Xi’s China takes a leftward turn

Paran Balakrishnan | Updated on August 03, 2021

FILE PHOTO of China's President Xi Jinping   -  REUTERS

This is borne out by the crackdown on profits of digital giants and on speculative investments in housing

When Xi Jinping stepped off his plane at Nyingchi, Tibet, he was sending out numerous flashing signals. First, there was the message Tibet is now bound firmly to China, and this was underlined by the Tibetan dancers’ seemingly rapturous welcome on the tarmac. Second, there was the message to India because the newly expanded Nyingchi dual-use airbase is only 17 km from Arunachal Pradesh’s border. But possibly the most subtle was that Xi was smartly attired in a well-tailored 21st-century version of the Mao suit.

This wasn’t the first time Xi has sported his Mao suit. On the 100th anniversary of the founding of the Chinese Communist Party, too, he stood out as the lone figure among assembled Chinese leaders in a Mao suit. Inevitably, this triggered scores of queries from China-watchers who scrutinise the smallest signals. Was this the formal sign of a sharp leftward turn by China where Chairman Mao is enjoying a renaissance and the government seems to be fast becoming disenchanted with capitalism?

In fact, it seems China-watchers have been missing scores of signals emanating from the Middle Kingdom. But the latest struck global financial markets like a bludgeon: the order that Chinese ed-tech companies mustn’t list abroad, have foreign investors or even contemplate making profits. The effect was instantaneous: three New York-listed Chinese ed-tech firms lost a combined $16 billion almost overnight.

The ed-tech companies aren’t the only Chinese firms that have taken a huge hit. Look at ride-hailing giant DiDi Global which had its $4.4-billion mega-IPO and listed on the NYSE on June 30. On July 2, China’s Cyberspace Administration launched a data security probe into the company. That was followed by ordering Chinese app stores to remove the DiDi app. It’s accused of having too much data on its customers and storing it in a vulnerable way that might allow foreigners to get their hands on it. The company is now looking into whether going private is an option.

For years, the world has marvelled at how China’s leaders tightrope-walked between the magnificent contradiction of ensuring the Communist Party remained all-powerful and allowing its vast corporate to grow from strength-to-strength. Now it’s looking as if China’s leaders have decided firmly they must always wield more power than billionaire upstarts like the Ant Group’s Jack Ma. The outspoken, pint-sized entrepreneur had an oversized public profile but didn’t stand a chance against China’s political leaders. Today, he reportedly passes time painting in one of his palatial mansions.

Ma, who’s in his mid-50s, isn’t the only Chinese billionaire suddenly forced into retirement. Bytedance’s Zhang Yiming, owner of TikTok and Toutiao, is only 38 but in May he abruptly decided to turn his attention to “long-term strategy, corporate culture and social responsibility.” In other words, he was putting himself out to grass at an early age. He’s worth $35.9 billion. Then, look at Colin Huang of online discounter Pinduoduo, who at 41 felt it was time to move on from everyday management. Huang’s reportedly worth $32 billion but now he’ll devote his time to “research in the food-and-life sciences, disciplines where breakthroughs could drive the future of China’s largest agricultural platform.”

After tech barons

There’s one argument that China is only going after over-powerful tech barons, just as other governments around the world are itching to. But a question mark begins hovering over that line of thought when you glance at real-estate giant Soho Group’s Pan Shiyi and Zhang Xin, who, in June, suddenly felt it would be better to sell to the Blackstone Group for $3 billion.

So, are these all signals of a leftward turn? The answer’s almost certainly yes. Firstly, there’s the order about ed-tech companies not making profits. Then, the government has indicated that gig workers like food delivery company Meituan’s delivery riders must earn the minimum wage. This, and other orders, have sent Meituan’s share price crashing by 50 per cent.

Besides this, the government has been discouraging speculators with a ‘houses are for living’ campaign. “It definitely looks like a leftward turn and more state control and not private capital and an emphasis on welfare,” says Manoj Kewalramani, Fellow, China Studies, Takshashila Institution, and author of Smokeless War, China’s Quest for Global Dominance.

There have been other strong signals of a decisive left turn from the time Xi Jinping assumed control of the government and the party in 2013. There have been reports entrepreneurs investing abroad have been targeted. Says Robert Murray, Fellow, National Security Program at the Foreign Policy Research Institute: “The government’s been pushing private firms to establish party committees to ensure business decisions are in line with government policy.” Murray also argues the Chinese have slammed The Ant Group’s Alipay and Tencent’s Tenpay because it’s determined to establish its own e-yuan payment system.

Has the Chinese government mishandled the crackdown on DiDi and ed-tech which came in swift succession? In New York, the Golden Dragon Index of listed Chinese companies sank by more than 20 per cent in three days and that, inevitably, sent Shanghai prices tumbling. The Chinese have been rushing to assuage investors’ fears but it’s clear China’s rulers intend to rein in corporate giants whatever the market fallout.

Will India’s start-ups benefit?

Could this help India’s suddenly blossoming start-up sector? One optimist is Great Learning’s Mohan Lakhamraju who’s just sold to India’s own ed-tech giant Byju’s for $600 million. Says Lakhamraju: China’s crackdown “will lead to more capital flowing to Indian ed-tech companies. It will also increase their opportunities in the global markets.”

Others reckon there could be pluses and minuses to the Chinese moves for Indian start-ups. Pranav Pai, founding partner, 3One4 Capital, reckons, on one hand, Indian firms will have a clear field. “This leave the market open for more Indian companies to go global faster.” He adds: “More global capital allocated to these sectors will be available for Indian companies.”

On the negative side, Pai points out the danger “other governments will take their cues from this and try to throttle tech conglomerates. This may lead to reduced investment amidst regulatory uncertainty and may dampen the IPO stories of US and Indian companies.” Also, corporate lawyer and honorary fellow, Institute of Chinese Studies, Santosh Pai warns: “India has the potential to benefit but is not a natural choice.”

There are signals the mood in the Joe Biden administration is also in favour of reining in Big Tech. The appointment of 32-year-old Lina Khan as chairperson of the Federal Trade Commission is a clear indication of this. Khan’s argued the old definition of monopoly is outdated and the top tech giants are monopolies in an entirely new way. But it looks like the world will have to get used to a China that’s looking to get richer but ensuring that nobody challenges the power of the Communist Party.

Published on August 03, 2021

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