The year of crackdowns in China: party first, work second | Business and Economy

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

Beijing’s tightening grip on the economy came as officials stressed the importance of prioritizing “high-quality” growth that benefits the general population over maximizing gross domestic product.

Shared prosperity is driving target sectors ranging from real estate and education to technology and entertainment, driving down the share prices of household names such as Alibaba Group, Tencent Holdings, Didi Chuxing Technology Co and New Oriental Education and Technology Group and reining in the personal influence of VIPs in companies such as Jack Ma and Bonnie Ma.

This campaign has left many companies and investors wondering anxiously about the future of growth and innovation in China.

“For companies, this means that their job is no longer to make money, but instead to contribute to community goods,” Trey McIver, an analyst at Trivium China, told Al Jazeera. “In the event that companies are not seen doing so, they will face rapid regulatory action.”

Kyle Garros, associate professor of global affairs at the University of Notre Dame, told Al Jazeera that the CCP had made it clear that “the party state can dictate terms to business, not the other way around.”

“This means downsizing people like Jack Ma of Alibaba, forcing the private sector to show obedience – as with Tencent’s Pony Ma and Xiaomi’s Lei Jun – and demonstrating that the party-state has the right to set the technical and ethical parameters of business,” he said. Garros said.

Beijing’s “three red lines” policy sought to rein in excessive mortgage borrowing [File: Udo Weitz/EPA]

Real estate

In August 2020, Beijing introduced the “three red lines” policy to prevent highly indebted private developers from obtaining new loans.

With the rationale that “houses are for living and not for speculation,” the policy sought to calm the real estate market, which has expanded rapidly over the past decade amid rampant speculative buying.

Lending restrictions have been cited as a major driver of the liquidity crunch that has led to two of China’s largest property developers – Evergrande Group and Kaisa – defaulting on their loans. In October, new regulations were issued to prevent smaller Chinese cities from building skyscrapers higher than 250 meters.

“The regulatory crackdown is part of a broader paradigm shift that has taken place in how Beijing handles its economic policy and management,” Shehzad Qazi, managing director of China Beige Book International, told Al Jazeera.

“This includes recognizing that China’s old debt-fueled, investment-burdened growth model is out of the way.”

technology companies

In November 2020, Chinese regulators suspended a planned $37 billion initial public offering by Jack Ma’s Ant Group.

Beijing has said it has suspended what would have been the largest initial public offering in history to protect investors, but many analysts believe Ma’s public criticism of China’s financial regulators and state banks has motivated the move.

Andrew Collier, founder and managing director of Orient Capital Research, told the New York Times that the suspension may have been to protect government banks that paid Ant Group fees to help it extend credit to clients at the expense of its own profitability.

“My personal view is that the banks have been looking for an excuse to nip this in the bud and also give them enough time to try and speed up their online operations,” Collier said.

In February this year, Beijing unveiled new antitrust rules for technology companies. These included measures to ensure that companies do not use algorithms that encourage users to spend excessively or in a way that may disturb public order. Alibaba, Tencent and Baidu are among the tech giants that have been fined for alleged monopolistic practices.

In April, regulators fined Alibaba $2.8 billion for antitrust, ordering Ant Group to restructure itself with oversight from China’s central bank.

Beijing has also expressed its disapproval of technology companies seeking IPOs abroad. In July, days after public transportation giant Didi launched its $4.4 billion US initial public offering, Chinese regulators banned the company from entering app stores.

The new rules require companies with data on more than one million users to seek regulatory approval before they can list overseas and allow regulators to block the listing on national security grounds.

In August, Beijing banned those under 18 from playing video games for more than three hours each week to prevent gaming addiction.

In September, Beijing banned cryptocurrency trading and mining. Banks, institutions, and online payment companies have been banned from transacting with cryptocurrencies, and fund managers have been banned from investing in cryptocurrencies as 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, municipal-controlled companies have been asked to migrate their data from private operators to the state-backed cloud.

“The new model prioritizes national security concerns, especially with regard to data, and brings more attention to social and economic trends, such as inequality that can cause instability and threaten party control,” Qazi said.

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

private teaching

In July, China unveiled restrictions on private education that it said were aimed at relieving pressure on schoolchildren and reducing the burden of the cost of private tutoring on parents.

Beijing has ordered private teaching firms to register as non-profits and to refrain from offering subjects already taught in schools.

Companies were also prohibited from raising capital abroad and from giving lessons on weekends and holidays. This suppression upended the $120 billion industry, as New Oriental Education and Technology, China’s largest private education company, saw the market value of its US-listed shares drop by $7.4 billion.


In August, to curb what authorities called its “chaotic” fan culture, Beijing ordered broadcasters not to work with artists who had “incorrect political attitudes” and “androgynous” styles, which it deemed unpatriotic. Beijing has also regulated the sale of fan merchandise to controversial performers and banned online platforms from publishing popularity lists.

The road ahead

The push for “shared prosperity” could mean that in the long run, China will move away from “Wild West” capitalism toward a consumption-driven economy aimed at promoting socialist values. Although the period of free economic expansion may be over, analysts believe that companies that can adapt will succeed.

McArver expects that companies that contribute to societal good, such as those that provide health care and education, will find an operating environment that is highly conducive, while companies that help develop core technologies will also do well.

“Successful entrepreneurs in China have always recognized that they thrive when their businesses align with broader policy initiatives,” MacArver said.

“This will continue. Business people will move away from sectors that Beijing considers unproductive and towards sectors that Beijing supports, such as environmental protection and advanced manufacturing.”

Qazi said the innovation “will be guided by the party’s priorities”.

“Companies will thrive in sectors prioritized by the state, such as high-tech manufacturing, as China seeks to reduce dependence on abroad,” he said.

However, a tougher environment may force some companies to postpone expansion or to look elsewhere for opportunities.

“Some companies may decide that a more controlled regulatory environment and more pressure to follow through on the social and political tasks assigned by the party will kill their bottom line,” Jarros said. As a result, they may limit their scope for innovation, reduce or redirect investments, or in some cases, seek more open markets outside of China.


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