China can throw light on the way ahead for reg­u­la­tors

Help­ing tech start-ups to thrive takes a balanced ap­proach from of­fi­cials. And it seems that in this re­gard the US still has much to learn from China, where a hands-off policy flour­ishes,

The National - News - Business - - Focus - Michael Schu­man re­ports

Ama­zon.com’s Jeff Be­zos has made a ca­reer of be­ing first in e-com­merce. But in one crit­i­cal area, he’s fall­ing be­hind – thanks to Wash­ing­ton. While Mr Be­zos has been ea­ger to de­liver or­ders to cus­tomers in the United States with drones, Ama­zon’s ef­forts have so far been stymied by out­dated reg­u­la­tions.

Mean­while, JD.com, an Ama­zon-like Chi­nese re­tailer, is soar­ing past its Amer­i­can ri­val. JD has al­ready em­ployed drones to make thou­sands of de­liv­er­ies in China, where reg­u­la­tors have not been as ob­struc­tive. The start-up has re­ceived ap­proval from five prov­inces to fly drones so far, and is ap­ply­ing for more. It re­cently an­nounced plans to build 150 drone sta­tions in south-western Sichuan prov­ince alone.

Wash­ing­ton should take note. The pres­i­dent Don­ald Trump has been mak­ing a big deal of his in­ten­tion to elim­i­nate reg­u­la­tion, in­sist­ing that it sti­fles busi­nesses. Look­ing at the case of China, he has a point. In some re­spects, looser over­sight in China is al­low­ing com­pa­nies to ex­per­i­ment in ways that are more dif­fi­cult for their Amer­i­can coun­ter­parts. And that can give Chi­nese com­peti­tors an edge – es­pe­cially when it comes to tech­nol­ogy com­pa­nies driven by risk and in­no­va­tion.

Ad­mit­tedly, China is far from a reg­u­la­tory par­adise. In many ar­eas bu­reau­crats med­dle in busi­ness to a degree un­think­able in the West, such as their strict con­trol over cap­i­tal flows. In oth­ers, reg­u­la­tions are opaque, con­fus­ing or se­lec­tively en­forced. This er­ratic ap­proach also presents op­por­tu­ni­ties, how­ever, es­pe­cially for start-ups. Take China’s bike-shar­ing ser­vices. One of its ma­jor play­ers, Blue­gogo, was run off the streets of San Francisco af­ter a run-in with au­thor­i­ties who were wor­ried about aban­doned bikes clut­ter­ing the city. In China, the govern­ment has let the com­pa­nies, and their mul­ti­coloured bikes, run amok (at least so far). Yes, the bikes are pil­ing up on side­walks, but the per­mis­sive at­ti­tude has sparked the in­ven­tion of an en­tirely new in­dus­try, with in­vestors plough­ing hun­dreds of mil­lions of dol­lars into it.

In fi­nan­cial tech­nol­ogy too, this hands-off ap­proach could help Chi­nese com­pa­nies out­pace their Amer­i­can coun­ter­parts. A Jan­uary re­port from Citi GPS con­tends that one of the “magic in­gre­di­ents” be­hind the rapid ad­vance of China’s fin­tech busi­ness is a “light reg­u­la­tory touch”. That has al­lowed firms such as Ant Fi­nan­cial to grow and di­ver­sify into a range of ser­vices at a strik­ing speed.

Amer­i­can fin­tech com­pa­nies, by con­trast, face a com­plex web of red tape from reg­u­la­tors, state and fed­eral, that threat­ens to squelch growth and in­ven­tive­ness. Although Wash­ing­ton has pro­posed stream­lin­ing the sys­tem, the at­tempt has been con­tro­ver­sial and faces re­sis­tance from state agen­cies. The US “has long been con­sid­ered the birth­place of fin­tech giants”, ar­gues public re­la­tions con­sul­tancy Edel­man, but it could soon “fall be­hind other na­tions due to the need for our reg­u­la­tory en­vi­ron­ment to evolve”.

China also of­fers ev­i­dence of the dam­age caused when reg­u­la­tors re­place that light touch with a heavy hand. When bu­reau­crats im­posed new re­quire­ments on Didi Chux­ing, China’s largest ride-shar­ing app, lim­it­ing who was el­i­gi­ble to take on pas­sen­gers, they caused a huge con­trac­tion in the num­ber of Didi driv­ers and forced the com­pany to re­struc­ture its op­er­at­ing model ear­lier this year.

In other ar­eas, reg­u­la­tors have al­lowed busi­nesses to ex­pand in new ways un­til the down­side be­came down­right danger­ous. It’s a hard bal­ance to strike. But China’s hands-off ap­proach, whether in­ten­tional or not, has cre­ated an en­vi­ron­ment in which star­tups can ex­per­i­ment with trial-and-er­ror, take on in­creased risk – and thrive.

The US should be pay­ing at­ten­tion.

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