China’s ‘unprecedented’ crackdown stunned private enterprise. One year on, it may have to
One day later, it all fell apart.
In the year that followed, the Chinese government’s regulatory might has changed industries ranging from tech and finance to gaming, entertainment and private education.
But the speed and ferocity with which Chinese authorities have acted against the country’s corporate titans have startled even the closest China watchers.
“The latest regulatory tightening cycle is unprecedented in terms of duration, intensity, scope, and velocity,” analysts from Goldman Sachs wrote in a recent research report.
The campaign has wiped out more than $1 trillion worldwide from the market value of Chinese companies. It has sent chills through the wider economy and stoked fears about the prospects of future innovation and growth in China.
While China’s decisions have rocked the corporate world and rattled foreign investors, Xi appears undeterred. To him, reining in private enterprise is the solution to fixing longstanding concerns about consumer rights, data privacy, excess debt and economic inequality.
In other words, for the Chinese Communist Party it’s not about killing the private sector: It’s about taming the excesses of capitalism and embracing the country’s history of socialism.
Dividing the ‘cake’
That meteoric rise accelerated under the leadership of Deng Xiaoping, who took power in the late 1970s after the death of Mao.
Under Deng, the country embraced the free market and opened up to global trade. He famously said in 1985 that “some people can get rich first” to help poorer people in the long run, so that the society can gradually achieve “common prosperity” — a use of the phrase that differed significantly from its invocation by Mao, who advocated for wealth redistribution nearly 70 years ago as he worked to cement the party’s control.
“We must divide the cake well,” Xi wrote in last month’s article, adding that his goal is to “achieve common prosperity of all people by the middle of this century.”
A desire for control
Analysts widely believe that Xi’s concerns about inequality are real, but that the unfolding crackdown also signals the ruling Chinese Communist Party’s desire for control.
Xi is “aware that a Communist Party regime only enjoys legitimacy as long as common people feel represented,” said Sonja Opper, a professor at Bocconi University in Italy who studies China’s economy and the private sector. “The ultimate motivation is more likely to gain control over powerful parts of the economy.”
Ma criticized China’s regulatory system at the time as being outdated and risk averse, an obstacle to the high flying, innovative tech firms that he said could bring banking to poor populations and smaller businesses that are otherwise locked out of traditional finance.
The tech entrepreneur also accused China’s conventional, state-controlled banks of having a “pawn shop” mentality by lending only to borrowers who could provide collateral. He touted more innovative, data-heavy approaches as capable of bringing banking to marginalized groups.
Those words likely spurred Beijing to retaliate swiftly. The Ant Group IPO was suspended just over a week later.
More than Jack Ma
The Communist Party “seems increasingly concerned that China’s tech sector has become so globally prominent that it runs the danger of outrunning the Party itself,” said Rana Mitter, a professor who specializes in the history and politics of modern China at the University of Oxford. “The crackdown helps to bring it down to size.”
Wary of private tech’s power
Experts point to the crackdown — and especially the measures directed at technology — as the start of a new era for regulation in China.
Beijing encouraged their rise at first. Such firms have been huge job creators and have attracted vast amounts of foreign and domestic capital. China’s influence as a hub for technological innovation has also exploded in recent years because of these firms, which compete head to head with Western rivals.
But now the government is growing wary of their size and power.
Firms like Alibaba, Tencent and Didi “will no longer be able to stay under the protective umbrella of Internet or technology, outside of supervision from the Chinese government,” said Doug Guthrie, a professor and director of China Initiatives at Arizona State University’s Thunderbird School of Global Management.
Beijing is also clearly concerned about the collection of data by these private firms. The technology they have created is so prevalent in Chinese life that they have access to sensitive information about hundreds of millions of people, ranging from where and when they travel to specific details about how they spend their money.
“It cannot go unnoticed that the industries and sectors that came under…