Chinese language regime reins in billionaire tech tycoons

Since November, the Chinese regime has taken several steps to curb the operations of some of the country’s largest private tech companies, such as Alibaba and Tencent, hitting the fortunes of the multibillionaire tycoons who control them.

Jack Ma [Wikimedia/World Economic Forum/Claran McCrickard; Ma Juateng [Wikimedia]; Zhong Shanshan [Nongfu Spring]

Last week, China’s State Council and the Central Committee of the Chinese Communist Party (CCP) issued a joint statement of principles calling for legislation to codify the measures. It stated that additional laws regulating the digital economy and internet finance were “urgently needed” to ensure that “new business models evolve in a healthy way”.

The measures have created increasing concern in the western press due to the collapse in the equity values ​​of technology companies in which globally managed funds and other foreign companies have invested heavily.

Bloomberg calculated that the stock values ​​of the giant tech companies had fallen a massive $ 823 billion from their February highs in early July. According to the Financial Times, Beijing’s “regulatory attack on China’s tech industry” had cut $ 87 billion from the net worth of the wealthiest tycoons in the sector since early July.

The moves against the tech giants began when Chinese regulators canceled the world’s largest initial public offering (IPO) for Alibaba’s financial services subsidiary Ant Group on the Shanghai and Hong Kong stock exchanges in November. The IPO was on the verge of raising $ 34 billion, dwarfing energy giant Saudi Aramco’s $ 29.4 billion listing in 2019. At the same time, an anti-monopoly case was launched against Alibaba, which resulted in a fine of $ 2.8 billion in April. Its founder Jack Ma, then the richest billionaire in China, who had made critical remarks about Chinese financial regulation, went under for weeks.

That year it became clear that the government was not only waging a campaign of revenge against Ma. Online grocery company Meituan lost $ 40 billion of its market value after state regulators opened an investigation into its “alleged monopoly practices” alleging that it was forcing restaurants to use its app only, to the detriment of its competitors. Last month, its shares plummeted after authorities put rules in place to offer limited protection to notoriously exploited delivery drivers.

Internet ride-hailing company Didi, China’s equivalent of Uber, continued its IPO in New York in June, despite Chinese regulators being told to cancel it. Days later, authorities ordered a security clearance of the company, fearing that the US listing could allow foreign access to its extensive personal data repository. It was banned from adding new customers and ordered cell phone stores to remove its apps.

The regulatory goals weren’t just tech companies. The Chinese government announced new regulations for the online education industry on July 23, banning IPOs and forcing companies to operate as nonprofits. Shares in the three largest US-listed Chinese companies – TAL Education, New Oriental and Gaotu Techedu – fell sharply.

In late July, Chinese antitrust authorities ordered giant internet giant Tencent to give up its exclusive music licensing rights and fined it for acquiring China Music in 2016. The purchase gave Tencent sole control of more than 80 percent of the music library’s resources, giving rivals an unfair advantage, regulators said.

The response in the financial media is increasingly hectic. As an article in New York Magazine said earlier this month, “The CCP’s capitalism has never been Milton Friedman’s. But it was decades ago that the party had shown such communist traits. ”An opinion article by financial speculator George Soros in the Wall Street Journal last Friday denounced Chinese President Xi Jinping as a dictator whose regulatory campaign“ threatens to destroy the geese that are lay golden eggs ”.

Xi is not in the process of overthrowing Chinese capitalism, nor is the regime implementing “communist” measures. It’s not out to destroy the super-rich oligarchs like Jack Ma and Tencent’s pony Ma, who helped create it and with whom it had close ties. Rather, the regulatory efforts to contain the sprawling technology empires reflect the fears of the ruling circles in Beijing about the extreme social tensions in the country and the growing economic and financial crisis.

These concerns were expressed late last year when Xi announced that 2021 would mark the beginning of a “new phase of development” in which “shared prosperity”, national security and social stability would take precedence over unbridled growth.

Beijing fears over social stability stem from the growing gap between rich and poor that resulted from decades of capitalist restoration. At one extreme are the billionaires and multibillionaires who in some cases are members of the CCP or delegates to the annual National People’s Congress. At the other extreme, large sections of the working population are struggling to survive. Last year, Prime Minister Li Keqiang said at a press conference that about 600 million people live on a monthly income of just 1,000 yuan ($ 154), which is not enough to rent a home, let alone other expenses, in a medium-sized city cover.

The social hardship, which has been exacerbated by the measures necessary to contain the COVID-19 pandemic, is one of the factors that is fueling political radicalization, especially among young people.

Commenting on the CCP’s 100th anniversary last month, Chinese academic and venture capitalist Eric Li noted that, unlike its generation that focused on getting rich, China’s youth are increasingly critical of capitalism today.

Li wrote, “Significant signs show that young Chinese people’s perception of capital and the market has become negative and their support for socialism and communism has increased significantly. For example, on Bilibili, China’s leading video social media for young people, content related to communism, marxism, capital and labor became the most popular in 2020, with an increase of more than any other content. In the extraordinarily entrepreneurial tech sector, too, demands from young people to stop the excessive exploitation of both poorly paid deliverers and higher-paid but overworked skilled and skilled workers are getting louder. “

Li, an avid supporter of the CCP, claimed that the party was able to respond to these concerns. Undoubtedly, targeting high profile billionaires is designed to address widespread hostility towards growing social inequality, as well as efforts to limit gross exploitation of casual suppliers. The transformation of the huge private education companies into not-for-profit organizations is likely to be popular with parents concerned about ensuring the best for their children in the highly competitive education system.

However, the CCP regime does not contain the 1,000 or so Chinese billionaires that the capitalist restoration has spawned across the board. Manufacturers have gained in value. The richest man in China is Zhong Shanshan, who controls the mineral water company Nongfu Spring and whose assets have grown to more than $ 782 billion, up $ 5 billion since June. The nation’s nine richest auto magnates have increased their collective wealth by $ 22 billion since July, while the eight billionaires who dominate the renewable energy sector have increased their collective wealth by $ 13.6 billion over the same period.

However, with their internet payment systems and the provision of credit, the tech companies had become giant financial companies that functioned without the restrictions of the major state banks. In 2020, Alibaba, Tencent, and Ant had a combined market capitalization of nearly $ 2 trillion, far higher than that of state-owned banks like the Industrial & Commercial Bank of China.

In his public criticism at the Bund summit in Shanghai last October, Jack Ma attacked the strong “pawnshop” mentality of Chinese banks, which demanded collateral and guarantees before lending. He called for reform to create a new, inclusive and universal banking system for small businesses and individuals.

Through Alibaba’s various arms, Ma had created a vast financial empire and was effectively calling for regulatory restrictions to be lifted further. Alibaba founded Alipay in 2004 as an online payment platform. As of 2018, it had an estimated 870 million users, represented approximately 60 percent of the third-party payments market in China, and provided approximately $ 300 billion in business and consumer credit. In addition to Alipay, Alibabas offered Ant Financial Services through various operations such as Yu’ebao, Ant Credit Pay, Ant Cash Now and Sesame Credit microfinance services at high interest rates, in some cases in collaboration with provincial governments looking for ways to bypass central financial control.

Amid concerns about the already high debt levels and the potential for financial instability, the CCP apparatus cracked down on Alibaba and Ma. The moves were also driven by political concerns that Ma and other technology tycoons were closely tied to foreign capital and could use their resources, including their vast amounts of data, to undermine or question the CCP’s rule. According to a list published by Chinese financial magazine Caixin late last year, foreign shareholders in Ant held 52 percent of the shares, half of which were held by financial corporations on Wall Street and in London. In March, Ma was ordered to break away from various media outlets such as the South China Morning Post.

The unregulated financial transactions of the technology companies also threatened to create social instability. In an essay titled “China’s Economic Accounts – The Price of Failed Reforms” in Foreign Affairs, Daniel Rosen stated: “In the early 2010s, these firms were given a free hand by party technocrats who hoped that financial innovations would force ossified state-owned companies to make banks more productive become. This succeeded at least to some extent: the new companies made the financial system functional for previously underserved customers.

“But innovation also brought new risks, such as peer-to-peer lending platforms that offered depositors high interest rates and borrowers even higher rates. When many of the borrowers defaulted, investors protested, mistakenly believing that the platforms were guaranteed by the government. In August 2018, thousands of people appeared in the heart of Beijing’s financial district to ask for compensation. Regulatory action against peer-to-peer lenders began as the prelude to this year’s Ant Group review. ”

The CCP’s attempts to curb the free movement of some of the country’s largest corporations are not a sign of strength. Rather, it points to the extent of the growing economic, social and political crisis in China that will break out in the not too distant future.

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