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China’s Technology War
Why Beijing Took Down
Its Tech Giants
China’s Technology War
Andrew Collier
China’s Technology
War
Why Beijing Took Down Its Tech Giants
Andrew Collier
Pine Court
Pokfulam, Hong Kong
ISBN 978-981-19-3041-6 ISBN 978-981-19-3042-3 (eBook)

https://doi.org/10.1007/978-981-19-3042-3
© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022
This work is subject to copyright. All rights are solely and exclusively licensed by the
Publisher, whether the whole or part of the material is concerned, specifically the rights
of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on
microfilms or in any other physical way, and transmission or information storage and
retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology
now known or hereafter developed.
The use of general descriptive names, registered names, trademarks, service marks, etc.
in this publication does not imply, even in the absence of a specific statement, that such
names are exempt from the relevant protective laws and regulations and therefore free for
general use.
The publisher, the authors, and the editors are safe to assume that the advice and informa-
tion in this book are believed to be true and accurate at the date of publication. Neither
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The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore
189721, Singapore
I dedicate this book to my two children, Alex and Abigail.
I wish them the best of luck.
Preface
This book required an understanding of a number of areas, including

economics, finance, political science, history, and sociology, about which
I can only say I have deep experience in one or two. I must acknowl-
edge my debt to a number of other experts in various fields who were
instrumental in writing this book. These include my friend Kellee Tsai,
whose work in the field of political science has been an inspiration to
me; Andrew Sinclair, a rising star bridging the gap between finance and
political science, who was kind enough to sit down for lengthy discussions
about where China is heading; Ryan Manuel, an expert in Chinese politics
with a broad range of world experience; Matt Roberts, a longtime China
hand; and Eric Wong, a longtime friend and investor in New York who
is always insightful about China’s financial situation. I also would like to
thank my publisher Jacob Dreyer at Palgrave Macmillan, who has stuck
with me through three books, and the online group, Chinapol, whose
daily opinions (with both heat and light) have kept me sharp. And last,
to my wife, Kelley Loper, a passionate scholar whose dedication to the
discipline of academia gives me hope.
Pokfulam, Hong Kong Andrew Collier
vii
Contents
1 The Setting 1
2 Common Prosperity: Vision or Campaign? 11
3 The Bureaucracy Strikes Back 27
4 The Party and Common Prosperity 47
5 Can China Innovate Without the Platform Economy? 69
6 Xi Jinping’s End Game 87
Bibliography 105
Index 117
ix
CHAPTER 1
The Setting
Abstract This chapter outlines the beginning of the technology crack-

down with the speech by Jack Ma of Alibaba on October 24, 2020. It
then traces the reaction to the speech within the Chinese leadership and
the gradual rise of a series of measures restricting the growth of China’s
technology sector. It classifies the underlying motivations for the policy
shift according to economic and political rationales. Economically, the
platform economy was viewed as increasing the risk of financial insta-
bility, particularly regarding Ant Financial’s lending business. However,
more important, political control for the Communist Party is discussed as
the underlying reason for the government’s actions, many of which had
no economic rationale. Last, the chapter discusses Xi Jinping’s Common
Prosperity program to improve the distribution of income and why it is
likely to fail due to economic difficulties of implementation and structural
deficits in the Chinese economy.
Keyword Jack Ma · Alibaba · Common prosperity · IPO · Ant

financial · Party congress · Regulation · Data
© The Author(s), under exclusive license to Springer Nature 1

Singapore Pte Ltd. 2022
A. Collier, China’s Technology War,
https://doi.org/10.1007/978-981-19-3042-3_1
2 A. COLLIER
When Jack Ma, the billionaire founder of Chinese e-commerce company

Alibaba, gave a speech on October 24, 2020 to the country’s political and
financial elite, he was clearly unaware that his talk would be the catalyst
for a new era in China.
Jack started his speech with disarming words. “I am delighted to have
this opportunity to learn, discuss, and exchange ideas together with you.”
Dressed conservatively in a dark suit, blue checked tie, and white shirt,
he noted that his views could be considered “immature, incorrect, or
laughable” and added, “if they make no sense, just forget about them.”
But his main points were anything but forgettable. He attacked the
country’s leadership—many sitting in the room—for how they treated
innovation in the internet industry. “We are very good at management
but our supervision ability is sorely lacking,” he said. He added, “It is not
difficult to regulate. What’s difficult is to deliver regulation that achieves
the purpose of producing sustainable and healthy development.”
Jack, who also founded one of China’s most progressive online finan-
cial firms, Ant Group, said the financial regulators in Beijing were old,
out of touch with the modern internet, and slacking in their jobs. “We
cannot regulate the future with yesterday’s means,” Mr. Ma said. “There’s
no systemic financial risks in China because there’s no financial system in
China. The risks are a lack of systems…Today’s banks continue to have a
pawnshop mentality.” This model “is not going to support the financial
needs of the world’s development over the next 30 years.” Strong words
to the people in charge of that very system.
To some, Jack’s speech was simply a reflection of his no-nonsense
personality. “Jack is Jack. He just wanted to speak his mind,” said one
person who knows him (Zhai 2020). To the Communist Party, however,
it was a direct challenge to their rule. Xi Jinping and other senior leaders
who read the speech were “furious,” according to the Wall Street Journal
(Wei 2020).
Jack gave his speech to the Bund forum in Shanghai on a Friday. Just
a week later, the country’s most important financial regulators struck
back. Jack was summoned to Beijing for a meeting with the officials in
charge of China’s economy. These included government employees from
the People’s Bank of China (PBOC), the China Banking and Insurance
Regulatory Commission (CBIRC), the Securities Regulatory Commission
(CSRC) and the State Administration of Foreign Exchange (SAFE). After
the meeting, Ant’s corporate headquarters in Hangzhou responded with a
statement suggesting that the hurried corporate meeting was an ordinary
1 THE SETTING 3
regulatory chat. “Views regarding the health and stability of the finan-
cial sector were exchanged,” Ant said (Yang 2020). The government’s
bland summary said the parties “conducted regulatory interviews with
Ant Group’s actual controller Jack Ma, chairman Eric Jing, and chief
executive Simon Hu.”
But to outsiders, the peremptory summons to meet the regulators and
Beijing was ominous. Jack was in trouble. The next day, in a move that
shocked the world’s investors, the Shanghai Stock Exchange suspended
Ant’s $34 billion Shanghai listing—just a day before the launch. The Wall
Street Journal reported that Xi Jinping personally intervened (Wei 2020).
It was a clear sign that the world in which giant, privately held companies
could operate independently in China had forever changed. “The Party
has once again reminded all private entrepreneurs that no matter how rich
and successful you are it can pull the rug out from under your feet at any
time,” said one western observer (Bishop 2020).
The cancellation of the IPO of one of China’s most successful compa-
nies took observers by surprise. Few senior leaders would appreciate a
billionaire telling them in front of a public audience how to manage the
economy. But the reaction was excessive—canceling a billion-dollar IPO
just days before its launch because the chairman was a bit too outspoken
is not an appropriate reaction by any government. Something else was
afoot in Beijing.
The world soon discovered that Ant was just one chapter in a much
larger book. The crackdown on one company soon broadened to include
other technology firms. Over the succeeding months, the regulators in
Beijing imposed a series of draconian rules on Alibaba and other tech-
nology firms. Alibaba was fined $2.8 billion for monopolistic practices.
Didi Chuxing, the Chinese equivalent of Uber, was accused of going
public before completing a review by the country’s internet watchdog,
the Cybersecurity Administration of China (CAC). Didi was forced to
take down more than 25 applications from its online store, and remove
the “super-apps” that were the main interface for tens of millions of users,
badly harming its business (Caiping 2021). The app removal program
came four days after Didi’s US$4.4 billion initial public offering, one
of the biggest American stock market debuts of the past decade. With
the share price falling like a stone, chagrined American fund managers
launched a lawsuit accusing Didi of misleading investors. The online
gaming industry was the next target. Regulators summoned the top
gaming companies to a joint meeting with the CAC and the Ministry of
4 A. COLLIER
Culture and Tourism, which proceeded to impose restrictions on minors

in the gaming industry.
By late 2021, Alibaba had lost $378 billion of market capitalization,
and Tencent’s capitalization had fallen by $308 billion. China’s private
tutoring sector, that had been valued at $120 billion, fell sharply. The five
largest international luxury companies lost $67 billion in market value in
48 hours over worries about the future of China (Godemont September
2021).
The campaign moved beyond the technology companies. What at first
blush appeared to be a regulatory action against the platform economy
was expanded into a larger economic and cultural campaign. Some
analysts started warning that China was revisiting the Cultural Revolution
of 40 years earlier, when slogans dominated the airwaves, citizens had to
sing patriotic songs, and ideology trumped economics. That was an exag-
geration, but there definitely was an increasing focus on ideology. Shortly
after the technology crackdown began, Xi Jinping launched a set of new
policies under a populist theme called “Common Prosperity.” While short
on details, common prosperity promised to better the lives of the average
citizen by increasing their economic welfare. Among the laundry list of
proposals was a request to large private companies to donate money to
charity. Alibaba, Ant’s parent, promised to contribute US$15 billion to a
variety of charities. Tencent vowed to devote 50 billion yuan to common
prosperity programs. The chairman of food delivery firm Meituan agreed
to donate US$2.7 billion in shares to his personal charity. No billionaire
wished to be left behind in the race to convince the leadership that they
were eager to put their wealth behind the common cause of the people.
That October 24, 2020 talk has been billed as the speech that cost
Jack $37 billion and nearly killed an industry. The crackdown of the
technology sector spreads like flames in a dry forest, engulfing gaming,
education, and social issues like income equality for Chinese citizens.
People inside and outside of China were stunned by Beijing’s sharp about-
face toward one of its proudest offspring: the “platform” economy, the
range of companies that had created the world’s largest online transaction
economy. Almost three-quarters of China’s population shopped for goods
online and paid for them on their phones. The services that companies
like Alibaba, Ant Financial, Tencent, and others provided were as natural
to Chinese citizens as cars to Americans. An apparently minor spat had
ballooned into a challenge to the technology sector, along with a broader
1 THE SETTING 5
redefinition of cultural life in China. These companies had built reputa-

tions as global leaders but now the entire industry was under attack by
the regulatory state, by the institutions overseeing competition, banking,
cybersecurity, and culture.
A summary of actions taken against the technology industry includes
the following:
• Ride-hailing: CAC launched a cybersecurity review of Didi and

ordered Didi apps to be removed from app stores. Didi and eleven
other ride-hailing companies were summoned to Beijing to discuss
fair competition and data security.
• Food delivery: SAMR (State Administration for Market Regula-
tion) fined Meituan 3.4 billion yuan abusing its market dominance.
Meituan was accused of forcing merchants to sign exclusive agree-
ments.
• Education: China banned for-profit tutoring in core subjects.
Ministry of Education pledged to ensure the education sector
doesn’t interfere with children’s sleep.
• Gaming: China restricted minors to three hours of gaming per week.
Beijing summoned gaming companies and instructed them to ensure
fair competition.
• Finance: The State Council pledged to crackdown on illegal activ-
ities in the securities market and strengthen cross-border securities
regulation . PBOC banned all cryptocurrency activities. As part of
Ant Group’s mandatory restructuring, its virtual credit card service
Huabei announced integration into China’s central bank credit
reporting system and that it would share consumer credit data with
PBOC.
• Entertainment: Regulators pledged to conduct regular tax inspec-
tions of top actors’ pay. China announced it would ban songs with
illegal content from karaoke venues. Tencent was forced to give
up exclusive licensing rights with international record labels. China
also began to conduct regular tax investigations of top entertainers
including online influencers (Salidjanova 2021).
What was it about that speech that was a catalyst for officials in Beijing,
from Xi Jinping on down, to react so strongly?
6 A. COLLIER
The policy reaction was the result of two forces, one economic and
one political. On the economic side, there had been growing concern
that the platform companies were detrimental to China’s growth. They
were accumulating monopoly power at the expense of other companies
and were seen as excessively wealthy in a country that prides itself on
equality. For example, the People’s Daily said China’s goal was to “first
make the ‘cake’ bigger and better through the joint efforts of the people
of the whole country, and then divide the ‘cake’ well and distribute it well
through reasonable institutional arrangements.” (People’s Daily 2022).
The “divide” part of the equation was viewed as missing. In addition,
it was felt in Beijing that the dominant size of the platform companies
posed a risk to the stability of the financial system. All those transactions,
loans, and payments, were controlled by a handful of large companies and
were lightly regulated by the government. Regulators felt it was time to
step in more forcefully.
Many of the proposals that have been enacted had been long in the
making. The country’s antitrust system had been improving for several
years as concerns grew about the size of some of the platform compa-
nies like Alibaba and Tencent. In addition, China had been attempting to
foster the growth of its own home-grown technology for several decades,
and had been eager to reduce the power and influence of foreign capital
and technology, particularly from the United States. Many of these issues
came to a head.
However, there was more to this policy shift than simple regulation or
economics.
Politically, whether they had a regulatory function, all of the poli-
cies were designed to reinforce the power of the Communist Party
and the State. This occurred through several transmission methods. The
new policies would shrink the power of the platform economy, increase
government ownership or control of a number of economic functions,
and heighten the involvement of the Communist Party in the technology
sector and the lives of the Chinese people in general. The leadership was
clearly convinced that the Party is central to the future existence of the
Chinese State. The Party viewed the size, power, and large capital base
of the platform companies as a potential threat to the Party’s monopoly
dominance of political power. Jack Ma’s speech was a highly visible
symbol of this threat.
1 THE SETTING 7
The crackdown was also coming at an opportune time. At the 20th

National Party Congress in late 2022 Xi Jinping was seeking an unprece-
dented third and possibly permanent position as General Secretary of the
Communist Party. Many of the broader themes of the technology crack-
down, or in tandem with it, would be likely to increase his popularity
ahead of this crucial Party meeting. Widespread support from the general
public would help to solidify his claim to a permanent position as head of
the Party.
Even though there are some large themes stemming from the events of
2020, the difficulty of analyzing them is that there are a number of strands
that have been woven together at a single point in time. They have been
orchestrated by Xi Jinping but have a number of differing motivations and
historical precedents. We can summarize a number of key policy goals:
• Aggressive “regulatory catchup” by Beijing ministries in Beijing.

Agencies in Beijing whose authority had declined due to the rising
power of the technology sector were now emboldened to step up
their oversight.
• Achieve self-sufficiency in key technology. The years of the Trump
trade war, along with U.S. technology sanctions, confirmed a long-
standing conviction that China needed to develop as much of its
technology as it could. It was too dangerous to rely on the U.S. and
other nations for key components such as semiconductors. The rise
of platform companies, and their use of scarce resources, was not
viewed as helpful to achieve technological self-sufficiency.
• Reduce financial risk. This had been a top priority for the leader-
ship since the U.S. 2008 financial crisis. The American inability to
control its financial system and avoid the financial crisis convinced
the leadership in Beijing that they, too, needed to be on guard for
a similar fate in China. The platform companies were becoming key
players in online payments and lending. In the eyes of the leadership,
the private sector’s control of the heart of China’s financial system
had gone too far.
• Tighten control over online data. The platform companies were
beginning to assemble large batches of consumer data. This included
spending patterns, total wealth, and entertainment expenditure. This
was a huge advantage to these firms but also posed a threat to the
Party’s political control. For example, Didi Chuxing’s geospatial data
could track the location of senior officials. This was not acceptable.
8 A. COLLIER
• Rewrite the social contract with the Chinese people. No longer

would wealthy entrepreneurs be allowed to conduct business that
was antithetical to Party goals and immensely profitable to them-
selves. The powerful educational training and gaming firms would
be reduced in size or eliminated, and the “gig economy” that forced
workers to accept substandard wages would be heavily regulated
to avoid exploitation of cheap labor. The government would also
promote more equal distribution of income.
• Strengthen the control of the Communist Party. Although the
crashing prices of technology company shares came as a shock to
the world, the new regulatory structures were in line with the rising
tide of the power of the Party under Xi Jinping. Many of the
actions taken since 2020 suggest that the rise of the technology
entrepreneurs and the influence of their companies was viewed as
a threat to the Party. The future of the Party was at stake along with
the Chinese state itself.
The bigger question among many people was how far would this go?
Were these new policies a return to the dark days of the Cultural Revo-
lution when ideology ruled? Would China become completely isolated,
gradually retreating from the economic integration that it has pursued
for four decades? Was the tech crackdown a one-time action designed to
rein in a few unruly upstart capitalists? Or was it part of a long-range
plan to insert the political system even further into the heart of China’s
burgeoning capitalists? “Is this a new cultural revolution?,” a Bloomberg
columnist asked in an opinion piece (Brown 2021).
One of the main points of this book is to stress that, apart from
strengthening Party control and reducing the size of the platform
economy, these policies would not have much impact on China. That may
be a bold statement considering the precipitous fall in the market capi-
talization of the technology firms and the quick takedown of powerful
entrepreneurs like Jack Ma. But the fact remains that in general, the new
rules have done little more than tinker around the edges of China’s vast
political and economic system. For example, although it was trumpeted
as heralding a new age of equality, the “Common Prosperity” program
is likely to do very little to improve China’s highly unequal distribution
of income. That would require a far great effort through reform of the
state sector and China’s woefully inadequate tax system. The charity dona-
tions from large companies in line with Common Prosperity amount to
1 THE SETTING 9
a minuscule portion of average income. There has also been a renewed

focus on “hard” technology like semiconductors over “soft” technology
like Meituan food services. But these policies so far have failed to deliver
improvements in an industry that requires decades of growth. Experi-
ments with state support for the semiconductor industry have been dismal
failures due to the squandering of capital by inefficient governments and
state firms.
China confronts inexorable economic challenges that make achieving
success difficult with broad themes such as redistribution of income and
improving social welfare. These include a declining labor force, reduced
rural to urban migration, and declining economic growth. In addi-
tion, China has a crushing debt burden, an unstable tax system, and a
housing bubble. One of the main impediments is state control of much
of the economy. The continued advocacy of state controlled firms at the
expense of the private sector is inefficient and negative for GDP effi-
ciency and growth. China will not be able to tackle these problems simply
by attacking the platform economy and fomenting populist campaigns.
Beijing can fiddle at the margins but unless the government is willing to
engage in significant structural reforms these problems will not be solved.
There are, however, two areas that appear to be more permanent
features of the current policies. One is the state of U.S.–China rela-
tions. There is likely to be continued financial separation between the two
countries, including political and economic sanctions, and some limits on
mutual capital raising. These trends are likely to continue. However, many
of these issues are a function of geopolitical considerations and have less to
do with the technology crackdown itself. In addition, the continued flow
of capital invested into China, flourishing trade, and China’s demand for
foreign technology, raises questions about how severe this juncture will
be.
The second exception is the strength of the Communist Party over
China’s political system. All of these programs—whatever their actual
or perceived benefits—ultimately strengthen the Party. From the Beijing
headquarters in the closeted center of power at Zhongnanhai, down to
the corporations, government officials, and citizens below, the new order
reinforces the effectiveness of Party mandates. Xi Jinping was highly moti-
vated to engineer Common Prosperity and the technology crackdown by
perceived threats to the Party’s dominance. This is a trend in existence
since Xi took power in 2012 that has been heightened by the technology
crackdown.
10 A. COLLIER
The larger issue is that the challenges of running an economy that

many believe has already passed its peak growth period, relying on an
unprecedented increase in debt, is going to restrict Beijing’s options.
The political hardening since 2020 may have been a determined effort
by the leadership to steer the conversation away from slowing growth
toward socially accepted goals. Ideology may have to replace what polit-
ical scientists call “performance based legitimacy” (Thurston 2021). “One
interpretation can be that Xi Jinping is moving further into a strategy of
increasing control over the economy, behaving as if there was a threat for
the system and for the party, even though the indications we have don’t
point in the direction of there being a threat,” said Pascal Lamy, former
director general of the WTO (Hancock 2021).
The technology crackdown is part of a larger political canvas. It is
important to understand its power and limitations.
References
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Entrepreneur Who Is Boss. November 4, 2020. The Guardian.
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Caiping, Liu. The Ministry of Transport Threatened a Review of the Company
in Tandem with the CAC. July 6, 2021. SCMP.
Godemont, Francois. Killing Several Birds With One Stone: China’s New Digital
Policies. July 26, 2021. Institut Montaigne.
Hancock, Tom. Tech Crackdown Is a Cloud Over China Economy, ex-WTO
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Ways to Achieve common prosperity (people’s point of view). , February 7,
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2021. Atlantic Council, Geoeconomics Center and Rhodium Group.
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CHAPTER 2
Common Prosperity: Vision or Campaign?
Abstract Common Prosperity was the social program that was a twin to
the policies restricting the growth of the platform companies. It was a
“soft” slogan that would corral a collection of policies around a common
theme, one that would appeal to both the government bureaucracy and
the ordinary Chinese citizen. However, it was widely perceived as having
a historical relationship to the Cultural Revolution when ideology domi-
nated private life. This chapter discusses the historical roots of common
prosperity, its political function as a populist campaign for Xi Jinping, and
why it was unlikely to have much of an impact on the lives of Chinese
citizens. However, precisely because it is relatively costless and relies on
the power of the Party for implementation it is likely to continue for the
foreseeable future.
Keywords Distribution of income · Communist Party · Wang Huning ·

Jiang Zemin · Great Leap Forward · Cultural Revolution · Han Wenxiu ·
Xi Jinping · Charity · Platform economy
If the cancellation of the Didi Chuxing IPO was the cutting edge of the
Communist Party’s sword, “Common Prosperity” was designed to be the
blunt end; a “soft” slogan that would corral a collection of policies around
a common theme, one that would appeal to both to the government

https://doi.org/10.1007/978-981-19-3042-3_2
12 A. COLLIER
bureaucracy and the ordinary Chinese citizen. However, the term had a
dual meaning. It could be viewed as a cheerful phrase calling for greater
equality for all Chinese citizens under a government determined to assist
the common man. Or, more nefariously, it could be seen as a vague
catchphrase harkening back to the unstable era of the Cultural Revolu-
tion when ideology dominated political life. What exactly was common
prosperity? Was it a new era for China, a return to the past, or merely an
ad campaign?
The phrase “common prosperity” first appeared in the People’s Daily
on September 25, 1953, when the paper published a list of 65 slogans
honoring the fourth anniversary of the founding of the People’s Republic
of China (Bandursky 2021). Subsequent uses of the term referred to a
choice between capitalism and socialism—and Common Prosperity was
key to the success of the latter. It was aimed primarily at China’s peasants
and was a call for common ownership and use of the land to achieve
economic success. Starting in 1979 after former leader Deng Xiaoping
asked the Chinese people to “get rich first,” the phrase fell out of favor. It
was still referred to by the ideologically pure who were worried about the
adverse impact of Deng’s capitalist policies in what had been a communal
society. However, within the mainstream, the idea was as people became
rich they would enjoy the fruits of Common Prosperity.
While Common Prosperity ideally could benefit the average citizen,
it was also tied to the strengthening of the Party that Xi Jinping holds
so dear. One thread running through his policies is a belief that many
of the liberties, and cultural freedoms, that come with wealth in a
consumer-driven society threaten the Party’s stability and control. “What
is important about culture is that it allows political systems to harness
social energy and use that energy for the good of the national interest for
building a more economically dynamic society,” said Matthew Johnson,
an independent scholar of modern China (Johnson 2021). Anthony
Saich, a professor of international affairs at the Harvard Kennedy School,
said Xi’s politics in general “fuses with … key elements of Communist
Party practice historically,” including “a deep strain of paternalism.” The
party, he said, “sees itself as the moral arbiter of state and society.”
(Shulman 2021).
Many point to the influence on Xi of the Party’s intellectual eminence
grise: Wang Huning. Wang is a member of the Politburo Standing
Committee and is widely known as the Party’s ideology czar. He is Xi’s
intellectual braintrust. Wang is also a survivor, as he played a similar role
2 COMMON PROSPERITY: VISION OR CAMPAIGN? 13
under former leaders Jiang Zemin (with his policy of “three represents”)
and Hu Jintao (“scientific outlook on development). After visiting the
U.S., in 1992 Wang published a book, “America Against America,” that
included a number of statements in favor of the American economy and
the workforce. But he’s also an orthodox Marxist with a strong moral
streak.
The moralism reflects Xi Jinping’s own background. Xi had had his
mettle tested through difficult years in the countryside as a youth “sent
down” during the Cultural Revolution to live with the peasants. His
father, revolutionary veteran Xi Zhongxun, was purged in 1962 for
betraying the Party. In Shaanxi Province in 1969, Xi lived in a cave
plagued by fleas, labored in the fields with the farmers, pulling coal and
picking up manure for heat (Ou 2016). By all accounts this period hard-
ened him into a revolutionary who believed in the moral greatness of
the Communist Party. This is a trait shared by other leaders. University
of Glasgow scholar Holly Snape notes the frequent desire among Chinese
leaders, starting with Mao, to create a “new Chinese man” who embodies
Party values. This drastic reshaping of Chinese citizens had fallen out of
favor until Xi Jinping rose to power (Snape 2021).
However, to some degree, Xi Jinping’s character, and the technology
crackdown, reflected longstanding attitudes within China. The opening to
the west, initiated by Deng Xiaoping and solidified by China’s 2001 entry
into the World Trade Organization, may have fooled westerns that China
was becoming a liberal democracy “just like us.” But the hardening of the
political arteries was sitting below the surface. Economist Barry Naughton
has noted that western observers “got it wrong” understanding China’s
politics. “We were far too slow to understand the policy changes that
took place after 2003 as China entered the global economy” (Naughton
2021a).
Xi’s revival of the term “Common Prosperity” very much reflected the
mindset of building a “new Chinese man” who would embody values that
would strengthen both the Communist Party and the Chinese state. But
there was debate about how China would go about educating its citizens.
Wang Dan, a famous Chinese dissident who was one of the leaders during
the protests at Tiananmen Square in 1989, was convinced that Common
Prosperity under Xi Jinping was a return to Maoist campaigns. “The idea
of common prosperity is purely utopian…it may lead to another Great
Leap Forward,” he told Radio Free Asia. That was a disastrous 1958
14 A. COLLIER
campaign to promote economic growth through backyard steel furnaces

and ideological fervor (Lam 2021a).
Hearing the comments within China about Common Prosperity, the
foreign press spoke of the return of ideology over economic prag-
matism. One story in the Indian publication, The Wire, noted: “Will
China’s ‘Common Prosperity’ Project Turn Out to Be a Case of ‘Cure
Worse Than Disease’? China has recently rolled out several measures
that cracked down on businesses with an aim to redistribute wealth and
reduce inequality. Many are likening this to the Cultural Revolution of
the 1960s” (Joshi 2021).
There were some signs that this “pure” form of Marxism was staging a
comeback within China. In September 2021, a little known blogger from
remote Hubei Province posted a chat about Common Prosperity that
caught the attention of China’s online community because of its ideolog-
ically hard-line tone. The blogger, who went by the name Li Guangman,
called Common Prosperity a “revolution.” “The series of rectification
moves tells us that China is undergoing a profound transformation in
the area of economy, finance, culture and politics,” Li wrote. “Or we can
say that it’s a profound revolution,” he wrote. Li Guangman’s comments
were defiantly from the ideological hard left. “The capital markets will no
longer become a paradise for capitalists to get rich overnight, the cultural
market will no longer become a paradise for sissy stars, news and public
opinion will no longer become a place to worship Western culture, red
will return, heroes will return, and blood return,” he wrote in a famous
blog post (Li Guangman 2021).
However, he was also attacked by some of the country’s largest media
for being “misleading” and “exaggerated.” There was a lot of nervousness
within China about anything that smacked of the Cultural Revolution
(Mai et al. 2021). Many within China—even within the government—
pushed back on the idea that Common Prosperity was a return to
the difficult days of the Cultural Revolution. Getting rich first was still
accepted under Xi Jinping. Han Wenxiu, executive deputy director of the
General Office of the Central Financial and Economic Affairs Commis-
sion, a unit of the Central Committee of the Politburo, came to the
defense of Chinese capitalism at a briefing in Beijing held by the Central
Propaganda Department. “[We] must encourage hard work to get rich,
entrepreneurship and innovation to get rich, and permit some people
to get rich first, and after getting rich helping others to grow richer.
[We] will not ‘kill the rich to help the poor.’” (Quoted in Bandursky
2021). One important liberal economist, Zhang Weiying, also launched a

passionate defense of the market economy:
“China’s future development depends on our beliefs, what we believe,
what we don’t believe. If we strengthen our confidence in the market
economy and constantly promote market-oriented reforms, China will
move towards common prosperity. If we lose our faith in the market and
introduce more and more government intervention, China can only move
towards common poverty. Don’t forget that the planned economy was
intended to benefit the poor, but as a result, more and more poor people
were created, making the fate of the poor more tragic than in the past”
(Zhang Weiying 2021).
These comments, particularly from Han Wenxiu at the Central Propa-
ganda Department—unless they were disingenuous—suggest that talk
of a leftist ideological shift under Common Prosperity was not accu-
rate. Xi’s Common Prosperity appeared a lot more mild. Maya Wang,
a senior researcher with Human Rights Watch, summed up Xi’s new
campaign this way: Xi Jinping “vows to achieve ‘common prosperity’ by
reining in private capital, redistributing wealth to the people, clamping
down on social ills ranging from ill-gotten gains to the wrong form
of entertainment, while also promoting traditional moral values” (Wang
2021).
A speech by Xi Jinping provides some clues to the direction of the
campaign. At the tenth meeting of the Central Finance and Economic
Commission on August 17, 2021, and a month later published in the
official Party organ, Qiushi (Seeking Truth), Xi fleshed out his thoughts.
Written in the soft “pablumesque” style that the Communist Party tends
to deploy, it almost reads like the political platform of a European polit-
ical party. “What we call common prosperity is the common prosperity
of all people, the material and spiritual life of the people, not the wealth
of a few people, nor is it homogeneous egalitarianism,” Xi noted. Who
would disagree? However, Xi’s statements also suggested that Common
Prosperity was not just an empty slogan, but a guide to political action
under the Party banner. “Achieving common prosperity is not only an
economic issue, but also a major political issue related to the basis of the
Party’s governance,” Xi noted. “We must not allow the gap between rich
and poor to widen, the poor and the rich, and never allow an insurmount-
able gap between the rich and the poor.” In these phrases, some analysts
saw the hand of Wang Huning.
16 A. COLLIER
Xi’s speech covered quite a bit of ground, leaving room for a variety
of interpretations. He said the policies to be pursued under Common
Prosperity included:
• Improve distribution of income. and make society more fair for rural
and urban workers.
• Maintain the priority of public ownership of the economy as the
“main body.”
• Encourage workers to get rich and act “according to your abil-
ity” (which sounds a lot like the free-market economist Milton
Friedman).
• Expand the middle class.
• Promote economic improvements in less developed parts of China.
(Xi 2021b)
One of the most important sections—in light of the furor over the
strict regulation of the technology sector—concerned the fate of private
industry. Was the cancellation of the Didi IPO and other regulations the
end of the private economy? Xi’s speech was surprisingly encouraging. “It
is necessary to improve the business environment, reduce the tax burden,
provide more market-oriented financial services, and help them operate
steadily and continuously increase their income,” Xi noted. But he did
call for opposing the “disorderly expansion of capital” and “strengthen
anti-monopoly supervision.”
In a statement on Common Prosperity issued by the Xinhua News
Agency following an August 17, 2021 meeting of the Central Finance
and Economics Commission chaired by Xi, a couple of additional points
leapt out:
• “Financial Risk” was mentioned 14 times, not much less than

Common Prosperity at 17. This was a surprisingly high number of
mentions in a document addressing inequality. Clearly, financial risk
was a top priority for the leadership.
• The statement affirmed the importance of public ownership and the
development of “multiple ownership,” a term that refers to joint
ownership by the state and the private sector. This may have been a
nod to the private sector to avoid suggestions that China intended
to kill the private economy.
• The key paragraph was this: “We must clean up and standardize
unreasonable income, rectify the order of income distribution, and
resolutely ban illegal income.” (Xinhua News, August 2021).
Much of Common Prosperity falls in line with Xi’s longstanding

view that economic development is part of a broader set of cultural
and political issues. The roots of this lie in his work decades ago as a
fledgling developmental economist. In September 2001, when he was the
governor of Fujian province, Xi Jinping published an article on develop-
ment economics in the journal of the Fujian Academy of Social Sciences.
The article was a sharp critique of the western mode of capitalism and
an endorsement of Xi’s view of Socialism. Common Prosperity should be
seen as one strand of a larger structure:
“Economic development cannot be simply equated with industrial-
ization and the growth of gross national product or national income:
economic development is not equivalent to economic growth, but
includes economic growth.…Economic development refers to a level of
social development, that is, a process of economic growth that is accompa-
nied by changes in economic structure, society and the political system. It
includes growth in output, changes in the structure of output and income,
and change and development of economic conditions, political conditions
and cultural conditions” (Quoted in Batson 2019).
Given the ideological backdrop, what then was the meat and pota-
toes of Common Prosperity? The broad theme was a softening of the
harsh edges of Chinese life under the Communist Party, a populist order
to make life easier for the average citizen. This included attacks on the
flaunting of wealth by the very rich, including some of China’s most
famous actors and actresses. There was a moral element to this in Xi’s
“attention to ‘morality’” inside and outside the Party (Snape 2021).
But the main focus of Common Prosperity was to reduce the economic
inequality that Xi clearly felt could destabilize the Communist Party. The
huge wealth held by the rich entrepreneurs like Jack Ma of Alibaba and
Tony Ma of Tencent were easy targets for a campaign against an unequal
society.
Although decades of rapid economic growth helped to lift three-
quarters of a million people out of extreme hardship, close to 17% of the
population still lived in poverty, higher than most major middle-income
countries. Over the past several decades, the gap between the richest
and poorest urban households in terms of disposable income has hardly
18 A. COLLIER
narrowed. The Gini-coefficient, one widely used measure of inequality,

widened to 70.4 in 2020 from 59.9 in 2000. In rural areas, it has widened
even more (China Power Project 2021). The top 1% owned less than 8%
of income in the 1980s but by 2005 climbed to a peak of around 16%
before declining marginally to 15% (Merler 2018).
Housing, while supporting China’s economic growth and providing
a savings safety net in a country with an unreliable stock market,
was becoming extremely expensive for many people. Starting in 2002,
housing prices in China’s largest, wealthiest cities rose sixfold, far
exceeding the 80% growth in national housing prices in the U.S. between
2000 and 2005, or the doubling of house prices in Ireland during their
booms (Rogoff 2020). Nonetheless, inequality in China actually peaked
in 2008—more than a decade earlier (Milanovic 2021).
The government kept up the messaging that it was intent on improving
distribution of income. In early 2022, Chang Tiewei, deputy director of
the Department of Employment, Income Distribution and Consumption
at the country’s planning board, the National Development and Reform
Commission (NDRC), said the government would promote “narrowing
gaps between different regions, between urban and rural areas as well as
the rich and the poor” (Shijia 2022).
But while the messaging on the surface appeared coherent, much of
Xi’s Common Prosperity program devolved into a series of random—
if popular—attacks on easy targets. It’s a lot easier to shoot a sitting
duck rather than chase a goose in the wild. Making fundamental reforms
is difficult. As one analyst put it, “There is thus something of a
mismatch between common prosperity’s very broad political goals and the
constrained policy instruments available to achieve them” (Batson 2022).
Certainly, since 2012 inequality has not improved under Xi Jinping’s
rule. The recent history under Xi shows a decline in equality of income
across China. And this is partly a result of specific policies ordered by the
government that have been moving in the opposite direction from the
government’s rhetoric. I will discuss this issue in more detail in a section
on the economy, but to take one example, inequality often is a function of
geography. This is clear in the distribution of total social financing, which
includes bank loans, bonds, and other forms of credit. Over the past
decade, the poorer provinces like Liaoning and Heilongjiang have seen
a drastic drop in their share of credit allocation while rich provinces like
Jiangsu have seen huge increases. Beijing (and the banks) have provided
credit where the economy was generating growth—not necessarily where

the people were the most poor.
In addition, since Xi Jinping took power in 2012, Beijing has slowly
been reducing its contribution to local provincial tax revenue, which
provide the majority of social services. The central government’s share of
total government spending slipped from 14.8% in 2018, to 14.7% in 2019
and 14.3% in 2020. Beijing’s tax redistribution policies have favored the
better-off provinces and reduced redistribution to poorer regions. Much
of the problem has been caused by Beijing’s refusal to cede budgetary
power to provincial governments. This could reflect a number of factors,
including economic growth, Xi Jinping’s preference to centralize control,
or concerns about local corruption. Fiscal reforms in 2018 failed to
change this arrangement. “Given that the central government increasingly
sets national standards for service provision, and with three-quarters of all
transfers in China set on a discretionary basis, the narrow scope of the
2018 reform signals the central government’s reluctance to cede finan-
cial control.” (Wong 2021). We will discuss the difficulties of achieving a
more equal society in the section on the economy.
As Harvard sociologist Martin Whyte pointed out about Xi’s overall
economic program:
In sum, Xi Jinping can be credited with continuing to focus on the
problems of rural poverty in China and making further headway in
an already impressive record of accomplishment under his predecessors,
mainly resulting from China’s booming economy. But despite the atten-
tion his pledge has received, there is little that is particularly new or
different on this front since Xi Jinping took charge beyond increased
funding and administrative effort (Whyte 2022).
The main program under the Common Prosperity banner has consisted
of orders to the technology companies to contribute to charity. Shortly
after an August 17, 2021 speech by Xi Jinping, the leaders of the largest
platform companies were forced to prove their allegiance by pledging vast
sums of money. This was an easy way to appear to redistribute wealth—
without making any fundamental changes to the broader distribution of
income. Online food supplier Pinduoduo and Alibaba announced char-
itable donations that together totaled 160 billion yuan, around US$25
billion. In April 2021, Tencent said it would invest 50 billion yuan to
help develop Common Prosperity. This included 200 million yuan to
subsidize 1,000 public welfare personnel, and fund 100 public welfare
20 A. COLLIER
digital projects; train 1 million rural governance and agricultural officials;

and 1 billion yuan for a scientific award (Sina 2021).
But this wasn’t a reorganization of the economy. It was a marketing
campaign. “The scary part [for donors] is that they don’t know how
much is enough,” an executive of a big Beijing charity told the Finan-
cial Times. “All they can do is look at how much their peers have given
and try to match it” (White et al. 2021). Some were skeptical. China
analyst Anne Stevenson Yang called the charity program a giant cesspool
of corruption. “This sounds like it’s about correcting massive wealth gaps
and giving more to the countryside. It’s actually a giant pork barrel for Xi
supporters” (Yang 2021). She believed the large corporate contributions
were going directly into the pockets of government officials, although this
was difficult to prove. If the funds were directed to state organizations,
as it appeared they were, this was a further attack on the private sector.
“That’s consistent with the broader trend under Xi Jinping of reducing
the influence of civil society. The party is extremely uncomfortable with
independent public behaviour that provides public goods or holds the
state accountable,” said Scott Kennedy, a China expert at the Center for
Strategic and International Studies in Washington (White et al. 2021).
The charity giving by large corporations was a response to a tech-
nical sounding policy called Tertiary Distribution. The term had floated
around in Beijing government documents for decades but had never been
taken seriously. Now, the Party defined several key elements of a “ter-
tiary distribution mechanism.” While primary distribution allocates wealth
according to the Marxist principles of labor, capital and other factors,
and secondary distribution was redistribution of wealth through tax and
other means familiar to the west, tertiary distribution basically consisted
of charitable donations by wealthy individuals and corporations. However,
as noble as the campaign appeared, charitable donations were not going
to make much of a dent in wealth distribution (USCESCR 2021c). In
2014, charitable donations as a percentage of China’s GDP was only
0.1%, compared to two percent in the U.S. Chinese charity was about
one-hundredth of what Americans donated per person (Cunningham
2016).
Meanwhile, the attacks on popular culture continued to increase. Late
in 2021, Xi Jinping spoke against the rise of male entertainers who did
not conform to his vision of the Chinese man. The state press claimed
there was a “masculinity crisis” that was corrupting a generation of young
people. A television show similar to American Idol was banned because
the men looked too effeminate. Soon, music stars were altering their rene-
gade images by taking off ear rings and other feminine adornment in favor
of baggy jeans. The Hong Kong newspaper South China Morning Post
said a crackdown on celebrity culture would “protect consumer rights
and rein in an unruly multibillion-dollar fan industry prone to fraud, tax
avoidance and doxxing” (Nulimaimaiti 2022).
During a symposium on professional ethics, the Party group secretary
of the China Federation of Literary and Art Circles noted:
“For some time now, the entertainment industry — of which practi-
tioners in literature and the arts is an important component — has seen
some chaos. We have seen the disorderly development of capital in the
entertainment industry, the lack of responsibility from media platforms,
and the lack of rigor in industry and market supervision. We have also
seen a very small number of celebrity actors constantly breaking through
the bottom line of social morality and the red line of national law with
bad behaviour, including charging sky-high fees for appearance in films,
tax evasion, pornography and drugs, false endorsements, and other moral
misconducts and deplorable practices. These have triggered a high degree
of social and public concern, strong criticism, and affected the literature
and arts world in an extremely negative way” (Quoted in Ni 2021a).
Apart from a political drive to create a new kind of citizen, the cultural
campaigns had the added advantage of distracting attention from China’s
problems—particularly the economy. Attacking “unorthodox masculin-
ity” shifted the focus from the country’s slowing economic growth, the
Party’s failure to address the growing inequality in society, including
a lack of upward mobility, dismal career opportunities, and expensive
housing. After all, many of these cross-dressing figures were well known
pop stars and were easy targets for illustrating the extremes of Chinese
society (Gao 2021).
The platform economy was also considered part of the cultural
problem. The gaming industry, in particular, was accused of harming chil-
dren’s education by seducing them into playing games for hours instead of
studying. As a result, on August 30, 2021, the government instituted stiff
new regulations on the entire gaming industry. These included requiring
verification of registered names, and limiting people to just one hour
of gaming on weekends and holidays and none at all during the week.
These rules were highly difficult to enforce and were, of course, wildly
unpopular among China’s millions of young gamers.
22 A. COLLIER
More seriously, for parents desperate to get their children into China’s
highly competitive schools, the government told the large tutoring
industry that they could no longer offer classes on weekends or during
summer and winter breaks. The logic of this draconian cutback on the
tutoring industry was that huge sums of money and endless hours were
devoted to the desperate effort to obtain a coveted slot at a top school.
China’s vaunted “gaokao” entrance exam was highly competitive. As in
other countries such as the U.S., the benefits of entry into a top school
were significant. However, Beijing felt that the tutoring industry was an
excessive use of valuable time and money that could be better spent on
more valuable contributions to society as a whole.
Permits for the opening of new schools were halted and education
companies, which had raised billions of dollars on the Nasdaq, were
forbidden from raising capital through public listings. Publicly listed busi-
nesses had to re-register as non-profits. One company, Dashan Education,
said it would close nearly half of its 102 tutoring locations. Aside from the
disastrous impact on the share prices of the listed companies, parents were
outraged that their one avenue to help their children score well on the
exams had been blocked. Overnight, a “shadow industry” of tutors sprang
up, arranging private tutoring in secret locations, as desperate parents
sought to get their children into competitive universities (Fan 2022). By
some estimates, more than 3 million jobs tied to the education industry
were under threat (Shin 2021).
As with distribution of income, in all the attacks on the tutors and the
educational system, there was no discussion of reforming the decades-old
system of granting education and other benefits tied to one’s birth-
place, or hukou (individual household). That policy has forced millions of
migrants to leave their agricultural homeland for a better paying industrial
job in the cities—without gaining access to schools, housing, or medical
benefits because they had no residency permit. The system suited China
well when low-cost labor was its primary advantage. But moving up the
value chain means that China needs to better educate its workforce. In
2015, only 30% of the labor force had any high schooling, compared
with 31% in Indonesia, 34% in Mexico, 36% in Turkey, 42% in Argentina,
and 46% in Brazil, also compared with 76% in OECD countries (Whyte
2019). Thus, once again, the actual policies of Common Prosperity failed
to do more than simply tinker around the edges of fundamental reform.
The theme of Common Prosperity also came to include a broader
refashioning of the character of the Chinese people. Whether these
programs were directly under the Common Prosperity umbrella or coin-

cident is not clear, but the trend was moving in the same direction. For
example, in 2021 the government began establishing “New Era Civi-
lization Practice Centers” in towns all across the country. These centers
coordinate social services, host cultural activities, and not surprisingly,
promote Xi Jinping thought. They also act as a kind of local “slush fund”
to invest in local government operations. According to one investigation,
more than 300 New Era Centers spent as much as 700 million yuan on
everything from new cultural buildings to air conditioning. These were
not labeled as Common Prosperity programs but were clearly in the same
spirit (Batke 2022).
Although the Common Prosperity theme was broadening in scope, it
was still far apart in tone, implementation, and impact from the earlier
mass campaigns under Mao’s rule. The Cultural Revolution was an ideo-
logical, political, and economic battle on a vast scale that permeated every
corner of daily life. In contrast, Common Prosperity has targeted certain
parts of China that the State viewed as either morally excessive, favoring
the rich, or a waste of money (such as video gaming). Coming ahead of
the 20th Party Congress when Xi Jinping was seeking an unprecedented
third term, it was also a populist plea for support, based on Xi’s moral-
istic outlook, among China’s working stiffs. As China analyst Adam Ni
noted, Common Prosperity “is driven by the Party-state’s aim to reinforce
control and legitimacy by presenting itself as the guardian and exemplar
of the Chinese moral order” (Ni 2021a).
Precisely because it is relatively costless and relies on the power of the
Party for implementation it is likely to continue for the foreseeable future.
Organizing local community groups, and getting local Party cadres on
board with ideological campaigns, is relatively easy for the Party. It is
doubtful, though, that it will have much impact on the economy or
the fundamental roots of society because it lacks teeth and institutional
structure.
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0733149/1?raw.
CHAPTER 3
The Bureaucracy Strikes Back
Abstract The speech by Jack Ma instigated a new era of regulation

through a number of bureaucracies in Beijing. This began a period of
increased regulation over data, financial risk, antitrust, and other areas.
The most significant risk was the entry of Ant Financial into banking by
arranging loans for smaller banks. The risks are analyzed in detail to show
how they were exaggerated and how there was a loss to efficiency of finan-
cial intermediation. However, conflict between bureaucracies slowed the
enactment of new laws and resulted in a confused regulatory environment
for technology companies competing both within China and internation-
ally. In addition, the style of governance, and many of the rules, suggested
that the changes were as much about rectifying a perceived power imbal-
ance between the government and the private sector as it was improving
the business environment. The combination of aggressive intervention
and an uneven regulatory environment is likely to persist for a period
of time.
Keywords CBIRC · Zhou Xiaochuan · Ant financial · Financial risk ·

Shadow banking · Digital currency · PBOC · SAMR · MIIT · SAIC ·
Antitrust · NDRC

https://doi.org/10.1007/978-981-19-3042-3_3
28 A. COLLIER
After the fateful speech by Jack Ma, a wave of regulations swept over
the country’s technology sector. Many of these had been long in the
making as the regulators had watched with suspicion as the technology
companies had become financially powerful with millions of customers
supporting them. Agencies that had watched the growth of companies
like Alibaba and Tencent from startups to global giants had done little to
interfere. Now was their chance to impose regulations that would reduce
the companies’ market power—and also make them more beholden to
Beijing. This was what has become known as “regulatory catch-up”—
imposing rules in a regime that had been relatively relaxed. Regulators
were also taking advantage of the political environment to increase their
market share against each other, which we can think of as “bureaucratic
opportunism.” Since it was clear that the technology companies were fair
game for a revised legal framework the many regulatory bodies respon-
sible were now moving with alacrity to define the new regime. There was
another key factor that was crucial to the response, particularly by the
financial regulators, including the PBOC and the CBIRC. This was finan-
cial risk. The financial regulators had legitimate worries about the impact
of the explosive growth of online financial firms. Of particular concern
was Ant Financial, which had entered into the politically sensitive area of
bank loans. Thus, there were a mix of motives behind this mission creep
by the regulators in Beijing.
Regulators across the world are struggling to devise rules to control the
rising power of the internet industry. Anti-monopoly provisions regarding
companies like Amazon and Google are frequently debated in the U.S. It
is no surprise that China also struggles with these issues. In China, the
political directives from the State Council and the Politburo hold much
sway over ministries, and the agency ministers must spend much of their
time paying attention to the changing political winds, and ensuring they
have support from the Politburo. But the size of the Chinese ministries,
and the sudden increase in their status, lent this episode particular power.
Instead of a concerted effort by the central government to outline a clear
set of regulations governing the platform economy, the bureaucracies in
Beijing indulged in a free-for-all competition for market share. As legal
scholar Angela Zhang of the University of Hong Kong noted, “At the
central level, different ministries with overlapping functions and divergent
missions are relentlessly competing with each other for power, influence,
and prestige” (Zhang 2020).
3 THE BUREAUCRACY STRIKES BACK 29
This was a distinct change from recent history. The regulators in

Beijing traditionally had been quite weak. Much of this anti-regulatory
tone was a legacy of Deng Xiaoping’s encouragement of the private
sector. In many cases, they had avoided large-scale regulatory actions that
could result in failure and thus challenge their institutional power; they
were worried they would be outmaneuvered by more powerful ministries
or large firms with deep political connections. Instead, they tended to rely
on their local offices to tackle smaller, more manageable cases, and avoid
high-profile regulatory attacks that could flop (Zhang 2022).
When the bureaucracy did go after the larger firms, they had to
skillfully deploy scarce resources and power to enforce actions against
powerful institutions with important government connections, or even
government-owned state firms. Short-staffed, and without much power
to shut down or curtail a company’s activity, the ministries frequently
resorted to “extra-legal” ways to enforce regulations. These included
leaks to the press and threats to expose business practices that would
damage the reputation of the targeted firms. These actions would force
the companies to the bargaining table, knowing that they could suffer
serious consequences from a public attack on their business practices that
could bring even greater scrutiny from the State Council or the Polit-
buro itself. Thus, agencies like the planning agency and the Ministry
of Commerce, instead of wasting weeks and months of employee time
on lengthy investigations, would instead rely on extra-legal methods to
guarantee an outcome they would be happy with.
For example, in 2014 the planning agency, the NDRC, began investi-
gating automakers’ policies toward controlling prices from their suppliers.
The NDRC was eager to force the foreign producers to put a price floor
on what they paid to the domestic, Chinese parts suppliers. There was no
legal requirement for this but the NDRC wished to support homegrown
companies. The foreign automakers including Audi, BMW, and Mercedes
Benz, eventually agreed to a price floor for spare parts. The NDRC could
easily mobilize the political system to undermine the foreign carmak-
ers’ business in China. It would be highly risky for a foreign company
to launch a legal dispute with a government agency in China because
the domestic political situation would probably lead to an unfavorable
outcome. “The NDRDC leveraged media to deter firms strategically
from disobeying its orders and strong-armed them into obeying specific
demands” (Zhang 2020, p. 72).
30 A. COLLIER
This use (or misuse) of extra-legal methods to enforce government

actions has traditionally been much easier to deploy against foreign firms.
Hostility toward foreign companies is part of a strategy within China to
promote nationalism and to allow domestic companies to seize the advan-
tage against foreign competitors. Historically, there are many examples
of this in post-Maoist China. This has often occurred sub rosa through
non-legal or extra-legal means that don’t become public. For example,
since China’s entry into the World Trade Organization in 2001, foreign
banks have sought to increase their market share in China. However, they
have largely been unsuccessful due to opposition from local governments,
competing domestic companies, or from political obstacles instituted by
the government or regulators in Beijing.
However, regulators that attacked domestic companies, particularly in
the successful technology industry, through wholesale revision of the
rules, was a whole new ballgame. Domestic companies that have proved
highly successful have generally been encouraged in China. This was a
legacy of the gradual loosening of restraints against the private sector
under former leader Deng Xiaoping and continued under Wen Jiabao and
Hu Jintao. The technology companies, with their unprecedented growth
and ability to create whole new markets, were favored children of China’s
economic reforms.
This began to change under Xi Jinping. The attitude of China’s
paramount leader and the Communist Party will be addressed later on.
But we can say that the sheer size of the platform economy—and their
private ownership—was perceived as a threat to the leadership. Where
in the past China’s large companies had been state owned, suddenly the
Chinese government now found itself on the other side of the fence from
large, privately owned companies. Not only private, but with capital raised
from foreign sources. This heightened concerns within the Politburo that
there was too much power accumulating outside of the control of the
Communist Party. In addition, China’s government had become larger
and more powerful than it had been in the past. This was due to the
growth of the economy and the centralizing efforts of the current leader,
Xi Jinping. Given these antecedents, it is fair to say that the crackdown
on the technology sector was an “accident waiting to happen” or, perhaps
more accurately, a “policy waiting to happen.” That’s not to argue that it
was inevitable, but that the seeds were there.
Since the later years of Xi Jinping’s leadership, the anti-monopoly laws
and enforcement had slowly been increasing. The anti-monopoly law
stated that a firm is dominant if it has more than 50% share, two firms
with 66%, and three firms with 75%, but this had been loosely enforced
(Zhang 2020). The antitrust authorities imposed 12 penalties relating to
market dominance in 2018, 16 in 2019, 25 in 2020, and imposed a fine of
18.2 billion yuan on Alibaba—three times the size of the largest previous
penalty on Qualcomm. Alibaba and Tencent accounted for 60% of the
fines imposed on the industry.
The most aggressive among the host of agencies responsible for the
renewed focus on regulating the platform economy was the State Admin-
istration for Market Regulation (SAMR). To solidify the state’s approach
to market competition, in 2018 SAMR was carved out of three other
agencies. The agencies previously responsible had been the General
Administration of Quality Supervision, Inspection and Quarantine; the
China Food and Drug Administration; and the State Administration
of Industry and Commerce (SAIC). But other bureaucracies had indi-
rectly participated in market regulation, including the powerful NDRC,
and the Ministry of Commerce (Mofcom). Mofcom was responsible
for overseeing mergers while the NDRC and the SAIC investigated
problems relating to state planning, corporate registration and other
matters. SAMR’s power was further enlarged in November 2021 when
the Chinese government established the State Anti-Monopoly Bureau
directly under the State Council in the same building as SAMR itself.
SAMR Deputy Director Gan Lin was promoted to chief, giving SAMR
a direct line to the State Council (USCESCR December 2021). The
creation of SAMR set the stage for stronger anti-monopoly regulation
in China.
In 2020, the 60-year-old Beijing native who was promoted to be
Governor of SAMR, Zhang Gong, had good political connections in a
time of regulatory strength. The agency’s power—as with many—was in
part a function of its relationship to the senior leadership rather than to
its bureaucratic structure and institutional function. Although Zhang’s
background was in electrical engineering, he had cultivated management
skills by earning a Master’s Degree in economics with a focus on enter-
prise management at the Capital University of Economics and Business in
Beijing. This is a solid career path for a technocrat trying to broaden his
reach into management. Later in his career, he served on the standing
committee of the Communist Party in Beijing, which meant that he
had spent time with leaders in Politburo just by virtue of geographic
proximity.
32 A. COLLIER
In September 2021, in an article published in the People’s Daily,

SAMR trumpeted its successful anti-monopoly sweep. The article referred
to ten decisions that “strengthens anti-monopoly and prevents the disor-
derly expansion of capital” (People’s Daily, September 2021). These ten
generally were local cases involving industries such as autos and cement,
but one of them halted an acquisition by one of Jack Ma’s companies,
Alibaba Investment Co. Such a public notice was a sign of the growing
power of a once quiet bureaucracy.
Even more telling was an op-ed in the People’s Daily in late 2020
promoting the importance of cutting Alibaba down to size. The article,
entitled “Strengthening anti-monopoly supervision is for better develop-
ment ,” argued that the rules of the road were crucial for the success of
the growth of the platform economy. “If you don’t follow the rules, you
can’t make a circle.” The op-ed compared China with other countries and
argued that China was simply following the lead of both the U.S. and the
European Union, which in recent years had strengthened their respective
anti-monopoly rules (Chao 2020).
In January 2021, SAMR issued draft regulations for “Antitrust Guide-
lines for the Platform Economy.” The document was aimed at the
platform companies because Beijing had no interest in reducing monop-
olies in other areas of the economy—including state firms. They were not
to be touched. As one analyst noted, “This document is tailored to specif-
ically target the behaviors of Chinese Internet companies, not a general
framework to cover the entire Chinese economy. That may be by design,
because many sectors are state-owned and thus definitionally monopo-
listic. It’s a real life outcome of the pros and cons mixed together. The
pros are the rules are very up-to-date with how the Internet economy
and tech platforms work. The cons are it conveniently leaves out other
monopolistic industries” (Xu 2021).
Several rules were designed to force companies to limit their opera-
tions to one operational platform. This would prevent using monopoly
power—or even just their large size—from becoming dominant in parallel
industries. This was a significant expansion of the power of the anti-
monopoly regulation in Beijing and marked a contrast from the previous
ways they handled market regulation, which tended to be quite specific
in scope.
Moreover, the fact that the 2020 Central Economic Work Conference
listed antitrust and preventing disorderly capital expansion as one of the
eight economic key tasks in 2021 shows that the Central Committee
of the Communist Party was attaching great importance to antitrust,

although there is some question about the effectiveness of their efforts
(Yang 2021).
Apart from rule making, though, the government continued to use
non-legal methods to whip the industry into line. This was very much
on display during several important meetings. In November 2020, the
CAC and the Tax Administration held what they called an “administra-
tive guidance meeting” with the top 27 online firms including JD.com,
Meituan, Baidu, Alibaba, and others. The regulators ordered the firms
to stop abusing their market position. But the two ministries also threw
in a grab bag of other orders concerning counterfeit goods, food safety,
advertising standards, personal data protection, and fraud. None of these
fell directly under the purview of either the CAC or the Tax Adminis-
tration. Instead, it was a government using the media megaphone to tell
the online firms to improve their governance. These were not rules estab-
lished by an institutional process but were akin to a parent admonishing a
child to improve her behavior. No one could rightly protest against what
were legitimate grievances but such signaling is a far different, and less
institutionalized, process than rule-making (SAMR 2020).
Furthermore, in September 2021, in a public dressing down, the regu-
lators called a meeting in Beijing with the top companies. The companies,
which included Alibaba, Tencent, ride-hailing company Didi Chuxing,
and the food delivery firm Meituan, were called in to discuss their support
for workers under the fledgling “gig” economy. They were ordered to
follow guidelines issued by the lead agency, the SAMR, for worker protec-
tion. But in the new governing style under Xi Jinping, the companies also
were expected to join forces with the government to support a new policy
shift in favor of workers. The ten internet companies were directed to
“play a leading role” in caring for these workers and shouldering the social
responsibilities for employing them. This strayed from a purely technical
discussion of regulations. To show that the full might of the govern-
ment was behind them, the statement about the meeting was issued by
the Ministry of Human Resources and Social Security, which ordered
the obedient firms to draw up a road map to comply with the guide-
lines, including signing up gig workers to full contracts (Shen, Xinmei
September 2021).
The other ministries did not want to be left out of the growing
tide against the technology sector. Despite the united front, the Beijing
meeting led to the revival of inter-bureaucratic competition. Two tech
34 A. COLLIER
companies, Tencent and Alibaba, were summoned to Beijing for a sepa-

rate meeting with the Ministry of Industry and Information Technologies
(MIIT), after which the MIIT said it would increase competition by
allowing rival companies into their internet “walled gardens” to offer
services. This meeting increased the pressure on SAMR to act more force-
fully because the MIIT technically did not have the authority to enforce
anti-monopoly provisions—but SAMR did (Riordan 2021).
There is no doubt there was public support for many of the new regu-
lations. Didi’s drivers were widely considered to be underpaid and had
few benefits, and the gig economy was short-changing the livelihood of
many workers. The question was whether the scattershot approach was
well organized and whether there were significant political considerations
behind many of the new regulations. As will be discussed in another
chapter, the Party did view these well-capitalized technology firms as a
threat to their monopoly of power, and the expansion of regulations
would inevitably reduce that threat.
One of the most important aspects of the technology crackdown was
the restrictions placed on Ant Financial. This has significant implications
for the future of financial intermediation in China. From the point of
view of the regulators, Ant had gotten too big, and online finance itself
posed a problem. The main issue was that the size of the industry, and
lack of controls, began to pose a risk to the financial system. However,
in an example of overly fast regulatory “catchup,” the industry moved
so quickly that the regulators—mainly the CBIRC and the PBOC—were
racing to figure out exactly what these online financial firms were doing
and what their potential impact was on the financial system.
To be fair, the stability of the financial system had tilted the balance
toward more regulation even before the Ant IPO was canceled. Beijing
had created the Financial Stability and Development Commission in 2017
and the following year merged the banking and insurance regulators to
form the CBIRC (Zhang 2022). The CBIRC, along with the PBOC,
had a mandate to prevent risk to the financial system. The 2015 stock
market crash, which the regulators desperately tried to remedy through
state buying, in the minds of the leadership was a disaster due to the
complete loss of control. They did not want that to happen again. Ant’s
numerous businesses in online lending, investment management, and
digital payments, made it the largest online company in financial services.
It managed money and arranged loans. It also held a treasure trove of data
that was proprietary to its own computer servers. All of these functions
touched a number of hot buttons in Beijing.
So, the regulators become more aggressive. In September 2021, Ant
agreed to share credit data from its Huabei consumer lending business
with the PBOC. This included everything from when the account was
established, how big the credit line was, and the status of repayment of
the loans. There were certainly risks to the Chinese economy from the
Ant business model, but these and related regulations were quite a signifi-
cant retrenchment of Ant’s operations. It was not clear that the credit data
really was necessary from a regulatory standpoint. The PBOC could easily
require an overall snapshot of Ant’s business model, and make regulatory
changes regarding its lending practices, without demanding wholesale
transfer of customer specific data. This spelled more of a power grab than
a regulatory discussion of risk parameters. It could be that the two finan-
cial bodies were sending signals to the rest of the online industry that
data would no longer be proprietary to private firms but would have to
be handed over en masse to the government. Whether it was bureaucratic
“mission creep” or a slap in the face of private financial intermediation, it
has slowed the growth of one of China’s most dynamic industries.
Online finance, particularly in bank lending, is one area where Beijing
may have had legitimate concerns about the rapid growth of financial
technology. Ant Financial more or less invented the industry of online
financial intermediation. Where the banks failed to innovate, Ant quickly
stepped in and became a major force, arranging billions of yuans in loans
to companies across China. In addition, Ant’s parent, Alibaba, along with
competitor Tencent, had dominant market shares of the online payments
industry, which they had created.
The stability of the financial system is a central part of China’s growth
and there were growing concerns about Ant’s lending methods. But the
measures taken—essentially banning Ant from the banking industry—
were extreme as online finance offers substantial advantages over bricks-
and-mortar banking. It is worth examining the risks of Ant’s business
model in detail to judge whether the crackdown on the company was
regulatory oversight or regulatory overkill.
One of the most important ministries in Beijing is the central bank—
the PBOC. It is the beating heart of the financial system. Not only is it
in charge of the country’s money supply, but it is the paramount finan-
cial regulator (Until 2003, it was the only regulator, and after then has
36 A. COLLIER
shared many duties with the China Banking and Insurance Regulatory
Commission).
For much of 2010s, the PBOC had been struggling to control the
giant pool of capital that flowed into the financial system as the result of
the 2009 financial stimulus. That capital had created a host of shadow
banks and shadow banking products that had been lending money
without much oversight. Although this capital was crucial in helping
China avoid a financial meltdown similar to the U.S. financial crisis, it
also left the country with a significant debt burden and an unregulated
shadow banking system. Thus, for much of the latter part of the decade,
the PBOC struggled to convince the leadership to cut back on lending,
both from the banks and the shadow banks. These policies were known
within China as “deleveraging” the financial system. The lower debt load
would have the added advantage of “de-risking” the banks. When Xi
Jinping launched the technology crackdown, the PBOC already had a
lot on its plate.
The sudden rise to importance of the technology companies added a
new responsibility to the PBOC’s job description. These service compa-
nies were responsible for billions in payments and loans to private
customers and small businesses. The online world had become an impor-
tant part of China’s financial system. In 2021, mobile transactions
accounted for 66% of all monetary transactions in China, with 23% in
cash and 7% for the credit card business. By 2020, Alipay and WeChat
Pay performed 94% of mobile transactions. In e-commerce, Alibaba and
JD.com together handled three-quarters of all online market distribution
(Godemont July 2021). The PBOC had to devise regulations on Ant
Financial’s loans to the regional banks, payment systems from Alipay and
WeChat Pay, and proposals for digital currencies.
There were concerns about unconstrained money flows in the era
of big tech—whether through payments, loans or digital currencies.
For example, even before Jack Ma’s speech, there had growing oppo-
sition to Ant’s influence in the economy, and proposals for new ways to
control capital flows. At one conference just a day after Jack’s speech,
Huang Qifan, Chongqing Mayor and Vice-chair of the National People’s
Congress Financial and Economic Affairs Committee, accused Ant of
promoting the company at the expense of the country’s financial stability,
and added that Ant had encouraged investors to take on too much debt.
On top of the lack of regulatory controls, the growth of the private
sector’s payments and lending through Ant, Wechat Pay, and Alipay,
posed a threat to the central government’s plans for a digital currency.

The digital currency would allow the central bank to have tighter control
over the money supply, and also to have access to detailed knowledge
about where payments were made and to whom. This centralized database
would grant the central government a window into the financial hold-
ings of every citizen in the country, along with senior Party officials
that may have been involved in corruption. Beijing would prefer that
this information remain safely in government hands. As one Australian
expert noted, “A key motivator in the Chinese government’s push for
DCEP (Digital Currency Electronic Payment) and its digital currency is
that in the country’s leap into the digital economy, tech companies such
as Tencent and Ant Group have gained greater financial power. As the
government continues to clamp down on tech firms, implementing new
laws designed to curtail private companies’ control of cash flow and the
collection of personal data, future development of Alipay and WeChat Pay
is likely to become forestalled” (Freudian 2021).
When it came to online payments, the central bank did not have the
resources to adequately understand the rapidly changing industry. Nor
did the major state owned banks have a strong grasp of digital currencies
or payments. As state owned institutions, they were slow to act, particu-
larly in introducing new digital services—which left a gaping hole for the
technology firms to jump through. There had been half-hearted attempts
by the state banks to provide digital payments to compete with Alibaba
and Tencent but most had made little progress. They already had an
established business making loans to state firms, and had a more or less
automatic lock hold over savings deposits across China. The banks had
such a cozy business, why shake it up with complicated new technology?
The PBOC was not happy with the private sector dominating digital
finance. A major concern was payments data, which was increasingly in the
hands of the private operators. This was a decided business advantage for
private firms. They could use this data to sell other products. According to
one analyst, “Importantly, in the Chinese context, the payment provider
has access to a broader set of information regarding customers’ financial
life. For example, a regular bank probably does not know the exact rela-
tionship of everyone who sends you a birthday gift but does know the
amount and name of the sender if sent by a check. But by merging the
social media network of WeChat with the Red Envelope fund transfers,
WeChat Pay does. For example, if you are a younger adult who is lucky
enough to receive regular or even sporadic support from your parents,
38 A. COLLIER
grandparents, or other extended family, WeChat Pay is able to see into

your network both socially and financially” (Klein 2020).
Initially there was hesitancy at the PBOC to decide who would
control the digital currency. In early 2021 former PBOC governor Zhou
Xiaochuan described a system where the central bank would build the
infrastructure and a “second tier” of banks, telecom operators, and third-
party payment platforms would be the retail operators (Zhou 2021).
But that’s not how it would be. With the shifting winds in Beijing, the
PBOC realized it should have greater control over distribution of the
currency and especially the transactions data. The central bank approved
a number of commercial banks for early trials but excluded the two
largest payment transaction firms, Ant and Tencent, from those tests of
the currency. The supremacy of the central bank’s digital yuan was a
proof that payment systems are a zero-sum game—market share gains for
one institution spells trouble for any competitors. And Ant and Tencent
were now competitors to the PBOC. Clearly, the PBOC had moved into
new, more aggressive territory against the private sector as a result of the
atmosphere following Jack Ma’s speech (Yang 2021).
But the payments business was a minor skirmish compared with the
real war between Ant and the PBOC. That war was over the future of
Ant’s participation in the money lending business. The biggest part of
China’s financial systems are bank loans. Ant’s entry into this business
could pose a threat to the control of capital by the state. Thus, Ant is a
good case study of the pros and cons of financial regulation.
In 2012, I visited Hangzhou to interview a senior executive of Alibaba.
The meeting had been arranged by a colleague at the Chinese security
firm in Hong Kong where I worked. I asked the man for his title, and he
said he was director of the credit and Finance Group. I didn’t know that
Alibaba had formed a division outside of the core business selling goods
online, much like eBay. It turns out the executive was in charge of more
than 2 billion yuan in capital that it was lending to its customers to assist
their growing transaction businesses. He made the case that Alibaba’s
customer transactions data was a treasure trove of data that gave credit
group a clear picture of credit risk. This small cog rose to become a
well-oiled machine in Alibaba’s empire—Ant Financial.
Ant Financial was officially found in October 2014, spun out of Alipay,
Alibaba’s mobile payments company. Ant expanded beyond payment
services to engage in wealth management, financing, insurance, and a
credit score business. Alipay itself was launched in 2010 when the central
bank granted 27 online payment companies licenses to operate online

payment businesses. In 2012, before Ant was formed, Alipay was granted
a special license to offer customers investment products. It was the “mid-
dleman” between the customer and the fund manager. In June 2013,
Alipay offered a new investment product called “Left Over Treasure” and
within six months it had more than 30 million customers (Zhang 2018).
Ant Financial’s rise was so rapid that it quickly became a dominant
player in China’s banking industry. However, even in its early days during
my visit in 2012, the company’s ambitions were amply evident. The
executive I interviewed said Alibaba intended to grow its micro loan busi-
ness by more than ten times to 25 billion by 2014. According to my
notes from the meeting, Alibaba believed that its key customers in C2C
and B2B were immune from macroeconomic slowdowns. Alibaba also
believed that its ability to manage risk due to its transactions data was
unmatched by any bank.
How could it do this? After all, China’s brick-and-mortar banks had
more than 200,000 branches scattered across the country, with deep
connections to their customers. Ant was a fledgling firm with nothing
more than a handful of employees and a parent company with a trans-
actions business that arranged the sale of shoes, shirts, and other goods.
To make its loans, Ant relied on a combination of customer transaction
data, customer reviews, and other online information as a substitute for
the collateral that a bank generally requires. No wonder why the PBOC
was nervous. This system bypassed the usual bank channels. This could
lead to an erosion of the valuable savings deposits that are the heart of
China’s subsidized capital for the state corporations. The banks generally
paid relatively low-interest rates for deposits but they were convenient and
considered safe in a country where financial transactions were often risky.
Without this deposit base, the state system would collapse.
The irony is that Ant had extended an invitation to the bricks-and-
mortar banks to join their new business. But the banks had been too
scared of venturing into new territory. According to one Alibaba official,
“We have offered our customer list to banks and they don’t want our
customers because there is no way for them to monitor the customers”
(Collier 2012). Instead, Alibaba was seeking to find new capital to expand
the business on their own.
Ant’s lending became a huge bone of contention between Ant and the
PBOC. China’s banking system for decades was dominated by the Big
Four state-owned banks. They had been carved out of ministries handling
Another random document with
no related content on Scribd:
asked to pass. In no other way, can we acquire our own knowledge
that the Supreme Court has yet to hear and consider the real
challenge to the supposed new Article in which governments attempt
to exercise ungranted power and to grant new power to interfere with
the individual freedom of the American citizen. As we well know, that
one real challenge is that the new Article was not made by those
who alone can make it, that it was not made as it can be
constitutionally made, by the makers of that kind of Article
named in the Fifth Article, the “conventions” of the Seventh and the
Fifth Articles, the “We, the people” of the Preamble and “the people”
of the Tenth Amendment.
CHAPTER XXIII
THE CHALLENGES THAT FAILED
The validity of the Eighteenth Amendment (seven litigations being

heard together) was argued on March 8, 1920, and for several days
thereafter.
As we are not concerned with the meaning of the second section
of the Amendment or with the validity of the Volstead Act (passed by
Congress under the grant of said section) except as the validity of
the Act depends upon the validity of the Amendment, we shall make
no mention of either.
The Court announced its decision, in all the litigations, on June 7,
1920. Somewhat to the amazement of the country, but (in our
humble opinion even at the time) very wisely, the Court refused to
write any opinion whatever. Nothing could more certainly settle that
the Court determined no question except the specific questions
presented by those who challenged validity. That we may be certain
that the Court neither heard nor considered nor passed upon the real
and the invincible challenge to the existence of the supposed new
national Article, we will let the Court, in its own words, state exactly
just what were the four propositions, advanced against validity, and
state the simple fact that it negatived each of those four propositions.
Thus, in an impressive manner, we shall acquire our own knowledge
that the fifth conclusion, which later we shall state, is but the
conclusion of fact that nothing, in the four propositions negatived,
impairs the validity of the supposed Article.
Mr. Justice Van Devanter announced the conclusions of the
Court.
Power to amend the Constitution was reserved by Article V,
which reads:...
(As we have been in the conventions which made it, we know it.)
The text of the Eighteenth Amendment, proposed by
Congress in 1917 and proclaimed as ratified in 1919, 40 Stat.
1050, 1941, is as follows:...
(The text of the first two sections is quoted on page 465 herein.)
We are here concerned with seven cases involving the
validity of that Amendment and of certain general features of
the National Prohibition Law, known as the Volstead Act, c.
83, 41 Stat. 305, which was adopted to enforce the
Amendment. The relief sought in each case is an injunction
against the execution of that act.... The cases have been
elaborately argued at the bar and in printed briefs; and the
arguments have been attentively considered, with the result
that we reach and announce the following conclusions on the
questions involved:
1. The adoption by both houses of Congress, each by a two
thirds vote, of a joint resolution proposing an amendment to
the Constitution sufficiently shows that the proposal was
deemed necessary by all who voted for it. An express
declaration that they regarded it as necessary is not essential.
None of the resolutions whereby prior amendments were
proposed contained such a declaration.
2. The two thirds vote in each house which is required in
proposing an amendment is a vote of two thirds of the
members present—assuming the presence of a quorum—and
not a vote of two thirds of the entire membership, present and
absent. Missouri Pacific Ry. Co. v. Kansas, 248 U. S. 276.
3. The referendum provisions of state constitutions and
statutes cannot be applied, consistently with the Constitution
of the United States, in the ratification or rejection of
amendments to it. Hawke v. Smith, ante, 221.
4. The prohibition of the manufacture, sale, transportation,
importation and exportation of intoxicating liquors for
beverage purposes, as embodied in the Eighteenth
Amendment, is within the power to amend reserved by Article
V of the Constitution. (National Prohibition Cases, 253, U. S.
350, 384.)
We are not interested in the first two propositions which the Court
negatived. They were that the Congress resolution should have said
that two thirds of Congress deemed it necessary to propose the
Amendment and that the proposals should have been made by two
thirds of the entire membership of the House instead of two thirds of
a quorum in each House. These are trifling and unimportant matters
when over one hundred million Americans seek to learn when they
ceased to be citizens of America and became absolute “subjects” of
governments in America.
The third proposition negatived has naught to do with ourselves,
the citizens of America. It deals only with the rights of some state
citizens as such, where their state constitution has a referendum
provision. For our protection against usurpation by any government
of our own reserved rights or powers, we look to our own American
Constitution. We have lived through its making with the Americans
who made it to secure individual liberty of themselves and their
posterity, ourselves, the citizens of America.
The clear statement of simple fact, expressed in the Court’s fourth
conclusion, tells us something, which, with Madison, we have known
since he wrote and suggested his Fifth Article, at Philadelphia, on
September 10, 1787. Our stay in the “conventions,” which made the
Fifth Article, has taught us that the Americans in them, even Henry
and the opponents of the Constitution, were fully aware of the fact
that the Fifth Article provided the constitutional mode in which the
“conventions” could thereafter exercise the existing omnipotence of
the citizens of America themselves to make any kind of an Article of
government. The same stay fixed firmly in our minds that every one
in them knew that the Fifth Article is not a grant of any ability from
themselves to themselves, from the “conventions” named in the
Seventh Article to the same “conventions” named in the Fifth Article,
all being the “conventions” of the American citizens assembled to
exercise their own omnipotence.
And so, coming from the only “conventions” of that kind yet held,
we grasp at once the absolute accuracy of the statement in the
fourth conclusion of the Court in 1920. The mention of the same
“conventions” in the Fifth Article, a mention made by the
“conventions” of the Seventh Article, is the sound basis for our
knowledge that, as the Tenth Amendment expressly declares, those
“conventions” of the Seventh expressly reserved to themselves (the
same “conventions” named in the Fifth, “the people” of America in
the Tenth Amendment) their own exclusive ability to make national
Articles, like the First Article and the Eighteenth Amendment. For
which reason, we know the truth of the Court statement in its fourth
conclusion, that the power to make the Eighteenth Amendment “is
within the power to amend reserved by Article V.” The exclusive
ability of the “conventions” of 1787 and 1788—to make the Article
which is that new Amendment—is something known to all who were
in those “conventions.” That the ability—to make Articles like the
First Article and the new Amendment—remained exclusively in such
“conventions” of the American citizens, because such Articles are
national and either directly interfere with or are the basis for direct
interference with individual freedom of the American citizen, was
also known to every one in those “conventions.” That is why the
Americans in those early “conventions” insisted that the Tenth
Amendment expressly declare that such exclusive ability was
reserved to them, “the people” of that Amendment, and why the
same “conventions” mentioned themselves, the “conventions,” in the
Fifth Article and provided therein the constitutional mode of
procedure in which that exclusive ability could thereafter be
exercised by those who had it, the “conventions” of the American
citizens.
Even though this knowledge, which we bring straight from the
“conventions” which made the Fifth Article, be not shared at all by
the lawyers of 1920, we are aware that it is also the knowledge of
the Supreme Court. That is why Marshall long ago pointed out that,
when individual welfare required that government should be granted
some national powers or powers to interfere with individual freedom,
“the necessity of deriving such powers from the people themselves
was felt and acknowledged by all.” That is why in 1907 the Supreme
Court again declared “the powers the people have given to the
General Government are named in the Constitution, and all not there
named, ... are reserved to the people and can be exercised only by
them, or upon further grant from them.” As the First Section of the
new Amendment is the exercise and the Second Section is the grant
of one of those reserved powers, and as the Fifth Article provides the
constitutional mode of procedure in which it can be exercised or
granted by those, who alone have it, “the people” of the Tenth
Amendment and the “conventions” of the Fifth Article, it is very
natural to read in the same Supreme Court, in the National
Prohibition Cases, that the ability to make the Eighteenth
Amendment “is within the power to amend reserved by Article V.”
When the Supreme Court of Marshall’s day knew that state
“legislatures” could not make Articles like the First Article and the
Eighteenth Amendment, when the Supreme Court of 1907 still knew
that only the “people” or “conventions” could make Articles of that
kind, when the Supreme Court of our own day knows that the Fifth
Article deals only with “reserved” power, we Americans feel that we
are to remain free men and citizens. We have come from the
“conventions” with our own accurate knowledge that the power to
make the new Amendment or any other Article like the First Article
“is within the power to amend reserved by Article V.” But, for the
very reason that our knowledge is accurate, we know that the power
to make such Articles was not reserved to the state legislatures, who
did not have it, but was reserved to the “conventions,” who did have
it and who were exercising it (in making the First Article) at the very
moment when they made the Fifth Article.
We have examined the four conclusions of the Supreme Court
which deal with any argument presented against the existence of the
Eighteenth Amendment. Those conclusions negative every such
argument that was presented. But, because every brief assumed
and asserted that the amending power “reserved” in the Fifth Article
had been “granted” therein, the four conclusions make clear that the
Court has yet to hear and pass upon the challenge which reads the
Eighteenth Amendment out of our Constitution. When that challenge
is presented by American lawyers, who know what American basic
law is and how American citizens are constitutionally protected
against usurpation of power by governments in America, there can
be no doubt of the decision of the Supreme Court. In that decision,
there will be no conclusion denying the most important legal fact in
America, namely, that governments cannot exercise ungranted
power or create new government power to interfere with the
individual freedom of the American citizen. In that decision, there will
be again the simple statement of the undoubted fact that the ability
to make the Eighteenth Amendment “is within the power to amend
reserved by Article V.” But, in that decision, there will be added the
plain statement of the Tenth Amendment that such ability was not
reserved to the state legislatures who never had it, but was reserved
to the “conventions,” who always had it and still have it. And,
comparing that future decision (which is certain to come from the
Supreme Court) with the decision, which merely negatived the four
unsound challenges which were made to the Eighteenth
Amendment, we know that the first five conclusions of the latter
decision—all the conclusions that have aught to do with the
existence and validity of the Eighteenth Amendment—merely hold
that the existence of the new Amendment is not affected by any of
these challenges which were made.
With exceeding wisdom in our humble opinion, the Court carefully
refrains from passing upon or determining any question except the
exact challenges which were presented. That is why no opinion was
written. When any general statement (seeming to bear upon
questions not presented or submitted) might come back to perplex
and annoy the Court in future litigation where protected liberty of the
American citizen was the challenge to the government-made new
Article, common sense and sound reason and the experience of
generations dictated that no general statement should be made.
And, as there was but one way to avoid a single general statement,
no opinion was written. This method of deciding those particular
litigations, with their four unsound challenges, would leave the
decision itself without even an apparent influence upon a litigation in
which some real challenge might be presented.
And so we find the Court merely stating “that we reach and
announce the following conclusions on the questions involved.”
Nothing could make more clear that no conclusion is reached or
announced on any question not presented by those who urged
invalidity.
The first four conclusions reached and announced are conclusions
of law against the opposite legal conclusions urged by those
opponents. The fifth conclusion is a conclusion of fact that validity of
the Amendment is not affected by any of the four propositions
advanced by the opponents of the Amendment. In other words, the
first five numbered conclusions, all that deal with validity of the
Amendment, can be expressed in our own words, viz: “Although the
proposing Resolution did not state that Congress deemed the
proposal necessary, although only two thirds of a quorum in each
House (and not two thirds of the membership of each House) made
the proposal, although the citizens of each referendum state have
not acted as part of their respective state legislatures, and although it
is urged that the Fifth Article reserved abilities do not include ability
to make an Amendment like the Eighteenth, we decide that none of
these things affect the validity of the new Article.”
And, when we make this accurate statement of what was decided
in those National Prohibition Cases, we average Americans, fresh
from our education with the Americans who found themselves
“subjects” and made themselves and their posterity free men, have
some startling facts brought home to us.
Undoubtedly thousands of lawyers had worked, for more than a
year, in the preparation of the arguments that were made and the
briefs that were filed. When these amazingly important litigations
were reached, the arguments lasted for several days. On the
exhaustive briefs filed against validity, there appear twenty-two
lawyers, many of them among the leaders of the American Bar. On
the briefs to support state government omnipotence over the citizens
of America, “in all matters whatsoever,” thirty-five lawyers, headed by
a former member of the Supreme Court, appear.
We know, with a knowledge that brooks no denial, because it is a
knowledge brought from our experience with those who made
themselves free men and established the Constitution to secure that
result to themselves and to us, that the new Article is not in the
Constitution unless at some time prior to 1917, the free men of
America, all the individual citizens of America, became the “subjects”
of some state governments.
It is clear, therefore, that the existence of the Eighteenth
Amendment has always depended upon the correct answer to the
question whether the American is “Citizen or Subject?”
If we are subjects, the new Article may be in the Constitution not
made by us but made by governments.
If we still are citizens, as once undoubtedly we were, the new
Article cannot be in our Constitution, because we have not made the
new Article, assembled in our “conventions.”
Where men are citizens, governments cannot exercise ungranted
power or create new power to interfere with individual liberty.
In a nation of free men, established by former “subjects” with a
dominant purpose that no American should ever be the “subject” of
any governments, it is amazing that one government should propose
that governments constitute, and it is amazing that forty-six
governments should attempt to constitute, new government of men
—new government power to interfere with individual human freedom.
But most amazing of all, in a nation with the history of America, is
the fact that, when audacious government had so proposed and
audacious governments had so attempted, the prolonged arguments
and voluminous briefs of fifty-seven leading members of the
American Bar never once knew or stated the simple fact which made
the proposal and the attempt a legal and constitutional absurdity.
The fact itself, the one most important legal fact in America, was
once known and “felt and acknowledged by all” Americans. Yet, not
once in any brief in the National Prohibition Cases, was it either
known or urged that the “conventions” of the Fifth Article are the
“conventions” of the Seventh Article and that both are the whole
American “people” of the Preamble and the Tenth Amendment and
that, therefore, the Constitution expressly reserves to the
“conventions” of the Fifth Article, the citizens of America, their
existing and exclusive ability to create new government power to
interfere with their own individual human liberty.
Why none of these briefs did make this challenge became known
to us when Rice of Rhode Island, with the silence of his colleagues
marking their approval, answered the Court that the new Article
could not be constitutionally made. Why they did not make the
challenge will be emphasized when we read the leading brief against
the new Amendment. Over fifty times it will admit and state that the
Fifth Article is a “grant” of power to state legislatures from American
citizens and claim the “granted” power is a limited power and does
not include ability to make an Amendment like the Eighteenth
because such Amendment takes away the reserved power of a state
or political entity. Then, to emphasize what it does not know about
the “conventions” of the Fifth Article and the reserved powers of the
citizens of America, this brief will go on to tell us that there is no
constitutional mode in which can be made an Article which takes
more power away from any state; that such an Article may only be
made, outside any constitutional mode, by having the people
themselves rescind “the social compact” which is their American
Constitution and having them make “such new compact as they
please”; but that such new compact, such new Article of that kind,
cannot “be validly and legally made to come to pass against the
objection and protest of any state.” All this clearly explains why none
of the briefers were able to answer correctly the question asked by
the Court. How could they tell the Court in what way the Eighteenth
Amendment could be constitutionally made, when all of them “knew”
that there was no constitutional mode in which the “conventions” of
the American citizens could make it, and when they “knew” that it
could not be made, even outside the Constitution, without the
consent of the citizens of every state? The most important words in
the Fifth Article, “in conventions in three fourths thereof,” did not
mean to these briefers what they meant to the Americans who made
the Fifth Article or to Madison and Hamilton who wrote the Fifth
Article and suggested it at Philadelphia. In the word “conventions,”
they did not recognize the Seventh Article “conventions” of the
American citizens describing themselves by exactly the same word,
“conventions,” in the Fifth Article. In the words “in three fourths
thereof” after the word “conventions,” they did not recognize the
great security to human freedom which we have learned with the
Americans who wrote and who made the Fifth Article. They did not
recognize how the American people, by these words, made it their
constitutional command that they themselves, again assembled in
their conventions, by a “Yes” from three fourths of their “conventions”
and without the consent of the Americans in the other “conventions,”
might withdraw any power granted in the First Article and might add
any new power to its enumerated grants, whenever they deemed
such withdrawal or such addition would better secure and protect
American individual liberty.
That not one of the briefers did make our challenge is our certain
knowledge when we read the four challenges they did make and
which are negatived in the first four conclusions of the Court.
The first two relate to the manner of the proposal that
governments create government of men in America. Who cares how
one government makes a silly proposal? The one important thing is
that no governments shall attempt to act upon a proposal which
denies the most important legal fact in America, that governments
cannot constitute new government ability to interfere with individual
liberty.
The fourth challenge that was made is the absurd challenge that
the Fifth Article does not mention a constitutional mode of
procedure in which the citizens of America may again directly grant
to their government new power to interfere with their own individual
liberty and in which—far more important to the “conventions” which
named themselves (the “conventions”) in their Fifth Article—the
American citizens can directly take back any part of the granted
power of the First Article which they find oppressive to their
individual liberty. This challenge neither knows nor makes any
distinction between the state “legislatures” and the “conventions” of
the American citizens or the mention of either in the Fifth Article. It is
a challenge which has not the knowledge we bring from the first
“conventions,” the knowledge that “legislatures” are mentioned on
account of their existing ability to make federal or declaratory Articles
and that “conventions” are mentioned on account of their exclusive
ability to make Articles of any kind. It is a challenge which assumes
and asserts and is based wholly upon the absurd assumption that
the Fifth Article is a “grant” of power to make Articles. On this absurd
assumption of this patently absurd “grant,” this fourth challenge,
frankly stated in our own words, is as follows: “In the Fifth Article, the
‘conventions’ grant to the two grantees—the grantors and the state
legislatures—an identical ability to make new Articles. We admit that,
if the ‘conventions’ of the Fifth Article could constitutionally make the
Eighteenth Amendment, the state legislatures can also
constitutionally make it. But our challenge is that the ‘grant,’ in the
Fifth Article, is limited in extent and that neither the ‘conventions’ nor
the state legislatures can constitutionally make the Eighteenth
Amendment.”
To the “constitutional” lawyers who make this challenge, to all who
support such challenge, we commend many hours’ study of the
statements of Madison, who wrote the Fifth Article; of Hamilton, who
supported its introduction at Philadelphia; of Wilson, Pendleton,
Henry, Iredell, MacLaine, Jarvis, Lee, Mason, and the many others,
with whom we have sat in the “conventions” which made the Fifth
Article. Particularly do we commend a careful reading of the
reasoning which led to the decision at Philadelphia, in 1787, that the
First Article, because it constituted government of men, must go to
the “conventions” named alike in the Seventh and the Fifth Articles
and could not be validly made by the state “legislatures” named in
the Fifth Article. That decision was based upon the unrepealed
Statute of 1776, a statute well understood in 1787, only eleven years
after the Statute itself had been enacted as the command of the
whole American people. Finally, to those who support this fourth
challenge, we commend a thorough reading of the law laid down by
Marshall in the Supreme Court. If they thus educate themselves as
we have educated ourselves, they will be able to say with Marshall:
“To the formation of a league, such as was the Confederation, the
state sovereignties were certainly competent. But when, ‘in order to
form a more perfect Union,’ it was deemed necessary to change this
alliance into an effective government possessing great and
sovereign power and acting directly on the people, the necessity of
referring it to the people and of deriving its power directly from them,
was felt and acknowledged by all.”
And, if all shall complete their education with such men as
Webster and Lincoln, they will never again make the mistake of
ignoring the vital and important distinction in identity between “state
legislatures” and “conventions” of the American citizens, the
distinction that the former are never anything but governments and
each the government agent of the citizens of one state, while the
“conventions” are the citizens of America itself assembled in
“conventions” to issue their commands to themselves, to their
government, to the states and to the state governments. The
completed education will enable these lawyers to win future litigation
against legislative governments who audaciously attempt to usurp
the exclusive and reserved powers of the “conventions” of the
American citizens.
In any of the three challenges negatived by the first, second and
fourth conclusions of the Supreme Court, we have failed to find any
suggestion of our challenge, namely, that state “legislatures” have
audaciously attempted to usurp the exclusive powers reserved to the
“conventions” which are named in the Fifth Article.
And now we examine the only other challenge that was made, a
challenge negatived by the third conclusion of the Supreme Court.
No challenge could more emphatically ignore the protected individual
liberty of the citizen of America. This challenge does not know that
American citizens have no government save the government of
enumerated powers. This challenge frankly admits that the Fifth
Article is a grant to legislatures, each elected by the citizens of some
particular state, and that three fourths of those legislatures have the
omnipotence, which was denied to the British Parliament, over every
individual liberty of the American citizen. Like the other challenges
that were made, like every brief for or against the Eighteenth
Amendment, this challenge knows not that the Constitution is both a
federal and a national Constitution and knows not that the state
“legislatures” never have and never can have aught to do with the
national aspect of that Constitution. Based on this remarkable
ignorance, this is the challenge, frankly stated in our own words:
“The state legislatures can make this Eighteenth Amendment. The
state governments can do what they will, so long as they call their
action a constitutional Amendment, with every reserved right and
power of the citizens of America. But thirty-six state legislatures are
necessary to make anything called a constitutional Amendment. And
our challenge is that thirty-six legislatures have not made this
particular Eighteenth Amendment. In any state, where the
referendum exists, the citizens of that state [we note that even now
the citizens of America are not mentioned] are part of the state
legislature. In some of these referendum states, whose legislatures
are included among your claimed thirty-six ratifiers for the Eighteenth
Amendment, the whole of the state legislature has not yet ratified,
because the citizens of the state, who are part of its legislature, have
not yet acted. For this reason, that you ignore the rights of the
citizens of some states, our challenge is that the Eighteenth
Amendment has not been ratified by the legislative governments of
thirty-six states.”
This particular challenge, like everything in these litigations and in
the whole history of the supposed new Amendment, brings into bold
relief the one monumental error at the bottom of every thought that
the new Amendment is in the Constitution, at the bottom of the
varied absurdities which constantly appear in every brief, either for or
against validity.
Without a single exception, the fifty-seven lawyers on these briefs
base their every argument, no matter how those arguments may
challenge one another, on the ridiculous sheer assumption that the
Fifth Article is a great power of attorney to the state governments
from the citizens of America. All these fifty-seven lawyers ignore the
undeniable fact—mentioned continually in the “conventions” of the
Seventh Article which wrote their own name, “conventions,” into the
Fifth Article—that the Constitution is both federal and national. This
first mistake, this ignoring of that fact, led all of them immediately into
the fatal error of wholly ignoring the vitally important fact that the
Fifth Article distinctly names those who already could make federal
Articles, the state governments, and those whose exclusive right it
always was and is to make national Articles, the people assembled
in their “conventions.” Only because of these two mistakes, the next
step comes in the guise of the absurd concept that the Fifth Article is
a grant of any power of attorney, from the citizens of America, either
to the “state legislatures” or the “conventions.” In this patent
absurdity, all fifty-seven lawyers concur. That each of them does not
see its patent absurdity is due entirely to the fact that not one of
them states the proposition, that the Fifth Article is a grant, in the
frankest mode of stating it. That frankest way is to state the
proposition in these words: “In the Fifth Article the citizens of
America, assembled in the ‘conventions’ of 1788, granted to the
state legislatures and to themselves, the citizens of America,
assembled in their ‘conventions,’ a quantum of power as attorneys in
fact of the citizens of America. We fifty-seven lawyers only differ as
to the extent of the power which the citizens of America grant to
themselves and to the state governments. We, who support the new
amendment, contend that the citizens of America grant to the state
governments and to the citizens of America all the power of the
citizens of America. On the other hand, we, who oppose validity,
contend that the citizens of America grant to the state governments
and to the citizens of America only some of the unlimited power of
the citizens of America, the very power they were exercising when
they made the grant which is the Fifth Article.”
When the common proposition of all those lawyers, that the Fifth
Article “grants” power to those two grantees, is stated in this frank
way, its patent absurdity is manifest. Every one of those lawyers
knows that a grantor never can or does grant to himself either all or
part of what he already has. Moreover, all those lawyers ought to
know that the Tenth Amendment expressly declares that the entire
Constitution, in which is the Fifth Article, grants no power of any kind
except to the American government at Washington. Alone and
unaided, this simple declaration makes it impossible that the Fifth
Article grants any power to the state governments. Thus, even
without the certain knowledge we bring from the conventions of
1788, the state governments disappear from the scene as attorneys
in fact for the citizens of America in any matter. Each of those state
governments is left with no power it did not have before the Fifth
Article was made. Not one of them even keeps all of the power
which it had before 1788. The citizens of America, the “conventions”
in which they assembled, commanded otherwise. “When the
American people created a national legislature, with certain
enumerated powers, it was neither necessary nor proper to define
the powers retained by the States. These powers proceed, not from
the people of America, [the “conventions” named in the Seventh and
the Fifth Articles] but from the people of the several states; and
remain, after the adoption of the Constitution, what they were before,
except so far as they may be abridged by that instrument.” So spoke
Marshall from the Supreme Court Bench, in 1819, after he had come
from one of those “conventions” in which he himself had stated: “It
could not be said that the states derived any powers from that
system, [the new Constitution then before the convention in Virginia]
but retained them, though not acknowledged in any part of it.” (3 Ell.
Deb. 421.)
Yet every brief of those fifty-seven lawyers bases its every
argument on the sheer assumption, asserted by all, that the Fifth
Article is a “grant” to the state legislatures which makes them
attorneys in fact for the citizens of America. No brief can offer and no
brief does offer the slightest proof in support of the assumption. But
no brief asks for proof of the assumption or challenges the
assumption. On the contrary, every brief makes the assumption and
asserts it and on it rests every argument.
Because of this monumental error, every brief for the Amendment
insists that the state legislatures, as attorneys in fact for the citizens
of America with every power of the citizens of America, validly made
the Eighteenth Amendment.
Because of this monumental error, every brief against the
Amendment asserts that the state legislatures are attorneys in fact
for the citizens of America but insists that the Fifth Article (the
assumed power of attorney in a Constitution which expressly
declares that no power is given to the state legislatures) grants to the
state legislatures (as well as to the “grantors” themselves) only
limited ability on behalf of the principal, the citizens of America. On
this altogether unique argument, it is contended that the limited
power of attorney does not confer ability to make an Amendment like
the Eighteenth.
Because all briefs make the same monumental error, there is no
challenge on the ground that the state legislatures, not a member of
which is elected by the citizens of America, hold no power of
attorney from the citizens of America to interfere in any way, in any
matter, with the individual freedom of the American citizens. Because
all briefs against the Amendment make the same monumental error,
the fourth challenge (which was made and considered by the Court)
is based upon the heretical doctrine—the heresy being clear from
what we have heard in the “conventions” where we sat—that the
Fifth Article does not mention a constitutional mode in which the
citizens of America, again assembled in their “conventions,” can take
back from their American government any enumerated power of the
First Article which they find oppressive to their individual rights and
freedom. And, perhaps most amazing and amusing fact of all,
because all briefs make the same monumental error, the briefs for
the Amendment make no effort to support and the briefs against the
Amendment make no attempt to challenge the clear paradox, on
which the Eighteenth Amendment depends for its existence, that
there never has been a citizen of America if it be true that the Fifth
Article makes the state governments the attorneys in fact for the
citizens of America with unlimited ability to interfere with the
individual freedom of the citizens of America. Where such unlimited
ability is in government, men are not “citizens” but “subjects.”
But we ourselves come from the “conventions” where the
Americans knew that they entered as free men and left as citizens of
America, not as “subjects” of any governments. Therefore, we need
no lawyer to tell us—and no lawyer can deny our knowledge—that, if
the state governments are the attorneys in fact for the American
citizens and have ability either to interfere with or to grant power to
interfere with the individual liberty of the American citizens, or, if any
governments can interfere with that liberty on a matter not
enumerated in the First Article, there never were American citizens
and the early Americans entered their “conventions” free men but left
those “conventions” as “subjects” of an omnipotent government.
CHAPTER XXIV
GOVERNMENTS CLAIM AMERICANS AS
SUBJECTS
“Is the government of Virginia a state government after this

government is adopted? I grant that it is a republican government,
but for what purposes? For such trivial domestic considerations as
render it unworthy the name of a legislature.” (3 Ell. Deb. 171.) So
thundered Patrick Henry to the Americans assembled in convention
in Virginia, while these Americans still heard the echo of his charge
that the new Constitution made the state legislatures “weak,
enervated and defenseless governments.”
But these are the governments which all lawyers of 1920 “knew”
had been made the attorneys in fact for the citizens of America,
possessors of the supreme will in America. These are the
governments to which all advocates of the Eighteenth Amendment
contend that the Americans, in the “conventions” with Henry, gave
the entire omnipotence of the American people to be exercised by
these governments, without any constitutional restraint.
The real fact is, although all lawyers of 1920 failed to know the
fact, that these state governments were only named in the Fifth
Article, because they already had an existing limited ability to make
federal Articles, an ability not granted by the citizens of America but
possessed by each of those governments as attorney in fact for the
citizens of its own state. That it was an ability not granted by the
citizens of America, must be apparent when we recall that it was
exercised by those governments in 1781—seven years before there
was such a thing as a citizen of America. That the lawyers of 1920
neither knew nor realized the importance of this fact, is apparent
when we recall that every brief of those lawyers asserted that these
governments get their ability to make Articles by a “grant” in the Fifth
Article.
Our knowledge of the nature of every challenge to the new
Amendment, and our knowledge that each challenge involved the
assumption that the Fifth Article was a “grant” to these state
governments, is a knowledge which is certain from our study of the
conclusions of the Supreme Court which negatived each challenge.
The certainty is emphasized by our memory of the reply of Rice in
that Supreme Court, when, without one dissent from the challengers,
he stated his and their conviction that the “conventions” of 1788—the
challengers all forgetting that those “conventions” named themselves
in the Fifth Article—provided no constitutional mode of procedure
in which their own exclusive power could be again exercised to make
Articles like the First Article and the Eighteenth Amendment.
Let us again emphasize our certainty by a few moments with the
briefs of the challengers.
Root was their leader. A distinguished public leader and
considered by many to be the leader of the American Bar, there was
special reason why he should have known the ability of government
to make national Articles in a Constitution, only when men are
“subjects,” and the inability of governments to make such Articles,
when men are “citizens.”
If his brief, or the brief of any challenger, had urged this real and
invincible challenge, we would have found the mention of that
challenge in the decision and it would not have been a refutation of
that challenge. That we may confirm our knowledge that the brief of
Root, like the brief of every challenger, did not make this challenge,
the challenge that the Fifth Article is no “grant” but a mention of two
existing abilities and a mode of constitutional procedure for the
respective exercise of each, let us read the brief’s own statements of
the three challenges it does make. “The plaintiff contends that this
attempted amendment to the Constitution of the United States is
invalid (1) because it constitutes mere legislation, and is, therefore,
not authorized by Article V of the Constitution, (2) because it impairs
the reserved police or governmental powers of the several States

Chinas Technology War Why Beijing Took Down Its Tech Giants Andrew Collier Full Chapter

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Chinas Technology War Why Beijing Took Down Its Tech Giants Andrew Collier Full Chapter

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China’s Technology War: Why Beijing

Took Down Its Tech Giants Andrew

ISBN 978-981-19-3041-6 ISBN 978-981-19-3042-3 (eBook)

Cover illustration: © Melisa Hasan

This book required an understanding of a number of areas, including

Pokfulam, Hong Kong Andrew Collier

Abstract This chapter outlines the beginning of the technology crack-

Keyword Jack Ma · Alibaba · Common prosperity · IPO · Ant

© The Author(s), under exclusive license to Springer Nature 1

When Jack Ma, the billionaire founder of Chinese e-commerce company

Culture and Tourism, which proceeded to impose restrictions on minors

redefinition of cultural life in China. These companies had built reputa-

• Ride-hailing: CAC launched a cybersecurity review of Didi and

The crackdown was also coming at an opportune time. At the 20th

• Aggressive “regulatory catchup” by Beijing ministries in Beijing.

• Rewrite the social contract with the Chinese people. No longer

a minuscule portion of average income. There has also been a renewed

The larger issue is that the challenges of running an economy that

Common Prosperity: Vision or Campaign?

Keywords Distribution of income · Communist Party · Wang Huning ·

© The Author(s), under exclusive license to Springer Nature 11

campaign to promote economic growth through backyard steel furnaces

2021). One important liberal economist, Zhang Weiying, also launched a

• “Financial Risk” was mentioned 14 times, not much less than

Much of Common Prosperity falls in line with Xi’s longstanding

narrowed. The Gini-coefficient, one widely used measure of inequality,

credit where the economy was generating growth—not necessarily where

digital projects; train 1 million rural governance and agricultural officials;

programs were directly under the Common Prosperity umbrella or coin-

Batson, Andrew. What Xi Jinping Thinks About Development Economics.

The Bureaucracy Strikes Back

Abstract The speech by Jack Ma instigated a new era of regulation

Keywords CBIRC · Zhou Xiaochuan · Ant financial · Financial risk ·

© The Author(s), under exclusive license to Springer Nature 27

This was a distinct change from recent history. The regulators in

This use (or misuse) of extra-legal methods to enforce government

In September 2021, in an article published in the People’s Daily,

of the Communist Party was attaching great importance to antitrust,

companies, Tencent and Alibaba, were summoned to Beijing for a sepa-

posed a threat to the central government’s plans for a digital currency.

grandparents, or other extended family, WeChat Pay is able to see into

bank granted 27 online payment companies licenses to operate online

The validity of the Eighteenth Amendment (seven litigations being

“Is the government of Virginia a state government after this

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