"The Party is Your Boss"-a year when Chinese private enterprises were severely suppressed

"The Party is Your Boss"-a year when Chinese private enterprises were severely suppressed

WASHINGTON— 

In the past year, Chinese regulators have launched a large-scale crackdown on the private economy. These repressive actions have not only damaged the competitiveness of private enterprises, but may also endanger China's economic growth and innovation prospects in the long run.

Back to November 2020, the initial public offering (IPO) of Ant Financial, a subsidiary of Alibaba, washalted by Chinese regulators at the last minute. This transaction raised $34 billion in funding and was expected to be the world's largest IPO in history.

This kicked off the full-scale suppression of Chinese private enterprises by Chinese regulators, and domestic industries such as technology, finance, gaming, education and training, and real estate have been hit hard. This movement has wiped out more than $1 trillion in the market value of Chinese companies globally, and the MSCI China Index has fallen by 15% this year.

Dexter Tiff Roberts, author of "The Myth of Chinese Capitalism," and senior researcher at the Atlantic Council’s Asian Security Initiative, a think tank, told VOA: "Take (Alibaba) as an example, it has a lot to do with politics. , Trying to control him more (Jack Ma), and also send a message to other billionaire entrepreneurs: In the end you really need to remember that the party is your boss, and the Communist Party is your boss under the Chinese system."

In the name of "common prosperity"

The suppression of private enterprises was launched in the name of "common prosperity." Chinese national leader Xi Jinping reiterated that to achieve "common prosperity", the government can allow the rich and enterprises to share more wealth through a certain degree of economic intervention.

The movement to promote "common prosperity" is no stranger to modern Chinese history. In the 1950s, the CCP nationalized the property of national entrepreneurs; Deng Xiaoping led the reform and opening up in the late 1970s, allowing "some people to get rich first", but required "getting rich first to drive wealth later, and gradually moving toward common prosperity."

Today, the deteriorating inequality in Chinese society seems to pose a challenge to the government again. It is widely expected that Xi Jinping will seek a third term as chairman next year, and his posture to narrow the gap between the rich and the poor can help him win the hearts of the people.

In February, Chinese regulators issued new antitrust guidelines for technology companies. Subsequently, the government suppressed technology giants such as Alibaba, Tencent, ByteDance, JD.com, Meituan, and Pinduoduo in the name of preventing the disorderly expansion of capital. Among them, Alibaba, the first targeted company, was hit by a record in April. With a fine of more than 20 billion yuan, Ant Financial was required to reorganize its business with state-owned capital enterprises.

These private enterprises are also required to perform more social responsibilities. They use corporate profits for government-supported social causes. Some of the most successful entrepreneurs, including Alibaba founder Jack Ma and Pinduoduo founder Huang Zheng, chose to retire. Invest in public welfare undertakings to avoid huge attention and admiration from the outside world.

Alicia Garcia Herrero, chief economist for the Asia-Pacific region of France's Foreign Trade Bank, said the crackdown reflects the government's desire to tighten control of private enterprises.

She told VOA: "A lot of what happened was actions taken before the antitrust law was actually passed. I think this is a big difference because it surprised commercial organizations and given the role of state-owned enterprises in China. Very large, the antitrust law seems to apply only to the private sector."

The scope of the suppression extends beyond the technology industry. The new policy announced in July to restrict the off-campus training industry instantly overturned the private education and training industry with a market value of 100 billion yuan and more than 10 million practitioners; the regulations on the borrowing quota of real estate developers have plunged the real estate giant Evergrande into a crisis, and more developers Face the risk of debt default.

Since 1978, China has been in an awkward zone between socialist ideology and an increasingly market-oriented economy. Private enterprises are more productive than state-owned enterprises, contributing more than 90% of new jobs and business numbers, and attracting a large amount of foreign capital.

Driven by technology, private enterprises are often at the forefront of innovation. Alibaba’s “Alipay” and Tencent’s “WeChat Pay” accounted for more than 90% of the mobile payment market share in the Chinese market, and the online ride-hailing platform “Didi Chuxing” accounted for 90% of the ride-hailing market.

However, the scale and influence of these private enterprises are increasing day by day, and they are challenging the scope of the Chinese government's control.

Aisia said that these private technology companies have a large amount of consumer data, and the government regards data as an important resource, an important channel for controlling all walks of life and  understanding the minds of its citizens.

She said: “It’s very important to get as much information as possible to understand what people really want, what their fears are, and what their preferences are.”

At the end of June, Didi Chuxing went public in the U.S. in a low-key manner, but less than 48 hours after the listing, the Chinese regulatory authorities announced that it would implement a “cyber security review” against the company with “serious violations of the law and regulations collecting personal information,” causing Didi to stop. Accept the registration of new users and ask the company to remove some of its apps.

Not long after this, the China Cyberspace Administration of China issued guidelines that require Chinese operators with personal information of more than 1 million users to obtain official approval for listing in foreign countries for the sake of "maintaining national security."

The Chinese government is taking more steps to nationalize data. Beijing implemented the "Data Security Law" and "Personal Information Protection Law" in September and November this year, requiring any organization to minimize the collection of personal data, but to give the government extensive access to the data.

The analysis believes that the crackdown on private enterprises by the regulatory authorities is partly motivated by the desire to develop different types of technologies. They hope that the innovation of the private sector can be consistent with Beijing's long-term political and economic development goals.

Paul Triolo, a global technology policy expert at the Eurasian Group, a political risk consulting firm, said that the Chinese government hopes that technology companies will shift their focus to hard technologies such as semiconductors and new energy, instead of focusing on consumers and aiming for maximum profitability. Technology.

He said: “The party and the government seem willing, for example, to endure these companies losing a considerable amount of market value in the process in order to realign their priorities with the party and the government in a way that is conducive to common prosperity.”As tensions between the United States and China intensify and the United States restricts the export of sensitive technologies to China, China is facing a worsening external environment. The government has placed more emphasis on independent innovation models and relied more on the innovation capabilities of private companies.

Triolo said: "China has been lagging behind the situation in semiconductors and other areas. Therefore, the government hopes to have higher quality development in the field of science and technology, not quantity."

Will the suppression last?

The continued suppression by regulatory agencies has intensified concerns about China's economic growth prospects. Many international financial institutions have cited the regulatory pressure faced by private enterprises and lowered their expectations for China's economic growth this year and next.

Luo Gu said: "If the company's priorities shift to striving to achieve the goal of mutual prosperity, rather than trying to develop technology, or satisfy their shareholders, or grow their business, then this will have a great economic impact."

Capital Macros' senior China economist Julian Evans-Pritchard questioned in an analysis in September whether the government has the ability to take over to ensure high-quality economic growth.

He wrote: "The'shared prosperity' movement may eventually transfer more resources to the country, but there is no guarantee that these resources will be better used. In the past ten years, the state sector has struggled to effectively allocate capital. , Debt and financial risks are largely caused by the state-owned sector."

China is also facing a series of economic growth pressures, including the continuous damage to the supply chain caused by the new crown, the energy crisis, soaring prices, and the deepening of the real estate debt crisis, which may affect the scale and intensity of the Chinese government's suppression of private enterprises in the new year.

Aisia said: "They are designing a very obvious soft landing, I think you see more in the real estate industry, because it has the greatest impact. But more generally, I think even though we still see some industries being As the target news, but now the news is slightly different than before."

There are some signs that the degree of regulatory repression may be slowing down. The Chinese authorities recently stated that they will step in to help Evergrande deal with its debt crisis. There are also reports that the People's Bank of China is considering allowing the relaxation of real estate policy restrictions to help real estate developers facing a debt crisis sell assets.

However, some experts believe that China’s official targets for suppressing private enterprises still exist. Chinese leaders believe that even if temporary economic growth needs to be sacrificed, it will bring long-term economic prosperity and political stability.

George Magnus, an economist at the China Center at Oxford University, told VOA: “They believe that the regulatory framework and the prominence of state-owned enterprises are part of a new model that will succeed, and they say The model for the'Western model' seems to have failed now."

Chinese officials have hinted that the crackdown on private companies will continue. At the economic meeting held in early December, Chinese senior officials once again mentioned setting up "traffic lights" on capital, demanding strengthened supervision of capital to prevent the brutal growth of capital.

Aisia said that China needs a more stable regulatory environment to attract the attention of foreign investors.

She said: "If China continues to play with fear, I think it will be much more difficult. Sorry, I think investment in China will be very low."

Magnus believes that regardless of whether the regulation continues to be tightened, the unprecedented comprehensive suppression of private enterprises this year by the Chinese government may have made them lose confidence and will have a long-term negative impact on the Chinese economy.

He said: "Will they become more risk-averse? Will they be afraid to do the kind of energetic things that the government caused trouble to them in the first place? Would they rather keep a quiet life and do what the government says , Instead of trying to annoy anyone? If this is the case, then the innovative structure and ability of private companies will of course be compromised."