Year of Chinese repression: party first, business second | Business and Economics

China’s crackdown on private companies in 2021 cut the market value of some of the country’s largest companies by more than $ 1 trillion.

Beijing tightened its grip on the economy when officials stressed the importance of prioritizing “high-quality” growth that benefits the general population rather than maximizing gross domestic product.

“Common prosperity” drives the target sector from real estate and education to technology and entertainment, reducing and lowering the share price of household names like Alibaba Group, Tencent Holdings, Didi Chuxing Technology Co. and New Oriental Education and Technology Group. Personal influence of big corporations like Jack Ma and Pony Ma.

The crackdown has left many companies and investors wondering about the future of growth and innovation in China.

“For companies, that means their job is not to make money, but to contribute to social goods,” Trey McArver, an analyst at Trivium China, told Al Jazeera. “When companies don’t see it doing that, they will take quick regulatory action.”

Kyle Jaros, an associate professor of global affairs at the University of Notre Dame, told Al Jazeera that the Chinese Communist Party had made it clear that “the party state can impose conditions on business, not the other way around.”

“This means downsizing people like Alibaba’s Jack Ma, forcing the private sector to show respect – like Tencent’s Pony Ma and Xiaomi’s Lei Jun – and proving that the party state has the right to set technical and moral standards. parameters of business activity, ”said Jaros.

Real estate

In August 2020, it was introduced by Beijing The “three red lines” policy is to prevent private developers from taking out new loans.

With the reason “houses are for living, not for speculation”, the policy sought to cool the property market, which has spread rapidly among the many speculative purchases over the last decade.

Lending limits have been cited as one of the two major private developers in China – the Evergrande Group and Kaisa – which led to the liquidity that led to the repayment of loans. In October, new regulations were put in place to ban the construction of skyscrapers over 250 meters in smaller Chinese cities.

“Regulatory crackdowns are part of a broader paradigm shift in how Beijing deals with politics and economic management,” Shehzad Qazi, managing director of China Beige Book International, told Al Jazeera.

“This includes acknowledging that China’s debt-driven and high-investment growth model is out of the way.”

Technology companies

November 2020, Chinese regulators Jack Ma’s Ant Group suspended its initial public offering of $ 37 billion.

Beijing has said it will suspend what would be the largest IPO for investor protection in history, but many analysts believe Ma’s public criticism of China’s financial regulators and state-owned banks has caused a stir.

Andrew Collier, founder and managing director of Orient Capital Research, told the New York Times that the suspension could be to protect state-owned banks that paid Ant Group fees at the expense of helping them expand their credit at the cost of their profitability.

“My personal opinion is that the banks were looking for an excuse to cut this and give them the right time to try to do their online operations quickly,” Collier said.

In February this year, Beijing unveiled new antitrust rules for technology companies. These included algorithms that encourage companies to spend too much on their users, or measures to prevent them from interfering with public order. Alibaba, Tencent and Baidu are among the tech giants allegedly fined for their monopoly practice.

In April, regulators fined Alibaba $ 2.8 billion and ordered the Ant Group to restructure itself under the supervision of China’s central bank.

Beijing has also expressed disapproval of technology companies seeking foreign IPOs. In July, in the days leading up to a $ 4.4 billion IPO in the U.S. Didi Ride, Chinese regulators banned the company from app stores.

The new rules require companies with more than a million users to apply for regulatory approval so that they can be listed abroad and allow regulators to block listings for national security reasons.

In August, Beijing banned children under the age of 18 from playing video games for more than three hours a week to prevent gambling addiction.

In September, Beijing banned cryptocurrency transactions and mining. Banks, institutions, and online payment companies were banned from transacting with cryptocurrencies, and fund managers were banned from investing in cryptocurrency assets.

The Chinese government has also built its own state-backed cloud system, which competes with Alibaba, Huawei and Tencent in the private sector. In the city of Tianjin, city-controlled companies were asked to migrate their data from private sector operators to the state-protected cloud.

“The new paradigm prioritizes national security concerns, especially when it comes to data, and pays more attention to socioeconomic trends, such as inequality that can cause instability and threaten Party control,” Qazi said.

Beijing has ordered private tutoring companies not to teach subjects already offered in schools. [File: Tingshu Wang/Reuters]

Private tutoring

In July, China introduced restrictions on private education, aimed at easing the pressure on school children and reducing the cost of tutoring for parents.

Beijing has ordered private tutoring companies to register as non-profit organizations and not to offer subjects already taught in schools.

In addition, companies have been banned from raising capital abroad and giving classes on weekends and holidays. The downturn dumped $ 120 billion in industry, with Oriental Education and New Technology, China’s largest private tutoring firm, downgrading the market value of U.S.-listed shares to $ 7.4 billion.

Entertainment

In August, to curb what the authorities described as a “chaotic” culture of celebrity fans, Beijing ordered broadcasters not to work with animators with “wrong political attitudes.” “effeminate” styles, which he considered patriotic. Beijing also regulated the sale of fan goods to controversial performers and banned the publication of online charts by the online platform.

The road ahead

Promoting “common prosperity” could mean moving China away from a “savage western” capitalism and a consumer-oriented economy aimed at promoting socialist values ​​in the long run. Although the period of free economic expansion may be over, analysts believe that adaptable businesses will be successful.

McArver predicts that companies that contribute to the good of society, such as those that provide health and education, will find a highly beneficial operating environment, and companies that help develop basic technologies will also do well.

“Successful Chinese entrepreneurs have always understood that their business thrives when they align with broader policy initiatives,” McArver said.

“It simply came to our notice then. Entrepreneurs will move away from sectors that Beijing considers unproductive and from sectors that Beijing supports, such as environmental protection and advanced manufacturing. “

Qazi said the innovation will be “driven by the Party’s priorities”.

“Companies in sectors that prioritize the state, such as high-tech manufacturing, where China wants to reduce its foreign dependence, will move forward,” he said.

However, the harsh environment may force some companies to delay expansion or look for opportunities elsewhere.

“Some companies may decide that a more controlling regulatory environment and greater pressure to fulfill the social and political missions assigned to them by the parties will cut their consequences,” Jaros said. “As a result, they may limit their opportunities for innovation, reduce or redirect their investments, or, in some cases, seek more open markets outside China.”