(Bloomberg) -- For the past five years, Catrina Cowart started most of her days at 5 a.m. with a live-streamed call from China. Through a tutoring app called VIPKid, the freelance writer in Lexington, Kentucky earned $21 an hour teaching English to Chinese kids, more than what she would have made at a local school. But her routine ended this summer after Beijing decreed a large portion of its $100 billion private education sector illegal.
In moves that were much harsher than expected, Chinese regulators in July banned institutions teaching the school curriculum from raising capital, going public or even making profits. Also prohibited was the hiring of foreign tutors, who over the years made billions of dollars for burgeoning startups like VIPKid. While Beijing’s ban was intended to prevent companies from capitalizing on parental paranoia, tens of thousands of American instructors paid a toll. For Cowart, losing the steady income stream is manageable, but what’s more difficult is cutting ties with her students, many of whom had been with her since they were toddlers.
“It’s upsetting. I do miss them. I feel bad about it,” Cowart said in an interview, after wrapping up her last class. “I hope they can get in touch with me.”
After kicking off a year ago, China’s big tech crackdown has forever changed the lives of hundreds of millions of people in China and beyond. President Xi Jinping’s campaign quickly touched everything from education and e-commerce to finance, games and the gig economy, rattling investors and cowing the country’s billionaires into silent submission. Along the way, the top-down reforms rattled the worlds of everyday people like Cowart and her students, who are still trying to adjust.
China’s clampdown started with billionaire Jack Ma and his fintech empire Ant Group Co. last November. In the ensuing weeks, Beijing’s antitrust watchdog unveiled a new guideline to curb monopolies and probed Alibaba Group Holding Ltd. Other internet giants like Tencent Holdings Ltd., Meituan and Didi Global Inc. soon landed in Beijing’s sights.
Still, the tutoring ban was a stunner. Venture firms poured billions of dollars into the sector, figuring that tiger parents in China would pay up for their kids’ education. Then literally overnight, it was gone. Companies like ByteDance Ltd. and TAL Education Group shut down their online products and training centers for kids, laying off thousands. Investors around the world questioned whether China was still investable.
Read More: Xi Jinping’s Capitalist Smackdown Sparks a $1 Trillion Reckoning
Cowart’s last session was with one of her first students who she calls Francis. When he started, Cowart had to mime the entire class just to get the little boy’s attention. In return, Francis would innocently draw on the screen all the ways his tutor could die -- from getting eaten by a whale to falling off a cliff. Over time, he learned how to express himself in English words instead of pictures, Cowart said. They befriended each other on WeChat before VIPKid halted its service, but many other students weren’t so lucky.For the past decade or so, China’s internet firms used one dependable tactic to supercharge their growth -- burning money. Aided by their deep-pocketed investors, startups would give away generous coupons and subsidies to lure new users and elbow out smaller competitors. But once they achieved market dominance, it would be time for users to pay back. That’s proven to be a winning strategy in arenas like live-streaming, bike-sharing, and most recently, online grocery. But regulators have started to curb arbitrage pricing and other unfair behaviors that could lead to monopoly.
Sheng Gang, a Didi driver since 2015, witnessed the change first-hand. During his first week with Didi, he made what was equivalent to his monthly salary working as a computer repair mechanic, thanks to the app’s hefty driver bonuses. The father of a 10-year-old soon quit his day job and started driving for Didi full-time. But just as Didi went on to take over a local competitor and then Uber Technologies Inc.’s China business to land a supremacy in the local ride-sharing market, Sheng’s bonuses shrank.
It was only after Beijing launched a cybersecurity investigation into Didi in July that Sheng started to switch to other platforms. Regulators ordered the ride-hailing leader to stop new user registrations and removed its products from local app stores to prevent potential security risks from proliferating during the ongoing probe. Beijing’s scrutiny came right on the heels of Didi’s U.S. listing, which is now widely viewed as a hastily made decision without the government’s blessing. Now, any Chinese company with more than 1 million users will have to get a security clearance before they can list in other nations.Didi’s setback has translated into a 30% decline in income for Sheng, he said, as the company keeps losing users. But competition is back for the first time in years as drivers like Sheng switch in between a slew of services, gaming their systems based on hours and locations to earn the biggest fares. “We are not going to put our eggs in one basket,” he said. “Whichever platform pays better, we go and drive for that one.”To be sure, China’s tech crackdown -- part of Xi’s bid to build a fairer society with “common prosperity” -- has done good for many people. Schoolkids are now encouraged to spend more time on sports after the government eased their homework burden. Delivery riders and other gig-economy workers are covered with better packages and insurance, while tech giants and their founders donate billions of dollars to social causes like education and climate.
Companies like ByteDance and Kuaishou Technology have mandated shorter working hours for its employees, breaking away from the grueling 996 culture where they routinely labor from 9 a.m. to 9 p.m. six days a week. Just two years ago, Alibaba’s Ma called the schedule “a huge blessing” to young people.Roger Huang used to call Ma his boss. The 58-year-old retail veteran helped Alibaba set up its Tmall online marketplace in 2008. Now he’s running a skincare startup, selling lotions and creams on Tmall and other e-commerce sites. Rival platforms used to force him into exclusive deals, Huang said, where they would ask him to offer the lowest price on the same product.
“I’m sorry, you know, there’s only one lowest. So this is becoming a tricky thing,” he said. As a workaround, Huang’s firm had to design new products that were slightly different from the original just so they didn’t lose any sales channels. Such headaches are finally gone after regulators imposed new antitrust rules.“China’s internet development in the early time was like a cowboy age. You come up with an idea and jump to the field and do whatever you want. It was pretty much not controlled, not regulated at all,” said Huang, who also served in senior roles at e-bookseller Dangdang and investment firm Warburg Pincus. “But now the internet is becoming so popular, so impactful on almost everyone’s life. So if you do not have proper control, you know they will go wild.”Cowart, the former online tutor, also sees a silver lining to the crackdown. She doesn’t have to get up before dawn for classes any more and can spend more time on her writing gigs.
“On a positive note, we get more sleep now. That is the one thing we’re all so excited about,” she said. “I hope the kids are getting more rest.”
