Year of the China Incursion: Party First, Business Second | Business and Economy

Year of the China Incursion: Party First, Business Second |  Business and Economy

The crackdown on has made many companies and investors nervous about the future of China’s growth and innovation. “For businesses, this means their job is no longer making money, but contributing to social goods,” Tribium China analyst Tray McCarber told Al Jazeera. “Where companies are not seen doing that, they will face swift regulatory action.” Kyle Jaros, associate professor of global affairs at the University of Notre Dame, told Al Jazeera the Chinese Communist Party had made it clear the “partystate can dictate terms to business, not the other way around.” “This has meant cutting people such as Alibaba`s Jack Ma down to size, forcing the private sector to demonstrate obeisance – as with Tencent`s Pony Ma and Xiaomi`s Lei Jun – and demonstrating that the partystate has the right to set both technical standards and moral parameters for business activity,” Jaros said.

Beijing’s crackdown on real estate, technology and education has revealed that it determines the conditions for private citizens. China’s crackdown on private companies in 2021 has reduced the market value of China’s largest companies by more than $ 1 trillion.
A closer understanding of Beijing’s economy arose as authorities emphasized the importance of prioritizing “quality” growth that benefits the general public over maximizing GDP. “Shared prosperity” targets sectors ranging from real estate and education to technology and entertainment, pushing up stock prices for well-known companies such as Alibaba Group, Tencent Holdings, Didi Chuxing Technology Co and New Oriental Education and Technology Group. increase. Slow down the personal influence of company giants like Jack Ma and Ponima.

In August 2020, Beijing introduced a “three redline” policy to prevent debt overhang by private developers. Because “houses are for living, not speculation,” politicians have sought to cool the rapidly expanding real estate market over the last decade amid rampant speculative purchases. Credit restrictions were cited as the main factor behind the liquidity crisis, resulting in the loss of loans by two of China’s largest private real estate developers, Evergrande Group and Kaisa.

New regulations were introduced in October, banning small cities in China from building skyscrapers over 250 meters. “The regulatory raid is part of a broader paradigm shift in Beijing’s approach to economic policy and management,” Shezadkaji, executive director of China Beige Book International, told Al Jazeera. “This includes recognizing that China’s old debt-driven investment-intensive growth model is not on track.”

In November 2020, Chinese regulators suspended the planned IPO of Jack Ma’s Ant Group for US $ 37 billion. Beijing has said it has stopped the largest public offering in history to protect investors, but many analysts believe that the horse’s public offering to Chinese financial regulators and state-owned banks has triggered the move. Andrew Collier, founder and chief executive officer of
Orient Capital Research, told The New York Times that the suspension could have helped protect the state-owned banks that paid AntGroup’s fees.

“In my personal opinion, banks were looking for excuses to sprout this and give them enough time to start their online business,” Collier said. In February of this year, Beijing announced a new antitrust rule for technology companies. This included taking steps to ensure that the company did not use algorithms that could encourage excessive spending or disturb public order and morals. Alibaba, Tencent and Baidu are one of the tech giants fined on suspicion of monopoly. In April, regulators fined Alibaba $ 2.8 billion and ordered the reorganization of Ant Group under the supervision of the Central Bank of China.

Beijing has also expressed opposition to tech companies seeking foreign IPOs. In July, a few days after the ride-hailing giant Droplet was released for $ 4.4 billion, a new regulation of 4,444 put companies with data on more than one million users for national security reasons. Government approval must be obtained before listing on foreign regulatory agencies. In August, Beijing banned under18s from playing video games for more than three hours each week to prevent gaming addiction. In September, Beijing prohibited cryptocurrency transactions and mining. Banks, institutions and online payment firms were banned from carrying out transactions with cryptocurrencies, and fund managers were prohibited from investing in cryptocurrencies as assets.

The Chinese government has also built its own statebacked cloud system, which competes with Alibaba, Huawei, and Tencent in the private sector. In the city of Tianjin, municipally controlled companies were asked to migrate their data from private sector operators to the statebacked cloud. “The new paradigm prioritizes national security concerns, especially data-related concerns, and pays more attention to socio-economic trends such as inequality that can cause instability and threaten party control. “Turn on,” Kaji said.

In July, China announced restrictions on private education aimed at relieving pressure on school children and reducing the cost of tutoring for parents. Beijing has registered the tutoring company as a non-profit organization and has ordered it not to allow it to offer courses already taught at school. Companies are also prohibited from raising funds abroad or taking lessons on weekends and public holidays. The crackdown has brought the $ 120 billion industry to the forefront, with China’s largest private tutoring company, New Oriental Education and Technology, dropping the market value of US-listed stocks by $ 7.4 billion. In August, Beijing ordered broadcasters not to work with entertainers who represented “wrong political positions” or “feminine” styles that were considered unpatriotic. Beijing also regulated the sale of fan products for controversial artists and banned the publication of popular lists on online platforms.

The willingness to “share prosperity” is, in the long run, that China will move from “archetypal Old West” capitalism to a more consumer-oriented economy aimed at promoting socialist values. May mean. The era of unlimited economic expansion may be over, but analysts believe that adaptable companies will thrive. McCarber predicts that while companies that contribute to social interests, such as health and educational institutions, find a very favorable business environment, they are also well-received to help them develop their core technologies. “Successful businessmen in China have always understood that they will succeed when their business is tied to a broader policy initiative,” McCarber said. “That will stay that way. Businessmen will move from what Beijing considers unproductive to areas that Beijing supports, such as environmental protection and advanced manufacturing. “Innovation is” guided by party priorities, “Mr. Kaji said. “Companies will thrive in government priority sectors such as high-tech manufacturing, where China is trying to reduce its dependence on foreign countries,” he said. However, due to the harsher environment, some companies may postpone expansion or consider other locations.
“Some companies may decide that a more disciplined regulatory environment and greater pressure to pursue a partisan social and political mission will undermine their profits,” Jaros said. .. “As a result, they can limit the scope of innovation, limit or redirect investment, and in some cases look for more open markets outside of China.”

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