The stock collapsed and policy overhaul: China’s tech crackdown: Current Affairs Special Series

Team Adda247 and BankersAdda are here with a Current Affairs Special Series. In this series, candidates will be introduced to current affairs topics daily, which will not only improve their general awareness but also will ensure that the candidates do not lack in any current affairs topic. Today’s Current Affairs topic is Stock collapsed and policy overhaul: China’s tech crackdown

The stock collapsed and policy overhaul: China’s tech crackdown

China’s swift backlash against technology firms has shocked even its closest watchers. Investors are shocked worldwide. The Chinese government’s increasing scepticism about technology and large tech companies has been apparent for months but its recent action of wiping out the online education sector overnight, clamping on food delivery, real estate and more could have massive effect globally.

What is the matter?

In the last week, the Chinese government has banned online education firms from teaching courses that are taught in school, from raising foreign capital and also ordered them to be registered their firms as non-profit firms. This move led to listed Chinese ed-techs losing billions in their market cap- as much as 90%, while privately held hot start-ups became a sour proposition overnight. For example, the online tutoring firm ‘Gaotu Techedu’ which had a market cap of $25 billion falls to $880 million after the banning announcement. 

Now, what next done?

After this shock was given to tech firms, the next day the Chinese government said to food delivery apps to pay their workers above minimum wage, provide insurance and relax delivery times in rush hours and even ordered to treat workers better. This led to food delivery apps’ shares falling in the blink of an eye. The so-called gig workers do not get the benefits that a full employee does, and this lack of benefits are the cost advantage for these companies-virtually their DNA. Their entire business model might become under pressure if worker costs rise. 

What may be the reason?

There are many perceptions regarding this move but many experts common view it that China’s policy and social goals are more important to it than business growth, or the fate of foreign investors in China. Rising social and education costs are driving down birth rates in china and this leads to an ageing population. China is interested to reserve this, and is trying to make living less expensive- by banning the education apps that advertise heavily, rely on capitalistic models and take up most of the portion of parent’s and kids’ time and money.