30 September 2021 | www.moneymarketing.co.za
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What China’s regulatory crackdown means BY JANICE ROBERTS Editor: MoneyMarketing
I
nvestors are trying to make sense of a series of regulatory crackdowns by the Chinese government that began in November 2020, when Chinese regulators suspended the $37bn IPO of Alibaba’s Ant Financial Group in Hong Kong and Shanghai on the grounds that it would increase financial risk. Since then, the government of President Xi Jinping has embarked on a clampdown of Chinese technology companies like Tencent, Meituan, Pinduoduo, and the ride-hailing app Didi. Next, the regulators turned on tutoring companies, prohibiting them from going public, or making profits. For South African investors, the most significant issue has been the stricter regulation of Tencent – the leading investment in the Naspers/Prosus camp. Tencent was recently ordered by Xi’s government to halt the acquisition of music licensing rights on an exclusive basis, for its music streaming service. The company was also impacted when Beijing compared video games to ‘electronic drugs’. The Chinese government’s crackdown on the tech and education sectors may be seen as part of Xi’s plans to impose even greater state control on the country’s
economy, and to ensure that the damage is felt by foreign investors, as part of China’s rivalry with the US. Mike Schussler of economists.co.za believes that Beijing is attempting to restamp its authority on a private sector that has become too strong. “What the Chinese government is doing, is installing more Communist party officials on the boards of private companies, while starving these companies of credit,” Schussler says. “Xi’s priority isn’t keeping foreign investors happy; rather, his concern is about staying in power. When a leader makes himself president for life, that’s not a good sign,” he adds, referring to a decision by the National People’s Congress in 2018 to remove the two-term limit on the presidency, effectively allowing Xi to remain in power for life, and making it hard to see him being challenged in any way whatsoever. On the other hand, there is a view gaining traction that China’s actions are largely an attempt to increase social fairness. Mike Gresty, analyst/fund manager at Anchor Capital,
says one should resist the temptation to view China’s motives as nothing more than a backlash against growing Western opposition to China’s policies – hitting Western investors where it hurts most, so to speak. “If one puts aside these geopolitical tensions for a moment and acknowledges that a long period of relatively light regulation undoubtedly aided the dynamism and growth of the Chinese tech sector, but also allowed for a range of inappropriate practices to proliferate, the need for a regulatory reset was probably due.” Gresty’s colleague at Anchor Capital, fund manager Peter Little, sees the crackdown as perhaps the initial implementation of the latest long-term strategic initiatives of the Chinese Communist Party as its shifts focus to a new policy direction. He believes that the past decade has seen China successfully meet its goals of alleviating poverty, “but while the policies that enabled the rapid economic growth have clearly played a significant role in achieving the strategic goals of government over the past decade, it has become clear that unchecked economic growth has come at the cost of increasing inequality”.
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