China’s tech companies are suddenly in a hurry to get their money out there. Lei Jun, founder of the smartphone manufacturer Xiaomi, transferred shares worth the equivalent of 1.8 billion euros to a charitable foundation. The internet retailer Pinduoduo announced that it intends to provide 1.3 billion for the development of the poorer rural regions of China. And the Internet giant Tencent even made the equivalent of 6.5 billion euros in donations.
Change of direction in Beijing
Like a prayer wheel, the corporations assure that they are fully behind the latest campaign by state and party leader Xi Jinping, who wants to achieve “general prosperity”. The Beijing leadership has had enough of “irrational capital expansion” and “barbaric growth”. This primarily refers to the private tech giants and their wealthy founders.
For years, companies have benefited from the fact that Beijing barely regulated them. Corporations such as Alibaba, Tencent and Baidu grew up and can hold a candle to their US role models Amazon, Facebook and Google. But while US competitors continue to climb new highs on the stock market, investors in Chinese tech stocks have had a disastrous year so far. According to an estimate by the US bank Goldman Sachs, more than three trillion US dollars were wiped out in the markets.
The tide began to turn last autumn when Alibaba founder Jack Ma was first targeted by the political leadership. At that time, the richest man in China gave a momentous speech in Shanghai in which he criticized the country’s financial sector, which is dominated by state banks, as outdated and backward. The unusually brash attack meant that the IPO of the Alibaba financial subsidiary Ant Group suddenly had to be called off. Jack Ma disappeared from the scene.
More and more requirements
Since then, Beijing has been tackling one sector at a time. The Meituan food delivery service was hit. The government announced that it would drastically tighten the regulation of the food delivery market. In the future, deliverers will have to earn at least the local minimum income and be insured. Tencent is affected by new rules, according to which minors in China are only allowed to spend three hours a week playing online games. At Bytedance, the owner of the popular Tiktok video app, the government secured a position on the board of directors by purchasing shares
The Chinese transport operator and Uber competitor Didi also came under pressure. Only days after its IPO in New York, Beijing banned the group from continuing to offer its apps in Chinese app stores because “serious violations” had been found in the handling of personal data.
In the future, Chinese tech companies will only have to obtain approval before going public if they have sensitive data. In practical terms, this step could mean that virtually no Chinese Internet company can go public in the US.
Possible benefits for society
The measures decided by Beijing are not necessarily in the interests of the corporations – they can, however, have positive effects on society. Alibaba can no longer force retailers to offer products exclusively on their own platforms. This should enable more competition. In social media, many users also applauded the decision to take action against excessive tutoring, with which a few online providers earned a lot of money. However, the needs of the children fell by the wayside.
Professional investors disagree on how to proceed. “I see no end to the regulatory crackdown,” said Paul Pong from the investment company Pegasus to the financial service Bloomberg. Other analysts paint a more optimistic picture of the situation. For many corporations, profits were still bubbling up despite the new rules.
In Beijing, the signs are on tidying up and redistributing. Several major state media distributed the radical comment of an Internet blogger in the affirmative. “This is a transformation from capital-centered to people-centered,” wrote the author in his hymn of praise for the current crackdown, adding: “The capital market will no longer be a paradise for capitalists to get rich overnight.”