Leonardo Sobreira, from Beijing (247) – “Preventing disorderly expansion of capital”. That slogan, which Xi Jinping has often repeated in the past two years, has troubled those who believe that Beijing is allegedly planning a large-scale crackdown on large private companies in favor of state capital.
The term was coined by Xi Jinping in 2020 amid a regulatory campaign against Ant Group, the financial arm of e-commerce giant Alibaba. Regulators blocked the finance company’s initial public offering, preventing what would have been a record-breaking share sale, and placed restrictions on online lending to individuals. At the time, the People’s Bank of China cited the need to curb monopolistic tendencies in the payments industry, as well as to control “excessive capital increase” in the sector.
The restriction of the Ant group was only the beginning of the CCP’s relentless crusade against what Xi Jinping sees as excesses in China’s economic opening process. In June 2021, China’s Cyberspace Administration prevented Didi Chuxing, an urban private transportation platform, from gaining new users days after its debut on the New York Stock Exchange. The Beijing-based company has been accused of threatening national security by improperly storing data on more than 57 million drivers and analyzing passenger data without their consent. In May of this year, the majority of the majority shareholders voted to delist the company from the New York Stock Exchange.
Regulatory campaigns against big companies are not limited to the technology sector. In August 2020, Beijing introduced the Three Red Lines policy, which set limits on the size of debt developers can take on, helping to deleverage the real estate sector. As Xi Jinping says, in another of his favorite slogans, Chinese homes are “for living, not for speculation.” Other industries such as private education, video games and entertainment have also come under the CCP’s crosshairs.
But are investors right when they estimate that the repression of recent years would be a prelude to the return of Maoism? Could Xi Jinping, son of the leader of the revolution that brought the Communists to power in 1949, go a step further, turning his campaign to rein in capitalist excesses into an attempt to rein in all private industry?
For Professor Michael Hudson of the University of Missouri, the 20th National Congress of the CCP will be the starting point for adopting an even tougher stance in the fight against the free market.
“The Chinese I talked to for years and years did not expect the dollar to weaken. They are not crying over his rise, but they are worried about the flight of capital from China, because I think after the party congress there will be a crushing of the defense of the free market in Shanghai. Pressure for the following changes has been building for a long time. The spirit of reform to curb the ‘free market’ has been spreading among students for more than a decade, and they are rising through the ranks of the Party,” Hudson wrote in a recent email exchange with journalist Pepe Escobar.
This interpretation is consistent with past statements by the Chinese president. “Only socialism can save China,” Xi declared when he took over as CCP leader in late 2012. Another of the current president’s favorite phrases, “shared prosperity,” shows his seriousness in returning China to its Maoist roots, according to some. observers in the west.
“Xi wants to address a very contemporary problem, the way neoliberal reforms have made China much less egalitarian, and restore the sense of mission that shaped early Maoist China,” said Rana Mitter, a professor of Chinese history and politics at the university. from Oxford to Reuters last September.
However, the picture is more complex. The collapse of some stock market listings and the housing bubble that crippled builders like Evergrande happened at the same time that other companies were thriving like never before. According to a Bloomberg survey, companies raised $58 billion in IPOs in mainland China through August this year, a record amount. According to the agency, the 10 richest people in China have amassed a net worth of $167 billion since the start of 2020.
The general trend in China is the large growth of the private sector. The Peterson Institute of International Economics, a US think-tank, points out that in 2020, private companies accounted for more than half of the market capitalization of China’s 100 largest listed companies, compared to less than a dozen in the previous decade. Private companies employ four out of five urban Chinese workers, and 32 of them are on the Fortune 500 list of the world’s largest companies in terms of revenue, an increase from none in 2005.
Recent statements by Xi Jinping ease fears of a widespread crackdown on private equity. Speaking at a joint study session of the Political Bureau of the CPC Central Committee in April this year, the leader defended the “healthy development” of capital and called for regulatory measures only against what he called “disorderly expansion”.
“Capital is an important force for promoting social productive forces,” Xi said at the time, urging efforts to run large companies in accordance with the law. The goal is to achieve “a new economic model with a higher level of openness”, he added.
He also advocated continued openness to the outside world, expressing hope that it would “attract more foreign capital” to invest in China. Finally, he encouraged Chinese companies to go global.
In addition, the Chinese president recently called on the new generation to “dare to start a business”. The state directs broad incentives to startups operating in strategic areas designated by the government, such as microchips, quantum and cloud computing, genetics, green energy and high-end manufacturing. Internet and platform companies are no longer considered authentically innovative.
In addition to buying direct stakes in these startups, the central government and regional administrations encourage innovation through initiatives such as the creation of industrial parks and talent pools and branding of state affiliation, which creates good public relations. It is these policies to support innovation, along with research and development and economic openness, that have made China home to more than 150 unicorns, world leaders in artificial intelligence, robotics and computer vision, according to the World Economic Forum.
The CCP’s relationship with capitalism is not bad. The brakes applied to some large companies only reflect an attempt to turn the capital markets into a direct line of private financing for strategic purposes. In the Asian giant, continuity and change go hand in hand.
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