China celebrated with great pomp the centennial of the founding of the Communist Party of China (CPC) which has been the sole ruling party of People’s Republic of China since 1949. During this event, the Chinese President Xi Jinping promised the push towards ‘common prosperity’ which included wealth redistribution in the country that would reduce income inequality.
Last November Jack Ma, the Chinese billionaire, owner of Alibaba company, had announced the world’s largest IPO of USD 35 billion for his finance company Ant Group Co. As the world watched closely, in the blink of an eye, the IPO was halted and Ma was summoned by Chinese regulators for shortcomings in his applications. This was the starting point and since then, China has passed a series of anti-monopoly legislation aimed at the ‘platform economy’ which mainly targeted internet-based companies that provide services ranging from ecommerce to food delivery. This has affected several high-profile technology companies.
A recent addition is a ten-point plan which runs till 2025. The plan says that laws will be strengthened for important fields such as science and technological innovation, culture and education. It adds that the government aims to tackle monopolies and ‘foreign-related rule of law.’
While these regulations have caused a stir at the share market, the authorities term it as a measure to control the growing disparity in China. Here is a look at the affected sectors:
Food delivery
China has a huge food delivery market and over the last decade it has grown 30 ‘fold reaching USD 51.5 billion. In 2020 alone, more than 40 per cent internet users in China had used these services. This industry is chided for the poor treatment of workers and the recent regulations in China have strengthened worker protection rules. This rule mandates increasing minimum salary levels and relaxing the delivery time limits. The two major players are Meituan and Alibaba-owned Ele.me. Soon after this regulation, Meituan shares fell by 15 per cent.
Education
China has a very competitive and rigorous educational system. Capitalising on the growing need for coaching, several ed tech start-ups mushroomed and grew quickly. A new regulation came as a jolt to the industry that mandated tutoring companies to become non-profits. This instantly plummeted the valuations of several private
education stocks. The founders of New Oriental and Gaotu Techedu instantly lost their billionaire status after the rules were announced.
Ride hailing
About 50 per cent of internet users in China are expected to use online ride hailing services by 2025. This huge market is dominated by the local player Didi Chuxing which has more than twice the market share of Uber. In June IPO for a Chinese company Didi went in for the second largest in New York Stock Exchange. Just few days after the fund raising, the Didi app was removed from app stores in China citing violations on the company’s collection and usage of personal information. Since then, the company’s stocks have fallen about 40 per cent and may face a huge multibillion dollar fine or suspension of certain operations as a punishment.
Cryptocurrency
Crypto mining has always been a problem in China apart from its huge power consumption and crypto trading was banned in 2019. China has arrested several people on charges of money laundering. While the curb is stated to control illicit transactions and for the government to have a control over the capital outflows, it paves way for China to introduce and monitor its own cryptocurrency.
Online shopping
All these crackdowns began with the ever-growing power of Alibaba. China must have seen the powers vested by internet giants of the west, not only to control people’ purses but even impact on the governments. Their alarming growth in China could have triggered these crackdowns.
Jack Ma’s Alibaba was fined a record USD 2.8 billion by antitrust authorities stating that the company abused its dominant position in the market. Alibaba accepted the fine and after its failed IPO, it has returned to its roots of being an online payment platform than the envisioned financial aid platform.
Entertainment
This is the recent industry to face the wrath. Chinese people have a constrained and filtered exposure to global content. They have their own versions of Google, FaceBook, Whatsapp and other social media. Furthering this, authorities have asked broadcasters to shun artists who are said to have ‘incorrect political positions and effeminate styles.’ The industry has been chided for their bad influence on the young and ‘severely polluting the social atmosphere’. In line with this, one of China’s prominent star Vicki Zhao Wei’s entire digital footprint was removed from China’s internet.
Gaming is also another industry that has been affected. Online gaming is one of the rapidly growing markets with annual revenue of USD 43.2 billion in 2020 and an estimated user count of 518 million. Tencent is one of the leading Chinese companies and has been dominating the online gaming market. Clamping its growth, the regulators stopped plans for a merger between Huya and Douyu, China’s two largest video game live-streaming sites that Tencent has stakes. Also, the regulators ruled that the company must give up the sole right deals for music labels.
Steel
The steel industry has been affected due to the green shift taken by the government. China, as part of its climate action plans has decided to become a net zero carbon emission economy by 2060. The steel industry is one of the largest carbon emitters contributing around 20 per cent. The country’s steel exports are expected to decline until March 2022. This has already begun and the ripple effects are seen as price rise across several markets. Indian steel manufacturers’ higher production is expected to meet the demand of Asian markets while still Europe is figuring out a way.
These series of crackdowns are a part of China’s plan to discipline its population and create its version of a modern communism. Decades of liberalisation has created tremendous wealth. China today has a middle class of 340 million people who earn between USD 15,000 and USD 75,000 a year according to a report by HSBC. This is expected to reach 500 million families by 2025. On the other hand, a Credit Sussie report states that in 2020, the wealthiest 1 per cent of Chinese people owned 30.6 per cent of country’s wealth. On the Gini co-efficient that denotes inequality on a scale of 0 to 1, China’s score has hovered between 0.46 and 0.49 over the decades. Any score of 0.40 and above is a red line indicating in
equality. Similarly, the wealth Gini co-efficient stands at 0.704 making the gap starker. The ‘common prosperity’ for all tries to address this gap and create a more balanced society.
The situation was similar in China during the 1970s when the then leader Mao Zedong led a movement to purify the party, as he called it. It was more to ascertain his power during a power struggle. While on one hand these seems to serve the people, on the other hand it lays the foundation to make Xi Jinping as the unquestionable leader with everyone devoted to his ideologies of communism without freedom of expression.
