OPEN APP
Home >Opinion >Columns >China’s regulatory frenzy may undo some of its success
Listen to this article

Is there any place on earth more fascinating for a business reporter than the world’s Communist superpower? This sounds like a contradiction in terms, but every week brings news from Beijing of another assault on big business and an upending of existing regulations. This week, it was revealed that Alibaba’s financial affiliate, Ant, whose huge Shanghai and US listing was scuppered at the last minute in November 2020 because of Beijing’s displeasure with the company and its founder, would be broken up. Its credit card business and unsecured lending unit will operate separately and must include as shareholders the local Zhejiang provincial government’s tourism company. Beijing’s web of new regulations to control tech and gaming companies have speedily wiped out $1 trillion in market value of China’s four largest tech companies. Beijing is also reversing its plan, announced only in February, to conduct much larger property auctions, which was a move aimed at reducing stratospheric property prices that had the opposite effect.

The contemporary business world overuses the word ‘disruption’, but it is all too apt when surveying the changes brought about in a matter of months by the Chinese Communist Party, seeking to rejuvenate itself as it turned 100 this year. The dizzying prohibitions and directives now extend to limiting the time children can play video games to where their parents can send them for tuition. President Xi Jinping’s goal of ‘common prosperity’ is an attempt to reduce economic inequalities, but it also overturns the public-private sector partnership that led to China’s emergence as an economic superpower. Twenty years after then premier Zhu Rongji brilliantly used accession to the World Trade Organization to liberalize China’s economy, it is now moving in the opposite direction.

Xi’s attack on big tech and income inequality neatly coincides with concerns of the contemporary zeitgeist. Any thinking observer is disturbed by growing inequality, made much worse by a K-shaped recovery partly caused by a flood of liquidity from central banks. Any user of technology, which is to say all of us, must worry about aspects of what Harvard professor Shoshana Zuboff warned, albeit in somewhat hysteria-tinged prose, was “The Age of Surveillance Capitalism" in a book by that title. Call me a “running dog of capitalism", the popular Maoist war cry of several decades ago, but I worry much more about surveillance and intrusions by totalitarian and authoritarian governments, despite my anxieties about Big Tech in the US.

China’s draft regulations that require algorithms to promote “mainstream values" and “transmit positive energy" sound delightfully scripted for our feel-good New Age fantasies, but as James Kynge of the Financial Times observed last week, the real intention is “to support—and certainly not oppose—the messaging of the Chinese Communist Party." What is underway in China, via social credit systems that its government uses to grade online behaviour and assess suitability for promotions and even passports, as well as digital money and smart cities dotted with surveillance cameras, is “a grand experiment for 21st century authoritarian governance," Kynge says. As it happens, the draft regulations give Chinese citizens more power to police tech firms’ behaviour, and none by which to appeal against the state. To applaud these changes because they also include regulations on screen time for children suggests naïvete that today’s teenagers would not be guilty of.

Beijing’s moves to tighten regulatory controls over China’s economy display the ruling party’s concern about rising inequality, but also signal that the state must dominate the economy and society. As adaptable and astute as China’s Communist leadership has proved over the past four decades, its economy grew by leaps and bounds because of progressive waves of liberalization, not by tightening screws on the private sector. The risk is always that strongman command-and-control with few checks and balances tends to overreach. An example of that is this week’s flip-flop over Beijing’s grand plan to release more land for property development through three large auctions rather than several during the year. Developers not only bid up prices of land, but created several shell companies for their bids to get around other regulations. The result was a frenzied lottery that drove up prices dramatically rather than cooling them. Beijing has had to reverse policy. Slamming the brakes on property price increases, an admirable and urgent goal, could create a crash.

If we could make ‘ease of doing business’ a reality instead of a cliché, this chaotic leftward lurch by Beijing is an opportunity for India. Our attempts to promote India as a manufacturing destination already look more promising—despite our complex labour laws that Ford Motor’s closure this month will likely only highlight. Our unicorns will enjoy even more inflated valuations now that Chinese initial public offers can be overturned so quickly. But ground realities, from New Delhi’s bureaucrats delaying tax refunds by several months to 45,000 small and medium sized exporters faced with liquidity problems, to new regulations aimed at Amazon and Walmart’s Flipkart, will queer the pitch. “To get rich is no sin," Deng Xiaoping said to CBS’s Mike Wallace in 1986. “We permit some people and some regions to become prosperous first for the purpose of achieving common prosperity faster." As appalling as income inequality in China and elsewhere looks, that pragmatism displayed a better understanding of how economies actually work than Beijing’s policies do today.

Rahul Jacob is a Mint columnist and a former Financial Times foreign correspondent.

Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.

Never miss a story! Stay connected and informed with Mint. Download our App Now!!

Close
×
Edit Profile
My ReadsRedeem a Gift CardLogout