An advisor to the People’s Bank of China said Beijing should strengthen efforts to control the expansion of technology companies. He said the development of internet platforms leads to a “winner takes all” dynamic. This increases inequality and slows economic growth, he added.
In an interview, Cai Fang, a PBOC’s monetary policy committee member, said that the new technological revolution with more prominent properties of increasing returns would inevitably produce an unprecedented tendency toward monopoly.
That said, policymakers in Beijing intend to continue a campaign to rein in big tech firms. These include Alibaba (NYSE: BABA) Group Holding Ltd. and Tencent Holdings (OTC: TCEHY) Ltd. Such companies have rocked equity markets this year.
Cai is an economist at the Chinese Academy of Social Sciences, run by the state. He argued that anti-monopoly regulation would increase productivity and help China’s long-term economic growth.
He said, now that the country has achieved middle-income status, future growth needs to come from productivity gains rather than increasing investment. Moreover, he added that that needs more government action to increase competition between companies and prevent monopolies rather than relying on markets.
The market mechanism, Cai said, is also the mother and breeding ground of monopoly. Market fundamentalism often deliberately downplays the existence and harm of monopoly, he said.
The government should minimize the obstacles to competition. That is from technological progress and the expansion of enterprises,” he said.
Internet companies, he said, were more prone to monopoly as they tend to be larger. They have stronger barriers to entry due to their control over data, he added.
The Winner Takes All Dynamic
Cai stated that there is a new phenomenon of ‘winner takes all. So, starting from the necessity of promoting competition and innovation and protecting consumer rights, he said that the task of preventing and breaking monopolies should not be taken lightly.
The PBOC advisor also commented on redistribution, which relates to President Xi Jinping’s growing calls for “common prosperity.” He called for the construction of a social security system that ensures the livelihoods of their people are not affected by employment and income shocks.
Moreover, greater equalization of public services between regions. He said large cities should take the lead in improving public services.
Cai also urged to continue government support for manufacturing. That includes those in large cities such as Beijing and Shanghai.
The advisor said that with no manufacturing industry of appropriate size and which continuously upgrades, it is impossible to form a middle-income group of sufficient size.