China tests the limits of capitalism in search of “common prosperity” – 08/26/2021 – Tatiana Prazeres

Is China killing its hens that lay the golden eggs? This is the reaction of many to a regulatory storm that has hit various sectors of the Chinese economy since July.

The country’s companies, especially in the tech arena, have lost more than US $ 1 trillion in market value, mainly due to the new policies.

What would make Beijing, say, shoot itself in the foot? Cut the rug out from under businesses that had until then been considered national favorites? For many, the answer seems simple: the Communist Party wants more control over the economy, it wants shorter reins especially for the technology sector.

The explanation is not wrong, but it is certainly incomplete. For every regulatory intervention, there is a logic – with which we may or may not agree, of course.

With the new philosophy, China is testing the limits of capitalism. The authorities appear free to sacrifice corporate interests in exchange for other strategic objectives, including societal demands. To the examples:

I start with a case from November 2020, but which represents the sign of the new times. For Beijing, the Ant group represented a risk for the Chinese financial system, for example, by being able to offer loans to more than 700 million users of its platforms.

Granted, Jack Ma was annoyed at criticizing officials, but concerns about the loose regulatory environment for fintechs were not a detail of the episode. What would be the biggest IPO in history never happened.

A recent victim of Chinese regulations was the booming after-school education industry. Without limits, the industry distorts the education system in favor of who can pay, undermining social mobility and fueling a sense of injustice.

In addition, the high costs of education work against the government’s interest in the Chinese having more children. With the newly enacted rules, the businesses that didn’t fail have shrunk.

Following the Ant Group episode, other digital platforms were also targeted by the authorities. They have grown too big, have too much data, make life too difficult for competitors, and can harm users. The authorities’ actions against Didi, the app transport giant, have melted its actions.

Another case? The Chinese are obsessed with e-commerce and fast delivery, they buy coffee by app and receive the hot drink at home. They even buy Popsicles online. But the pressure on the delivery men of the Meituan company, for example, has crossed the line and the government has decided to act.

The latest innovation is called “common prosperity”. With the concept, the government, concerned with the concentration of wealth, signals that something will come, like more taxes on wealth and property.

A day after the term was incorporated into the Mandarin lexicon, tech giant Tencent announced a $ 7.7 billion fund for joint prosperity projects. Fearing the government’s regulatory anger, companies are rushing to make a good impression. Corporate social responsibility with Chinese characteristics.

To a large extent, China’s problems are experienced around the world. Company names are changing, but issues such as big, oversized technologies and growing inequalities are cause for concern in many countries. Beijing has more leeway, however, and appears ready to act.

There is no guarantee that these experiments will work. They can drive out investors, discourage Chinese entrepreneurship, raise costs and derail business.

However, if the new philosophy makes the Chinese more satisfied with their government and, at the same time, corrects economic distortions, the trillions of dollars lost by businesses will be seen by Beijing as a change.

LINK PRESENT: Did you like this text? The subscriber can release five free hits from any link per day. Just click on the blue F below.

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button