In-Depth

by Malcolm Riddell

China's Tech Crackdown
4

'Xi's Four Pillars of Regulation'

Bloomberg

CHINADebate

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Shuli Ren | Bloomberg
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August 1, 2021
'Xi's Four Pillars of Regulation'
'Xi's Four Pillars of Regulation'
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Shuli Ren | Bloomberg

China's Tech Crackdown

4

BIG IDEA | ‘Broadly, Beijing is concerned about four pillars of stability: banking, anti-trust regulation, data security and social equality. All of Beijing’s major interventions reflect these concerns.’

‘In a sweeping overhaul, China is banning companies that teach the K-12 school curriculum from making any profit.’

  • ‘While what happened to education stocks shocked the outside world, it was not exactly surprising inside China.’
  • ‘Since last November, Beijing has been reining in Big Tech’s power, and foreign investors are just starting to come to grips with the seriousness of the bureaucracy.’

‘Broadly, Beijing is concerned about four pillars of stability: banking, anti-trust regulation, data security and social equality.’

‘All of Beijing’s major interventions reflect these concerns:’

  • ‘the last-minute scuttling of fintech giant Ant Group Co.’s $34 billion initial public offering last November because of its potential disruption of banking;’
  • ‘Alibaba Group Holding’s record $2.8 billion fine for monopolistic business in April; and’
  • ‘the cybersecurity watchdog’s investigation into DiDi Global Inc. immediately after its $4.4 billion IPO this month.’

‘Going forward, investors need to realize the four pillars are part of President Xi Jinping’s vision to ensure another hundred years for the ruling Communist Party, which just celebrated its centenary.’

  • ‘In the past, Big Tech companies were evaluated in terms of sales, their total addressable market, or even monthly active users.’
  • ‘Now investors need to factor in Big Government.’

‘For instance, DiDi doesn’t do much more than host a taxi-hailing app. That’s a service a smart city’s government can also provide.’

  • ‘Or why should Ant Group be allowed to cross-sell its investments, insurance and consumer loan products, while banks are being asked to spin off their wealth management arms?’

‘In the future, China’s big tech will be less exciting and unable to exploit consumer data to make more money.’

  • ‘They might — gasp — just be turned into state-owned Big Banks, or Big Utilities.’
  • ‘When that happens, China’s technology companies might have to be valued in terms of book or even net cash.’

‘Liquidation risk is real in Xi’s China.’

  • ‘He wants a more equal, livable society, and any obstacles will be swept away.

‘Social equality is at the heart of the ban of for-profit after-school tutors.’

  • ‘Confronted with blanket advertising and fear mongering, anxious middle class parents feel compelled to send their kids to mind-numbing cram schools, in some cases even before children get into kindergarten.’
  • ‘No one wants her kids to be left behind just because her neighbors have invested more money into education.’

‘Gig economy workers’ rights are also at the heart of the government’s push for social equality.’

  • ‘On Monday, the government posted notices that online food platforms must respect the rights of delivery staff and ensure that those workers earn at least the local minimum income.’
  • ‘Food delivery giant Meituan dived 14%, its worst on record, wiping out about $30 billion market cap.’
  • DiDi, which depends on gig drivers, is also likely to take a hit.’

‘President Xi Jinping doesn’t care if stock investors, many of them foreigners, lose billions of dollars.’

  • ‘He knows that China’s middle class will have his back. They like these regulatory crackdowns.’

‘The Ministry of Education’s for-profit tutoring ban is a crowd-pleaser.’

  • ‘In the Chinese society, a family’s wealth alone already gives its offspring a natural edge, but the middle class does not enjoy seeing that edge amplified through an army of tutors.’

‘Meanwhile, big cities’ consumers are sympathetic to gig economy workers, often migrants from rural areas, calling them endearingly “fast delivery little brothers.” ’

‘And by regulating Ant like a bank, consumers are less likely to be sold risky financial products too.’  

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