspect of our conversation was Zhang’s explanation of how market overreactions to Chinese tech policies have become an important tool for tech regulators today. The capital markets are constantly making bets on whether tech companies will thrive or suffer, always on the lookout for policy signals indicating China’s stance on specific technologies. As a result, they tend to overreact to every move made by the Chinese government.
For example, last December, a draft proposal was released to regulate and limit gaming activities. Although the proposal was not significantly unusual, investors panicked, leading to a significant drop in the market value of China’s top gaming companies. This incident highlights the significant impact that market reactions can have on tech companies in China. In previous crackdowns, the most significant harm suffered by these firms came in the form of changing market sentiment, rather than monetary fines. The drastic responses from the market actually prompted China’s tech regulators to shelve the draft law temporarily to ease market fears.
Zhang points out that these fluctuations in market sentiment can have a more significant impact on tech firms than actual regulatory actions. It is essential for investors and policymakers alike to understand this dynamic when interpreting Chinese technology regulations.
