The end of a “golden age”: China brings business to a halt


Chinese tech companies are reeling from regulation. Nervous creditors are hoping for a bailout from China’s biggest developer. More and more executives are going to prison. An entire industry is shutting down.

For Chinese leader Xi Jinping, this is all part of the plan.

Under Xi, China is reshaping the way businesses operate and limiting the power of rulers. Long in coming, but quick to implement, policies are driven by a desire for state control and self-sufficiency as well as concerns about debt, inequality and the influence of foreign countries, including United States.

Emboldened by growing nationalism and his success with the Covid-19, Xi is remaking the Chinese business world in his image. Above all, it means control. Where once rulers were given the green light to expand at all costs, officials now want to dictate which industries are booming, which are collapsing and how it happens. And the changes offer a glimpse into Xi’s vision for managing the economy, ahead of a political meeting that is supposed to solidify his plans for an unprecedented third term.

The aim is to resolve structural problems, such as excess debt and inequality, and generate more balanced growth. Taken together, these measures mark the end of a golden age for private companies that made China a manufacturing power and a hub of innovation. Economists warn that authoritarian governments have a fragile record with this type of transformation, although they recognize that few have brought such resources and planning to the effort.

In just one week last month, creditors worried about the fate of China’s biggest developer, Evergrande, without any word from officials on a bailout; the central bank announced that all transactions involving unapproved cryptocurrencies would be illegal; and authorities arrested the two senior executives of HNA Group, an indebted logistics and transport conglomerate, and sentenced the chairman of Kweichow Moutai Group, a high-end alcohol company, to life in prison for accepting bribes.

At the annual World Internet Conference in China last week, an official signaled that efforts to tame the Internet giants were not over, warning against “the disorderly expansion of capital.” Once a showcase for the power of Chinese entrepreneurs, this year’s conference has become a platform for pledging allegiance to the state’s efforts to distribute wealth.

Lei Jun, the founder of smartphone maker Xiaomi, said large internet companies should help smaller ones. Alibaba CEO Daniel Zhang praised his company’s new $ 15.5 billion plan to help small businesses and underdeveloped regions, citing the aphorism “If you teach a man to fish , you feed him all his life ”.

“The very definition of what development means in China is changing,” said Yuen Yuen Ang, professor of political science at the University of Michigan. “Over the past several decades, the model was simple: it was a model that prioritized speed of growth over all other issues. “

“It is now clear that Mr. Xi wants to end the golden age and move towards a Chinese version of the progressive era, with more equitable and less corrupt growth,” she added.

Shockwaves were felt in China’s economy, the second largest in the world. Analysts argue that certain measures, such as reducing debt and tackling anti-competitive behavior among internet platforms, are long overdue. But they fear the new policies could hurt competitiveness and favor the inefficient, monopoly-dominated public sector, which Beijing has long avoided reforming.

Natasha Kassam, director of the Lowy Institute, an Australian think tank, said the dynamism of the private sector could suffer. She compared the changes to Mr. Xi’s anti-corruption campaign at the start of his tenure nine years ago, which curbed rampant corruption but also consolidated power.

“During the anti-corruption campaign, no one knew who might be the next target,” Ms. Kassam said. “Which led to inertia. The officials were too terrified to make decisions in case they were the wrong ones; you will see a similar deterrent effect on the private sector.

For many companies, the guidelines were once clear: pretend to be in government, make money, and go global if possible, with foreign listings and acquisitions. While Chinese billionaires have always felt vulnerable – the list of the country’s richest individuals is often jokingly presented as a catalog of targets – they also had a pleasant relationship with officials that allowed them to break the rules and break the rules. influence policy.

Success is no longer a guarantee of security. Big-name casualties are piling up, and there is little sign that Mr. Xi and the regulators he has empowered are intimidated by the carnage. Since February, investors have wiped out more than $ 1 trillion from the market value of China’s largest listed tech companies.

The ripple effects hit ordinary Chinese as well, with the potential to spark social unrest. Authorities have issued guidelines urging local governments and businesses to monitor emerging protests related to the struggling real estate sector. The Evergrande crisis sparked anger from unpaid suppliers, homebuyers who bought apartments years in advance, and employees, some of whom demonstrated in its offices.

Beijing is trying to send a warning that no business is too big to fail. Xi’s bribery campaign and subsequent efforts to reduce excess borrowing have already made a big difference, said Dinny McMahon, analyst for Trivium, a China-focused council.

“Today, the behavior of leaders in the financial sector is more conservative,” he said. “It’s no longer about figuring out what you can get away with, but trying to adhere to the spirit of what Beijing wants.”

Xi appears to impose the same discipline on the tech sector. Last year, regulators derailed the successful listing of Alibaba’s sister company, Ant Financial. When Didi Chuxing – the ridesharing company that bought Uber in China – launched an initial public offering in the United States despite Chinese regulators’ reservations, its software was pulled from app stores in China.

Tech companies are also learning to let go of control. Most companies now have Communist Party cells, which can dictate decision-making. Investment firms run by China’s cyberspace regulator have taken small stakes in TikTok’s parent company, ByteDance, and social media company Weibo over the past two years.

New signals that businesses should focus on “common prosperity” – a government initiative to close the wealth gap – have led to a parade of donations from tech giants and their executives. Tencent and Alibaba, China’s two most dominant internet companies, have both made multi-billion dollar pledges to help form small businesses and revitalize villages.

As it became riskier to be a star, some of China’s top entrepreneurial talents avoided the spotlight. After the deaths of two employees, Colin Huang, 41, founder of Pinduoduo, an e-commerce platform, resigned in March to make way for a new generation. In May, the 38-year-old founder of ByteDance announced he would step down as chief executive.

In Beijing’s eyes, not all technologies are created equal.

Businesses focused on the mainstream Internet have lost the protections they once enjoyed. Instead, the government is focused on a push for national autonomy, tolerating big bets on cutting-edge technology, in part in response to US policies that cut off access to key components like microchips. The authorities have heavily subsidized manufacturers of semiconductors, commercial aircraft, electric cars and other products.

Huawei, a company closely linked to the government that manufactures essential telecommunications infrastructure equipment, has mostly avoided the crackdown. After the daughter of its founder, Meng Wanzhou, was released from detention in Canada late last month, state media announced her return to China. Although Ms Meng is a picture of an inherited privilege in an unequal society – she is known to wear luxury brands and spent her detention in a Vancouver mansion – her return home has been described as a national triumph. .

“It was a stark reminder that they are not like you. There are hierarchies in Chinese society, and different treatment follows,” Ms. Kassam said. She added that Huawei has long had a special status of government favorite.

“Still, part of me wonders for how long. Maybe I said the same thing about Jack Ma not too long ago, ”she said, referring to the founder of Alibaba.

Alexandra Stevenson contributed reports. Amy Chang Dog contributed research.


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