Agility over Stability: China's Great Reversal in Regulating the Platform Economy

Abstract

This Article develops the HAPPY model containing five essential elements to study Chinese regulation: the regulatory process is hierarchical, the top leadership is adaptable, the Chinese regulators are parochial, the firms are pliant and the Chinese public need to yelp to be heard. By focusing on China’s great reversal in regulating the platform economy, I show that Chinese policy volatilities have stemmed from the hierarchical structure in which power is centralized among top leaders, who also suffer from a chronic deficit of information. I particularly highlight how favorable support from the top leadership, aggressive lobbying from tech firms, and the bureaucratic inertia of the regulators together contributed to a lag in regulating Chinese online platforms. When a crisis looms, the top leadership quickly mobilizes all administrative resources and propaganda to initiate a law enforcement campaign against tech giants. However, without strong judicial oversight, aggressive agency interventions create the risk of over-enforcement and administrative abuse. Thus far, China’s reorientation of its policy control has significantly bolstered its regulatory capacity across various fronts including financial, antitrust, and data regulation. By exerting greater oversight over platform governance, the government has enhanced the bargaining power of the various platform participants in dealing with the platforms. The government’s heavy-handed approach has also afforded it great leverage to nudge tech firms to prioritize developing cutting-edge technologies, and to steer them away from foreign stock markets, thus reducing reliance on the West for both technologies and capital. Despite the campaign’s immediate impact, it remains to be seen whether it will bring about lasting changes, especially in light of the persistent lobbying from tech firms and the risk of regulatory capture. At the same time, the volatile policy swing has itself generated risks and uncertainties, which in turn could cause turmoil to domestic social and financial stability. As the rest of the world is similarly confronted with thorny questions about how to rein in Big Tech, China’s experience with platform regulation could offer some lessons that inform the global policy debate. Although this Article focuses primarily on the platform economy, the HAPPY model has the promise to shed light on the complexity and dynamics in other areas of regulatory governance in China and beyond.