Year of repression in China: party first, business second | Business and Economy

China’s crackdown on private enterprise in 2021 wiped out more than $ 1 trillion in 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 rather than maximizing product. gross interior.

‘Common prosperity’ is boosting targeted industries ranging from real estate and education to technology and entertainment, pushing down the stock prices of big names such as Alibaba Group, Tencent Holdings, Didi Chuxing Technology Co and New Oriental Education and Technology Group, and curbing the personal influence of bigwigs like Jack Ma and Pony Ma.

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

“For companies, this means that their job is no longer to make money, but rather to contribute to the goods of society,” Trey McArver, analyst at Trivium China, told Al Jazeera. “Where businesses are not seen doing this, they will face swift regulatory action. “

Kyle Jaros, associate professor of global affairs at the University of Notre Dame, told Al Jazeera that the Chinese Communist Party has made it clear that “the party state can dictate the terms to companies, not the other way around “.

“It has meant downsizing people like Jack Ma from Alibaba, forcing the private sector to be obedient – like with Tencent’s Pony Ma and Xiaomi’s Lei Jun – and demonstrating that the party-state has the right to establish both technical and moral standards. parameters for business activity, ”Jaros said.

Beijing’s ‘three red lines’ policy sought to curb excessive mortgage borrowing [File: Udo Weitz/EPA]

Real estate

In August 2020, Beijing introduced the “three red lines” policy to prevent over-indebted private developers from taking out new loans.

With the rationale that “homes are made for living, not for speculation,” policy has sought to cool the housing market, which has grown rapidly over the past decade amid a runaway speculative buying environment.

Credit restrictions have been cited as the main driver of the liquidity crunch that has led two of China’s biggest private developers – Evergrande Group and Kaisa – to default on their loans. In October, new regulations were put in place to ban small Chinese towns from building skyscrapers taller than 250 meters.

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

“This includes recognizing that China’s old growth model fueled by debt and heavy investment is stuck. “

Technology companies

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

Beijing said it suspended what would have been the largest IPO in history to protect investors, but many analysts believe Ma’s public criticism of Chinese financial regulators and state banks have triggered this decision.

Andrew Collier, founder and CEO of Orient Capital Research, told the New York Times the suspension may have been meant to protect state banks that pay Ant Group fees to help them extend credit to clients. to the detriment of their own profitability.

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

In February this year, Beijing revealed new anti-monopoly rules for tech companies. These included measures to ensure that companies do not use algorithms that encourage users to spend excessively or in a way that could disrupt public order. Alibaba, Tencent and Baidu are among the tech giants who have been fined for allegedly monopoly practices.

In April, regulators imposed a $ 2.8 billion antitrust fine on Alibaba and ordered Ant Group to restructure under Chinese central bank supervision.

Beijing has also expressed its disapproval of tech companies seeking IPOs overseas. In July, days after rideshare giant Didi launched its $ 4.4 billion U.S. IPO, Chinese regulators banned the business from app stores.

New rules require companies with data on more than one million users to seek regulatory approval before they can register abroad and allow regulators to block registrations for national security reasons.

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

In September, Beijing banned cryptocurrency transactions 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 Tianjin City, city-controlled companies have been urged to migrate their data from private sector operators to the state-backed cloud.

“The new paradigm prioritizes national security concerns, especially with regard to data, and draws increased attention to socio-economic trends, such as inequalities 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 lessons

In July, China unveiled restrictions on private education it said were aimed at easing pressure on schoolchildren and lowering the cost of private lessons for parents.

Beijing has ordered private tutoring companies to register as nonprofits and to refrain from offering subjects already taught in schools.

Companies have also been banned from raising capital abroad and from giving classes on weekends and holidays. The crackdown has rocked the $ 120 billion industry, with New Oriental Education and Technology, China’s largest private tutoring firm, seeing the market value of its U.S.-listed stocks drop by $ 7.4 billion .


In August, to curb what authorities described as a “chaotic” celebrity fan culture, Beijing ordered broadcasters not to work with artists who had “incorrect political positions” and “effeminate” styles, which ‘he considered unpatriotic. Beijing has also regulated the sale of merchandise for controversial artists and banned online platforms from posting popularity lists.

The road ahead

The push for “common prosperity” could mean that in the long run, China will move away from “Wild West” capitalism and move towards a more consumer-oriented economy aimed at promoting socialist values. While the period of free-wheeling economic expansion is over, analysts believe companies that can adapt will succeed.

McArver predicts that companies that contribute to the good of society, such as those providing healthcare and education, will find a largely supportive operating environment, while companies helping to develop core technologies will also come out well.

“Successful businessmen in China have always understood that they thrive when their business is part of broader policy initiatives,” McArver said.

“It will continue to be the case. Businessmen will move away from areas that Beijing sees as unproductive and turn to those that Beijing supports, such as environmental protection and advanced manufacturing.

Qazi said the innovation would be “guided by the priorities of the Party”.

“Businesses in the state’s priority sectors, such as high-tech manufacturing, where China seeks to reduce its dependence on overseas, will thrive,” he said.

However, the stricter environment could force some companies to postpone their expansion or to look elsewhere for opportunities.

“Some companies may decide that a more controlling regulatory environment and greater pressure to pursue party-assigned social and political missions will reduce their results,” Jaros 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.”