What To Watch For In China’s 5-Year Plan As Economy Shifts To Self-Sufficiency (#GotBitcoin?)
China’s top policy makers meet next week to hammer out the country’s future economic blueprint, offering clues on how the leadership plans to pivot the world’s second-largest economy to be more self-sufficient. What To Watch For In China’s 5-Year Plan As Economy Shifts To Self-Sufficiency (#GotBitcoin?)
The four-day meeting of the Communist Party’s Central Committee will take place behind closed doors from Monday in Beijing. Known as the plenum, the discussion this year will focus on the framework for China’s 14th five-year plan that runs from 2021 through 2025, as well as the vision and targets for the next 15 years.
The finalized plan won’t be made public before being formally approved by China’s legislature, the National People’s Congress, in March. However, some of the details may emerge via state media once the plenum ends.
Facing heightened tensions with the U.S. and a virus-battered world economy in recession, a central question around the plenum will be how China can draw on domestic sources to sustain its growth.
Here Are Some Key Themes Investors Are Watching Out For And How They’re Trading On The Information:
In the coming five years, policies are expected to be formulated around the idea of “dual circulation” raised by President Xi Jinping, in which China is seeking to create a more self-reliant domestic economy supplemented by external trade.
Domestically, the strategy would require China reshaping its production to satisfy local demand and bolster consumption.
What Bloomberg’s Economists Say
“An emphasis on encouraging domestic circulation would not signal that China is closing its doors on the world. We expect the plan to encourage two-way trade and promote services trade.”
Chang Shu, Chief Asia Economist
On the external side, China is likely to continue opening up its markets, including easing restrictions that bar foreign investors from certain industries — known as the negative list — and lowering tariffs and non-tariff barriers on imports.
Analysts are watching closely whether officials will set a specific target for gross domestic product growth in the five-year plan or give a broad description of the goal. The government didn’t set an annual growth target this year amid the uncertainty unleashed by the coronavirus pandemic. The previous five-year plan set an average growth target of above 6.5%.
“Current market estimates are for a growth target in the range of 5-5.5%, while we think 5% would be a reasonable number, with China needing 4.5% annual GDP growth to achieve high income status by 2025,” Morgan Stanley economists led by Robin Xing wrote in a note this week.
This year’s plenum will also feature discussions around China’s economic trajectory over the next 15 years. The 19th Party Congress in 2017 set out a vision for China as a “modern power” by 2050, with the first stage of that process running from 2020-2035, focusing on areas like technology innovation, expanding the middle-income group, and improving the environment.
“For the 2035 blueprint, it indicates that China’s policy making becomes more long-term oriented, and that investors could expect more continuity and certainty of policies in the upcoming 15 years,” said Liu Peiqian, China economist at Natwest Markets Plc in Singapore. “
However, it is more of a political guideline than a basket of detailed measures. The wording of it might look vaguer compared to the five-year plan.”
Beijing has made no secret of its ambitions to vault into the upper echelons of technology — in fields from artificial intelligence to semiconductors and next-generation networking — but those objectives will garner more attention than ever before at a time of intensifying rivalry with the U.S.
Global industry watchers will scrutinize Beijing’s blueprint for details on how it plans to funnel investment into cutting-edge fields from so-called third-generation chip-making to quantum computing and AI applications.
Outside of China, tech players will be watching for hints of strengthening techno-nationalism: whether the country is considering opening up its long-shuttered internet industry, for instance, or intends to further tighten its grip on online content and the phenomenal amounts of data critical to training AI algorithms and supporting domestic innovation.
Xi’s surprise announcement last month that the world’s biggest polluter plans to be carbon neutral by 2060 has upended energy policy in a country that relies on coal for more than half its power.
The five-year plan may see China accelerate its adoption of clean energy. The current goal is to derive as much as 20% of primary energy use from non-fossil fuels by 2030, but one option under consideration is to bring forward that target to 2025, people familiar with the discussions told Bloomberg last month. That would require a major increase in wind and solar installations over the five years.
The prospect of five-year plans can fuel speculative stock buying. Chinese renewable energy stocks surged last month on bets Beijing may lift its targets for wind and solar installations during 2021-2025. Xinjiang Goldwind Science & Technology Co. and GCL-Poly Energy Holdings Ltd. jumped in mid-September, weeks before Xi announced his carbon neutral goal.
Other areas seen likely to get policy backing in the next five years include technology, finance and defense, according to Bloomberg Intelligence and Chinese brokerages including China Galaxy Securities Co. Stocks are broadly higher ahead of the meeting, with the MSCI China Index up more than 6% this month and trading near its highest level in 23 years.
In 2015, child-care-related stocks such as infant formula makers and toy manufacturers surged after China ended its one-child policy as part of a five-year plan through 2020.
China Has A Few Things To Teach The U.S. Economy
Fiscal austerity is a relic of the past. Time to spend.
Ever since China’s spectacular economic growth became apparent in the 2000s, people have wondered whether that country’s brand of authoritarian state capitalism has proven superior to the more liberal American model. Until recently, it was possible to dismiss those concerns, but Chinese successes and U.S. failures keep piling up.
If the U.S. wants to maintain both its relative power and its prestige as a model for the world, it needs to make some big adjustments.
China’s rapid growth, by itself, was not an argument for the superiority of the Chinese system. Any country can grow briskly from a very low starting point, if it has the right policies. Whereas developed nations have to invent new technologies to grow, developing countries can copy existing ideas and build up their capital stock.
Even after decades of hypergrowth, and despite having a huge economy in terms of total size, China was and is still much poorer than the U.S. on a per capita basis. The typical Chinese family has a smaller house, fewer cars and less opportunity for travel and entertainment than its American counterpart.
But in recent years, China has shown that it can compete at the leading edge of technology — something most middle-income countries are unable to do. The nation is now a peer competitor with the U.S. in the field of artificial intelligence, and is dominating the global race to build fifth-generation wireless networks.
China is home to the world’s leading drone manufacturer, is building the world’s fastest trains, and is becoming a leader in genetic engineering. It even has a mission to Mars. With innovation like this, it’s hard to argue that China deserves exclusion from the rank of leading nations, despite its still-modest living standards.
In addition to technological wizardry, China is proving adept at managing the types of crises that regularly flummox the U.S. Its huge program of bank-driven stimulus — something that would have been much harder in a country where the state doesn’t control the banks — helped it sail through the 2008 financial crisis with only minor damage. This left China with an overhang of bad debts, but the country is now in the process of cleaning those out of the system
China’s swift suppression of the Covid-19 pandemic also allowed its economy to rapidly recover from the economic devastation — something rich liberal countries have struggled to do. China’s GDP was 4.9% higher in the third quarter of 2020 than in the third quarter of 2019. Meanwhile, the U.S. recovery is losing steam, as yet another titanic wave of coronavirus infections swamps the country.
These successes add up. The Economist, traditionally a bastion of free-market ideas, recently entertained the idea that Chinese leader Xi Jinping may have found a form of state capitalism that really works. While granting the demise of the American model may be premature, it seems likely that the U.S. needs to make some adjustments if it wants to keep up.
The best approach is to do what the U.S. has always done — shore up its weaknesses by selectively adapting its’ rivals’ best ideas. In last century’s Cold War, the U.S. responded to Soviet scientific achievements with a huge investment in research. A similar approach is warranted with China.
The Endless Frontier Act, a bill which would boost federal research spending by $20 billion a year, would be a good first step. Rapid scientific progress in areas like wireless networking, artificial intelligence and energy storage would help preserve U.S. industrial dominance, just as it did in the 20th century.
Also during the Cold War, the U.S. responded to the Soviet Union’s massive state-directed infrastructure push with its own burst of construction, including the interstate highway system and the creation of the suburbs. Government investment surged to almost 7% of GDP.
The U.S. already has much of its infrastructure in place, and certainly can’t match China’s often wasteful construction binges. But it can do much more. In addition to repairing the country’s crumbling roads and upgrading its ports, the U.S. can build a modern national electrical grid that will speed the transition to next-generation energy sources and boost new energy industries.
A national effort to increase density in inner-ring suburbs would create a housing construction boom, and make it economical to build more trains as well.
The U.S. also has to upgrade its human resources. Bailing out struggling universities and extending Medicare to cover all Americans would be important steps in this direction. Crushing the Covid-19 pandemic with public health measures (which are necessary in addition to vaccines) is another urgent task.
All this will require a lot of government spending. But a burst of stimulus, especially when spent on things with long-term economic payoffs like research, infrastructure and more efficient health care, happens to be exactly what the country needs to boost its economy out of its Covid-19 slump. The mindset of fiscal austerity must be left in the past; the U.S. should copy China’s willingness to fight recessions with all necessary firepower, even if its exact methods will necessarily be different than China’s.
China’s model isn’t yet supreme. But if the U.S. refuses to learn from China’s successes and tweak its own system to shore up its weaknesses, the day will come when the world agrees that China found a better way. It’s up to U.S. leaders and voters to prevent that from happening.
China’s Inexorable Rise To Superpower Is History Repeating Itself
The country looks like a latecomer to Americans and other Westerners—but from its own perspective, this is a restoration.
No foreign policy issue will plague the winner of the White House more than China. There’s already a debate raging among China watchers over what Washington’s next steps should be. Some favor a “reset” to tamp down tensions and return to more constructive diplomacy. Others are fearful of that very reset and argue the U.S. mustn’t stray from the hard line.
The choices made by the next administration will be critical. As the U.S. struggles to contain the coronavirus outbreak and restart its economy, China appears to be gaining strength. Its gross domestic product expanded 4.9% in the third quarter, an astounding rebound in a world still mostly mired in a pandemic-induced paralysis. (Official Chinese data have to be taken with several grains of salt, but economists generally agree the economy is rapidly on the mend.)
In its own foreign policy, Beijing has barely flinched under U.S. pressure and instead has become more assertive—enhancing its influence in global institutions such as the World Health Organization, crushing the pro-democracy movement in Hong Kong, turning up the heat on Taiwan, and brawling (literally) with India along their disputed border.
But before the U.S. and its allies can move forward, they have to look back to figure out how the world got to this point with China in the first place. The consensus holds that Washington’s policy of engagement was a grave error that created a dangerous adversary to the U.S. and democracy itself. But that’s certainty born of hindsight.
The West really got China “wrong” by understanding the country’s arrival as a major power within the confines of its own—not China’s—historical experience. Because of that, we in the U.S. and the West talk and think about China the wrong way and craft policies mismatched to the deep historical trends shaping today’s China and its role in the world.
The key is to see the country as the Chinese see it and to place China within the context of its history, not ours in the West. With that, another China emerges that demands a different set of policies. Without this altered understanding of China, Washington policymakers will struggle to contend with Beijing and its intensifying challenge to American global primacy.
The problem starts in high school. Mine, in Clifton, N.J., offered the option of U.S. history or U.S. history. We learned about other parts of the world only when they drifted into the American narrative. China made an occasional cameo: John Hay’s Open Door Policy, or Chiang Kai-shek’s World War II alliance against Japan. A lot of us were probably taught history in a similar manner—through the prism of our own story.
Prisms, though, distort. It just so happens Americans encountered China at one of the darkest points in its history. China in the 19th and early 20th centuries was politically decrepit, militarily inept, economically archaic, and, as Westerners saw it, socially backward. We were left with an image of the country that at best was an unmodern realm of quaint rice paddies and silk-robed mandarins; at worst, a war-torn basket case drenched in destitution and decay.
Sure, we all know something of China’s glittering past—of bejeweled emperors, their grand palaces, and the engineering genius of the Great Wall. But that China is beyond our prism.
That skews the way we describe and discuss China today. We call it an “emerging market,” which it is within the boundaries of our own view. But twist the prism, and Chinese poverty is a fairly recent aberration. The country had consistently been one of the world’s largest economies over the past 2,000 years—and still was well into the 19th century. That’s why Westerners who visited China were awestruck by riches exceeding anything they’d witnessed in Europe.
When the first Portuguese seafarers made their way to Guangzhou in the early 16th century, they gasped at silk flags as large as sails. “Such is the wealth of that country,” reads one contemporary Portuguese account, “such is its vast supply of silk, that they squander gold leaf and silk on these flags where we use cheap colors and coarse linen cloth.”
Rather than something startling, China’s growth into the world’s second-largest economy is a return to the norm. So is the critical role it plays in modern manufacturing and trade. We grouse that China has “stolen” our factories and fret over how much stuff at Target is “Made in China.” Historically, though, the country had been a major manufacturing center and premier exporter, capable of producing valuable goods on a mind-boggling scale.
The Song dynasty (960-1279) experienced a near-industrial revolution seven centuries before England’s. Silk and porcelain, both Chinese inventions, were among the world’s first truly global consumer products, the iPhones of their age.
Centuries before Vasco da Gama felt his way to India in 1498, China was the beating heart of a global economic system, with trade links stretching from South China, across Southeast Asia and the Indian Ocean, to the Persian Gulf and Red Sea.
We also talk of the “rise of China” as if it’s astonishing and unique. Yet China has “risen” many times before. One of the most remarkable features of its history is how frequently the Chinese were able to rebuild their society into a major power after periods of decline, political disorder, and invasion. This latest period of weakness, with China subordinated to the Western world, hasn’t been all that long by the standards of Chinese history.
For the first 300 years of direct and consistent contact between China and the West—beginning in the early 16th century—the emperors retained the upper hand over the seaborne Europeans. It wasn’t until the Qing dynasty’s defeat by the British in the first Opium War (1839-42) that the balance of power swung to the West. From the standpoint of Chinese history, what’s unusual about modern Asia is the dominance of the West, not the return of China as a regional powerhouse.
A much better way to describe the country’s 21st century ascent is as a “restoration,” not so unlike the many imperial restorations of the past. The current regime, though not a dynasty topped by an emperor (at least officially), is rebuilding the traditional pillars of Chinese greatness—economic, political, military, and (less successfully) culturally—much like the Tang, Song, or Ming dynasties had in their day.
Thinking of modern China’s growing power as a restoration forces a shift in how we contend with it. We in the West discuss how to fit China into the global political and economic order we created. But China was never going to be content being a mere cog in the Western machine.
For much of its history, it sat at the center of its own world order, based on a distinctly Chinese form of foreign relations and governed by Chinese diplomatic ideals and practices, with roots dating back more than 2,000 years.
The Chinese rules of diplomacy and trade were based on the at least ceremonial stature of China as a superior civilization, perched at the top of a hierarchy of societies. Other kings and chiefs had to display their respect by giving tribute to the emperors, who then considered them vassals.
With the resurgence of Chinese political and economic clout, Beijing is resurrecting some of these traditional foreign policy precepts. President Xi’s pet project, the infrastructure-building “Belt and Road” initiative, treats its participants as little more than supplicants to the throne, which can benefit from China’s bounty only by playing by Beijing’s rules and performing the proper kowtows.
The first step in dealing with a Chinese restoration is to accept that China wants to be and most likely will be a global superpower. The notion that the U.S. can “stop” China is a nonstarter. Washington can slow things up by withholding technology and disrupting trade.
But the Chinese believe that, based on their history, they have a right to be a superpower, and an approach meant to “keep China down,” as they see it, will generate conflict but few tangible results. Similarly, efforts to compel China to “play by the rules,” as in our rules, are almost equally hopeless.
The Chinese perceive the Western world order as an imposition on an East Asia they’d usually dominated, so they’re far more likely to assert their own rules than follow ours.
A better route is to allow China more diplomatic space in areas where it doesn’t fundamentally damage U.S. interests. Washington has fallen into a pattern of contesting Beijing on everything, which makes the Chinese feel unduly contained. If Washington stops opposing their initiatives at every turn, and is occasionally even supportive, the Chinese will sense they’re getting the respect they deserve, at minimal cost to U.S. influence.
So if Beijing wants to set up its own international institutions, as it did with the Asian Infrastructure Investment Bank, just let it. Maybe even join, to sway the projects from within.
Ditto with Belt and Road. If Beijing wants to lose money and alienate other governments building uneconomic railways and roads, we should wish it the best. Still, today’s China does present a threat. Its history suggests Beijing will expect to be the dominant power in East Asia (at the very least).
That’s too vital a region to concede to China, and the U.S. will need to protect its core interests there. Best to do so with deft diplomacy through international organizations or alliances rather than vitriol-filled, one-on-one slugfests, as the Trump administration has attempted. A restored Chinese “empire” will likely be too strong, and too determined, to assert its normal position in Asia to be taken on alone.
For instance, to contain China in the South China Sea, which the Chinese consider to be almost entirely their territory, organize the contending parties in Southeast Asia into a collective and prod Beijing to negotiate.
Perhaps cooperate with the Association of Southeast Asian Nations as a possible forum. Working within the World Trade Organization to influence China, rather than outside of it, is also smarter. Chinese leaders badly crave international stature and acclaim, and that desire can be turned against them within these bodies to alter Chinese policy.
Most of all, a U.S. policy that recognizes Chinese history doesn’t equal a soft one. Washington must still target China’s bad practices, more carefully but also more forcefully. Chinese companies and officials with proven records of stealing technology or participating in human-rights abuses, such as the mass detention of minority Uighurs, should be sanctioned.
Duties ought to be slapped on Chinese exports that are unduly subsidized by the state. When possible, draft policies to deal with the risks China presents without making them blatantly anti-China.
For example, instead of banning Chinese apps such as WeChat, devise a broader policy to protect U.S. privacy and data from all possible foreign threats. The U.S. should continue to loudly proclaim support for civil liberties by backing Hong Kong democracy advocates and the democratic government of Taiwan.
Contesting these outrages are not a fight with “China,” but with the Chinese Communist Party. The party asserts the two are equivalent, but they aren’t. The scholar-statesmen who managed imperial China, steeped in Confucianism, believed good government was founded on benevolence, not brutality, and Chinese history’s most tyrannical rulers were usually looked upon with scorn by the Confucians. We should follow their lead.
I don’t believe in historical inevitabilities: Just because China has restored itself to great power status in the past doesn’t automatically mean it will now. Contemporary China is still a middle-income country lacking key technologies and plagued by an artificially aging population; it has a long way to go to become a global superpower.
Yet from a policy standpoint, it’s wiser to recognize the historical trends propelling it forward and rejigger the world order to address Chinese aspirations (though not its autocracy). It won’t be easy. But neither is denying history.
China To Reveal How It Plans To Grow Economy Into The 2030s
The first glimpse into China’s economic plans for the next five and 15 years will be unveiled Thursday when initial details are released on how the country will steer growth and develop industry in the face of an antagonistic external environment.
China’s Communist Party is expected to release two policy blueprints at the end of four days of closed-door meetings in Beijing: Their usual five-year plan and a longer strategy document that stretches until 2035. Facing heightened tensions with the U.S. and a virus-battered world economy, officials in Beijing are expected to chart a course that draws on domestic resources and consumption to guarantee growth.
The party’s Central Committee — a group of some 200 top leaders — usually release a broadly worded communique that will be fleshed out in the coming weeks before approval by China’s parliament next year. The plan will focus on technological innovation, consumption, pollution control and more promises to continue opening the economy to foreign competition.
Unlike the last five-year plan, which sought to achieve “medium-to-high growth” in order to build a “moderately prosperous society,” this plenum is expected to focus on the quality rather than the pace of growth, possibly even abandoning GDP targets. Investors and businesses are watching for signals on policies that may shape global demand.
“China realizes now it is vulnerable,” said Wang Huiyao, an adviser to China’s cabinet and founder of the Center for China and Globalization, referring to sanctions levied on Chinese companies. “So leaders have to be prepared for things like technology decoupling.”
The plan will be geared toward how to “handle aggressive foreign politics towards China and Chinese companies,” according to Iris Pang, Greater China chief economist at ING Bank NV. “Funds are going to flow into companies that can show their abilities to foster top-edge technologies.”
Typically, a broad outline of the proposals is released at the close of the meeting. More details emerge in the week after when state media release a comprehensive development plan. The full picture won’t come to light until the national legislature puts its own stamp on the plan this coming spring.
What Bloomberg’s Economists Say
“Growth is on track to be the slowest in the reform era, blunted by a trade war with the U.S. and the coronavirus pandemic. Technological, demographic and climate challenges call for strategic policy re-alignment touching many aspects of the economy.”
Chang Shu, Chief Asia Economist
China may also provide more concrete benchmarks to make good on the government’s pledge to build a “great modern socialist country” by the middle of the 21st century with 2035 as the mid-way mark. The flagship initiative of the last five-year plan was supply-side reform, which swept away swathes of outdated capacity in industries like steel and coal.
The plan also set goals to make breakthroughs in key technologies and help China become a talent-rich country for innovation, initiatives ongoing geopolitical tensions are expected to accelerate.
Away from the headline announcements, there will be other microeconomic changes that may take longer to push through, said Helen Qiao, chief Greater China economist at Bank of America.
“The directions of structural changes that the 14th five-year plan identifies will be the most important, although specific proposals of certain numerical goals or fiscal measures — inheritance tax, property tax and so on — may not be carried out within that time frame,” she said.
China’s Economy Set To Overtake U.S. Earlier Due To Covid Fallout
The Chinese economy is set to overtake the U.S. faster than previously anticipated after weathering the coronavirus pandemic better than the West, according to the Centre for Economics and Business Research.
The world’s biggest and second-biggest economies are on course to trade places in dollar terms in 2028, five years earlier than expected a year ago, it said on Saturday.
In its World Economic League Table, the consultancy also calculated that China could become a high-income economy as soon as 2023. Further cementing Asia’s growing might, India is set to move up the rankings to become the No. 3 economy at the end of the decade.
Chinese President Xi Jinping said last month it was “entirely possible” for his economy to double in size by 2035 under his government’s new Five-Year Plan, which aims to achieve “modern socialism” in 15 years.
China was the first economy to suffer a pandemic blow, but has recovered swiftly, according to government data. That should prompt Western economies to pay much more attention to what is happening in Asia, according to the report.
“Typically, we compare ourselves with other Western economies and miss out on what often is best practice, especially in the rapidly growing economies in Asia,” it said.
China Stocks Resume Drop As State Buying Fails To Lift Sentiment
The bearish mood prevailing in China’s stock market is proving a match even for state-backed funds, and casting a cloud over the Communist Party’s biggest annual political event.
The CSI 300 Index closed about 2.2% lower despite evidence that state-backed funds had intervened to shore up the market in morning trading. The news earlier helped the gauge erase losses of as much as 3.2%, before declines resumed in the afternoon. Kweichow Moutai Co., the stock that’s become an indicator of sentiment in China’s mutual fund industry, fell 1.2%.
The funds, known as China’s “national team,” had stepped in order to ensure stability during the National People’s Congress in Beijing, according to people familiar with the matter. A Hong Kong-based trader, who declined to be identified discussing client business, said entities linked to mainland funds were actively buying shares through stock links with Hong Kong Tuesday morning.
The CSI 300 has now plunged more than 14% from its Feb. 10 high in the biggest loss among global benchmarks tracked by Bloomberg. Declines have been led by the champions of the recent rally such as Moutai, which has fallen 26%.
The China Securities Regulatory Commission, which regulates the securities industry, didn’t immediately reply to a fax seeking comment on whether state funds were behind Tuesday’s moves.
Historically, Beijing has supported markets when needed around significant events or dates. On Friday, the first day of the NPC, the CSI 300 ended the day down 0.3% after falling as much 2%. Evidence of intervention includes buying through trading links with Hong Kong.
Authorities had in many ways encouraged the recent correction in stocks after the CSI 300 briefly surpassed its closing record last month. Officials repeatedly warned of asset bubbles and said that curbing risks in the financial system was this year’s key policy goal. Moutai, for instance, had surged 30% this year to be worth more than $500 billion, making it one of the world’s most valuable stocks.
With the CSI 300 entering a correction on Monday, and dropping below its 100-day moving average for the first time since May, it’s likely authorities decided the rout had removed enough froth. Slumps of 10% or more in the CSI 300 have occurred twice in the past two years, before the index bounced back each time. The Communist Party, which has long sought to cultivate a ‘slow’ bull market in equities, will need to do more to restore sentiment this time.
China’s Blockchain Ambitions Set In Stone After Mention In National Five-Year Plan
China’s latest five-year plan mentions blockchain technology specifically and signals an increasing focus on the research of emerging technologies.
China’s determination to stay ahead of the curve when it comes to the utilization of blockchain technology was evidenced again this week, after the release of the country’s latest five-year development plan.
The word “blockchain” was reportedly mentioned for the first time in the 14th of China’s regular five-year plans, which lay out the country’s economic priorities for the period from 2021 to 2025, according to local news outlet Pingwest.
China’s exploration into new technology has been unceasing in recent years. From its ongoing scheme to roll out a central bank digital currency to its utilization of digital biometric hardware wallets for the digital yuan, China’s is already regarded to be at the forefront of national currency issuance.
All of this is despite a general distrust of open-source, decentralized cryptocurrencies within China, as evidenced by the country’s bans on cryptocurrency exchanges and initial coin offerings.
The recent commencement of digital yuan payments in China’s Shanghai department stores, coupled with the rollout of ATMs in the Shenzen region, also align with China’s goal to have 65% of its population in urban areas by the end of the next five year period.
The country’s willingness to work with business enterprises in pursuit of this aim was evidenced recently when the China Merchants Port — the largest port operator in the country — partnered up with Alibaba to promote the integration of blockchain tech in the port industry.
The five-year plan was criticized in other areas, specifically for its lack of broader economic ambition, and a tendency to focus heavily on debt reduction. Contrasting with U.S. President Joe Biden’s recent decision to issue another $1.9 trillion as part of a COVID-19 stimulus package, China recently axed plans to launch a $140 billion package for the same purpose.
Technology spending is expected to contribute higher returns to China’s GDP in the coming years, with research and development spending slated to be increased 7% each year until the end of 2025.
China’s Slowing V-Shaped Economic Recovery Sends Global Warning
China’s V-shaped economic rebound from the Covid-19 pandemic is slowing, sending a warning to the rest of world about how durable their own recoveries will prove to be.
The changing outlook was underscored Friday when the People’s Bank of China cut the amount of cash most banks must hold in reserve in order to boost lending. While the PBOC said the move isn’t a renewed stimulus push, the breadth of the 50 basis-point cut to most banks reserve ratio requirement came as a surprise.
Data on Thursday is expected to show growth eased in the second quarter to 8% from the record gain of 18.3% in the first quarter, according to a Bloomberg poll of economists. Key readings of retail sales, industrial production and fixed asset investment are all set to moderate too.
The PBOC’s swift move to lower banks’ RRR is one way of making sure the recovery plateaus from here, rather than stumbles.
The economy was always expected to descend from the heights hit during its initial rebound and as last year’s low base effect washes out. But economists say the softening has come sooner than expected, and could now ripple across the world.
“There is no doubt that the impact of a slowing China on the global economy will be bigger than it was five years ago,” said Rob Subbaraman, head of global markets research at Nomura Holdings Inc. “China’s ‘first-in, first-out’ status from Covid-19 could also influence market expectations that if China’s economy is cooling now, others will soon follow.”
Group of 20 finance ministers meeting in Venice on Saturday signaled alarm over threats that could derail a fragile global recovery, saying new variants of the coronavirus and an uneven pace of vaccination could undermine a brightening outlook for the world economy. China’s state media also cited several analysts Monday saying domestic growth will slow in the second half because of an uncertain global recovery.
China’s slowing recovery also reinforces the view that factory inflation has likely peaked and commodity prices could moderate further.
“China’s growth slowdown should mean near-term disinflation pressures globally, particularly on demand for industrial metals and capital goods,” said Wei Yao, chief economist for the Asia Pacific at Societe Generale SA.
The changing outlook reflects the advanced stage of China’s recovery as growth stabilizes, according to Bloomberg Economics.
What Bloomberg Economics Says…
“Looking through the data distortions, the recovery is maturing, not stumbling. Activity and trade data for June will likely paint a similar picture — a slower, but still-solid expansion.”
— The Asia Economist Team
Domestically, the big puzzle continues to be why retail sales are still soft given the virus remains under control. It’s likely that sales slowed again in June, according to Bloomberg Economics, as sentiment was weighed by controls to contain sporadic outbreaks of the virus.
Even with the PBOC’s support for small and mid-sized businesses, there’s no sign of a broad reversal in the disciplined stimulus approach authorities have taken since the crisis began.
The RRR cut was partially to “manage expectations” ahead of the second-quarter economic data this week, said Bruce Pang, head of macro and strategy research at China Renaissance Securities Hong Kong.
“It also provides more policy room going forward, as the momentum of the economic recovery has surely slowed.”
China’s Tech Regulator Orders Companies To Fix Anticompetitive, Security Issues
Country continues crackdown on large technology companies with new six-month rectification program.
China’s main technology-sector regulator ordered the country’s internet giants to fix certain anticompetitive practices and data security threats, building on a regulatory campaign to reform how China’s largest tech companies operate.
China’s Ministry of Industry and Information Technology, which oversees China’s telecommunication and industry policies, said Monday that its new six-month rectification program was aimed at correcting a range of industry issues, including disrupting market order, infringing on users’ rights, mishandling user data and violating other regulations.
Monday’s release didn’t specify any businesses by name. But the ministry listed several infractions that have earned some of China’s largest tech platforms regulatory blowback in the past few months.
As a result of China’s regulatory crackdown, the country’s large tech companies have come under greater scrutiny this year for practices that previously went unquestioned. One such issue raised by the tech-sector regulator is the “malicious blocking of website links” to other company sites and products, which keeps competitors locked out of major tech ecosystems and has created hard lines between rival platforms.
That habit, once a core tenet of China’s tech industry, looks to be changing under the new regulatory environment. The Wall Street Journal reported earlier this month that China’s two most powerful tech companies, Alibaba Group Holding Ltd. and Tencent Holdings Ltd. , were working on opening up their services to one another’s platforms.
That could mean allowing users to utilize Tencent’s payment system on Alibaba’s e-commerce apps, or view Alibaba-sold products in Tencent’s social media apps.
Shares of Chinese tech companies declined Monday, hit by investor concerns over further regulatory action targeting the sector and other Chinese businesses. Tencent shares fell 7.7%, and Meituan dropped nearly 14%. Alibaba’s Hong Kong-listed shares declined by more than 6%.
“This announcement seems to indicate the MIIT will tackle, among other things, the interoperability and unfair competition issues,” said Angela Zhang, author of “Chinese Antitrust Exceptionalism” and an associate professor of law at the University of Hong Kong. “That means that Chinese tech giants will face pressures from yet another regulator.”
While the tech-sector regulator lacks some of the enforcement powers of the country’s main antitrust watchdog, it has the ability to impose low-level fines for violations and can ask firms to rectify their behavior, Ms. Zhang said.
The wave of regulatory backlash started last year with the cancellation of Ant Group’s blockbuster initial public offering, but has since ensnared other major tech companies, including e-commerce behemoth Alibaba, food delivery app Meituan, and most recently ride-hailing giant Didi Global Inc.
The tech-sector regulator said it held a virtual meeting last week with members of the internet industry, adding that the next steps for participants include self-examination and rectification, gathering information and strengthening legal enforcement and accountability.
The action is “intended to guide the formation of an open, interoperable, safe and orderly market environment, and promote the development of a standardized, healthy and high-quality industry,” Monday’s announcement said.
China Goes From Game Clampdown To Sports Boost And Stocks Soar
China’s beleaguered equity investors got some welcome relief Wednesday when the government’s latest policy agenda for a healthy nation spurred market gains after recent losses.
Shares of sneaker makers and other sports companies jumped as Beijing launched an effort to increase the numbers of fitness trainers and people exercising regularly over the next five years. Li Ning Co. rose 5.7% while Anta Sports Products Ltd. advanced 4.7%, with both Hong Kong-listed sportswear makers touching fresh highs intraday.
China’s plans to boost sports spending in the run-up to the 2022 Winter Olympics is providing a bright spot for frazzled traders who have seen a raft of new rules spark selloffs in a number of sectors from education to technology. President Xi Jinping’s attempts to address inequality in the Chinese economy is causing investors to rethink their playbooks for two of region’s biggest stock markets.
“We believe with increasingly sophisticated facilities and guidelines to call for sports participation, China is well positioned to grow its sports industry,” Goldman Sachs Group Inc. analysts including Michelle Cheng wrote in a note. The firm maintained a buy rating on Li Ning and Anta, saying both should benefit from industry growth and the “China-chic trend”.
The pledge to promote the sports industry stands in stark contrast to recent attacks on the education and technology sectors as China looks to rein in private enterprises it blames for exacerbating inequality, increasing financial risk and challenging the government’s authority. On Tuesday, state media attacked the “spiritual opium” of the video game industry, which sent shares of Tencent Holdings Ltd. and other related names tumbling.
The State Council plan reiterated a goal of boosting the sector to 5 trillion yuan ($774 billion) by 2025, a 70% increase from 2019 levels.
“It helps to fill in the vacuum left by the crackdown on the after-school education business,” said Zhang Zhiwei, chief economist at Pinpoint Asset Management. “It also helps to address the rising unemployment rate of the young population.”
China plans to increase the percentage of people participating regularly in physical activity to 38.5% by 2025, from 37.2% in 2020, according to the plan. That refers to doing exercises with a moderate intensity at least three times a week, with each session lasting at least 30 minutes.
Some other measures listed in the plan include building and renovating more than 2,000 sports parks, fitness centers and public sports stadiums, and cultivating a group of “specialized” small and medium-sized companies in the fields of fitness facilities, sports event organization and fitness equipment manufacturing.
Sportswear has been a safe haven this year as the crackdowns on fintech, real estate and overseas listings weighed on the broader market. Li Ning has surged more than 70% and Anta almost 50%, crushing the performance of the Hang Seng Index which is down 3%.
The sports sector has also benefited from a wave of nationalism in response to to the Xinjiang cotton controversy and excitement over the return of the Olympics and other sporting events.
Among other stocks getting a boost Wednesday, retailer Topsports International Holdings Ltd. jumped 7.8% in Hong Kong. On the mainland, Lander Sports Development Co., China Sports Industry Group Co. and Jiangsu Jinling Sports Equipment Co. all jumped by their daily limits.
China Signals More Regulation for Businesses In Coming Years
China released a five-year blueprint calling for greater regulation of vast parts of the economy, providing a sweeping framework for the broader crackdown on key industries that has left investors reeling.
The document, jointly issued late Wednesday by the State Council and the Communist Party’s Central Committee, said authorities would “actively” work on legislation in areas including national security, technology and monopolies. Law enforcement will be strengthened in sectors ranging from food and drugs to big data and artificial intelligence, the document said.
“The people’s growing need for a better life has put forward new and higher requirements for the construction of a government under the rule of law,” it said. “It must be based on the overall situation, take a long-term view, make up for shortcomings, forge ahead, and promote the construction of a government under the rule of law to a new level in the new era.”
Investors have been seeking to make sense of a regulatory onslaught in recent weeks that has roiled markets, particularly after authorities banned profits in the $100 billion after-school tutoring sector. Over the past year Chinese authorities have launched anti-monopoly probes into some of the nation’s largest tech companies such as Alibaba Group Holding Ltd., while also mandating cybersecurity reviews for foreign listings — a measure that has created problems for Didi Global Inc.
“We can’t draw too much insight about enforcement and the potential shape of crackdowns from one document or another,” said Graham Webster, who leads the DigiChina project at the Stanford University Cyber Policy Center. “Much depends on what bureaucrats and their higher-ups land on in terms of priorities month after month.”
The outline released Wednesday is an update of an earlier plan that ended in 2020. In an explanatory Q&A, officials responsible for the document highlighted the need to modernize national governance, build digital governance and increase the public’s overall level of satisfaction.
* “Actively promote legislation” in areas such as national security, technological innovation, public health, culture and education, ethnic religion, biosecurity, ecological civilization, risk prevention, anti-monopoly, and foreign-related issues.
* “Intensify law enforcement in key areas related to the vital interests of the people” including food and medicine, public health, natural resources, ecological environment, safety production, labor security, urban management, transportation, financial services, education and training.
* Ensure “healthy development of new business forms” with “good laws and good governance” related to digital economy, Internet finance, artificial intelligence, big data, cloud computing and other related legal systems.
* Strengthen the execution of administrative decision-making: “Once a major administrative decision has been made, it shall not be arbitrarily changed or suspended without legal procedures.”
* Use the internet and big data in law enforcement: “Strengthen the construction of the national ‘Internet + supervision’ system, and realize the integration and aggregation of data from supervision platforms by the end of 2022.”
* Promote openness in government affairs: “Adhere to openness as the normal, non-openness as the exception, and have the government become more open and transparent to win more understanding.”
While many of the sectors named have been mentioned in previous announcements, the addition of food and drugs was new and could make investors nervous until new regulations are defined, according to Gary Dugan, chief executive officer at the Global CIO Office.
‘Long Time for Investors to Fret’
“A five-year term to the crackdown at least gives definition to the time extent of the regulatory reset,” he said. “However, it will be a long time for investors to fret about pending changes.”
Investors have been dumping shares of sectors that receive criticism in state media, from digital gaming and e-cigarettes to property and baby formula. Alcohol-related stocks were the latest to take a hit on Tuesday, falling after the Communist Party’s anti-graft watchdog called for a reduction of business drinking after a sexual assault case involving Alibaba employees.
China’s banking and insurance watchdog ordered companies and local agencies to curb improper marketing and pricing practices, and step up user privacy protection, according to a notice seen by Bloomberg News. It encouraged companies to address these issues voluntarily and said those that failed to comply would face “severe punishment.”
ZhongAn Online P&C Insurance Co. fell as much as 14% to its lowest since Jan. 18, while the sector bellwether Ping An Insurance declined 1.9%.
The CSI 300 Health Care Index dropped 1.5% while a gauge for consumer staples stocks fell 2.6%. The benchmark equity gauges in Hong Kong and China saw small declines compared to their recent wild swings.
Some analysts welcomed the blueprint as an attempt by Chinese authorities to help investors understand the motives behind the regulatory push.
“The State Council’s statement provides a guiding context to interpret current regulatory thrusts,” said Michael Norris, an analyst with Shanghai-based consultancy AgencyChina. “In our view, investor concerns are driven less by proposed regulations’ substance, and more by cadence and communication. We view this announcement as doing a better job telegraphing future regulatory hotspots.”
China Goes After Online Insurance In Widening Crackdown
China’s banking and insurance watchdog is stepping up scrutiny of the nation’s insurance technology platforms, widening a regulatory dragnet that has roiled global investors.
The regulator has ordered companies and local agencies to curb improper marketing and pricing practices, and step up user privacy protection, according to a notice seen by Bloomberg News. It encouraged companies to address these issues voluntarily and said those that failed to comply would face “severe punishment.”
The sweeping order goes beyond the targeted action that’s hit a few listed online platforms including Waterdrop Inc. and operations backed by Ping An Insurance Group Co. in the months since China began a broad crackdown on its fintech sector this year. It has also moved to rein in some of its biggest technology companies, as well as edtech, ride-hailing and short video platforms.
The latest move will stymie growth in an industry that had been expected to grow to 2.5 trillion yuan ($385 billion) in a decade. The China Banking and Insurance Regulatory Commission didn’t immediately respond to a request seeking comment.
“In recent years, online insurance has moved into a fast lane. At the same time, transgressions have been rampant,” according to the notice, which cited offenses including some internet platforms illegally operating in insurance, mispricing risks or illicitly using client information. It called for “immediate rectification and regulation.”
U.S.-listed insurance platform Huize Holding Ltd. fell 5%, the most in two weeks, after Bloomberg reported the notice. Insurance agency and platform Fanhua Inc. dropped nearly 6%. Ride-hailing service Didi Global Inc., which operates a fledgling financial services business, declined 3.7%. Shares of ZhongAn Online P&C Insurance Co. slid 11.5% in Hong Kong.
Investors across China’s online space will need to brace for further ructions after a year in which technology darlings from Alibaba Group Holding Ltd. to Tencent Holdings Ltd. and Didi have been hit by a blizzard of regulatory action. The State Council on Wednesday warned of more legislation to come in areas including national security, technological innovation as well as anti-monopoly.
Just a year ago, insurance seemed ripe for disruption as startups vowed to transform traditional practices with technology. Regulators have since moved to shutter some operations including mutual aid healthcare platforms operated by Waterdrop and Ant Group Co. A draft circular in January may potentially bar companies from selling certain insurance products if enacted.
The overhang presents multiple challenges for Waterdrop, which was one of a few Chinese fintechs to have pulled off an initial public offering this year. The company has warned it “may not be able to achieve or maintain profitability or positive cash flow in the future” after incurring net losses and negative cash flow each year since its inception in 2016. It lost $101 million last year after generating operating revenue of $464 million.
Investors and companies have poured an estimated 45 billion yuan ($7 billion) into insurance technology, according to estimates from online consultant iResearch.
What Bloomberg Intelligence Says
China’s crackdown on marketing, pricing and fees for online insurance products should be good for industry leaders such as ZhongAn in the long term we believe. Better consumer protection supports more-sustainable industry development and competition on service quality and product innovation rather than via pricing and misleading ads.
– Steven Lam, Analyst
By the end of 2020, more than 140 insurance companies in China had started online insurance businesses, with total premiums of 298 billion yuan for the year, or 6% of the industry total, a CBIRC official said in a speech in May.
China Halts Approvals For New Residential Real Estate Funds
China is halting private equity funds from raising money to invest in residential property developments, turning off the spigot on one of the last stable funding resorts for the struggling sector.
The government-endorsed Asset Management Association of China, or AMAC, has verbally informed private equity firms it would no longer be accepting the required registrations to set up funds to invest in projects, people familiar with the decision said, requesting not to be named because the matter is private. Applications that have already been made would also be denied, while existing funds wouldn’t be affected, the people said.
The suspension adds to the challenges for Chinese property developers after regulators tightened funding channels including bank loans and trust funding as part of a campaign over the past years to reduce risks.
Some of the nation’s largest developers, such as China Evergrande Group, are struggling under massive debt loads built up during boom years in China’s property market and the sector is now driving a record surge in defaults in China’s bond market.
Yuzhou Group Holdings Co. fell as much as 6.2%, the most in more than two weeks. Evergrande has been one of the companies that’s been battered by tightening funding in recent months, losing 61% of its value this year.
As traditional avenues of funding were choked off, real estate companies turned to private equity funds backed by high net worth individuals and institutions to raise money, often using land or cash flow income from the project sales as guarantee. Most of the issuers of property funds are local companies.
Investment into real estate-focused private equity funds stood at 843 billion yuan ($130 billion) by 2020, 13.5% of the total sector, according to a report by AMAC.
Sequoia’s China Portfolio Hits Speed Bump After Tech Crackdown
The venture firm has exposure to the online education sector that regulators have choked, and investors worry its other holdings could be next.
Sequoia Capital and its Beijing affiliate have spent over a decade scattering more than $10 billion across China’s multitude of startups, backing the likes of ByteDance Ltd. and JD.com Inc. while becoming a powerhouse brand among the venture firms aiming to strike it rich there.
Now, the prospects for investments in that country are mired in uncertainty, as regulatory actions on both sides of the Pacific squeeze China’s technology industry and create unpredictability for its financial backers.
Sequoia remains optimistic about China over the long term, according to people familiar with the matter, and continues to be highly profitable there.
It helps that the health-care industry, which has not yet been a focus of Beijing’s recent crackdowns, represents about a third of Sequoia Capital China’s roughly 600 portfolio companies and around half of its initial public offerings for the first six months of this year. But the cascade of policy changes makes for delicate strategic maneuvering in a region that offered Sequoia and its rivals seemingly unbound financial promise not long ago.
A key issue for Sequoia in China is a July overhaul of rules for education-technology companies, which now ban some of these businesses from taking foreign capital and require them to become nonprofits.
Sequoia has some of the biggest exposure to China’s education-technology sector among venture firms, according to researcher Preqin. It has invested in Huohua Siwei, which was valued at $1.5 billion this year, according to local media, and Zuoyebang, which fetched a $3 billion valuation in 2018.
Sequoia China, which operates largely separately from Silicon Valley-based Sequoia Capital, is still weighing what to do with those investments, according to a person familiar with the matter. Both Huohua Siwei and Zuoyebang might have to spin off units that include out-of-school tutoring classes for younger students, a potentially drastic change to their business models. Another portfolio company, VIPKid, said recently it would stop selling classes in China that are led by instructors based outside the country.
Foreign investment within the education sector has been no secret. So Beijing’s move on that industry “fits the overall more confrontational stance of the government to take on the U.S. and assert its dominance as the global superpower,” said Ayako Yasuda, a professor of finance at the University of California, Davis. That, in turn, “puts U.S. VCs active in China, like Sequoia, in a complicated position.”
New Business Terrain
While the education-technology rules present the most immediate challenge, they are just one component of a multi-step crackdown in China as the government aims to tighten its grip on some of its splashiest businesses. Officials have moved to investigate everything from monopolistic practices to data security and user privacy protection. Ride-hailing giant Didi Global Inc., for example, is undergoing a security review during which it is unavailable for download in China.
Sequoia only holds a small stake in Didi, but some other companies in which it is a larger shareholder have had their own problems. JD.com’s financial affiliate is undergoing overhauls per demands from regulators. TikTok parent ByteDance is working to ensure it complies with data-security requirements before going public, an undertaking that comes after meetings with Chinese government officials over the issue earlier this year, people familiar with the matter have said.
Meanwhile, the U.S. has stepped up scrutiny of Chinese companies that want to list on New York exchanges, including a new requirement for them to disclose whether they received permission from Chinese authorities to do so. That decision was made after Didi was put under review by Chinese regulators and after it emerged that Didi was advised by China’s cyberspace authority not to go public in the U.S.
Sequoia is just one of many investment firms navigating new business terrain in China. Coatue Management, SoftBank Group, Lightspeed China Partners and DST Global are among the entities with stakes in some of the same Chinese companies as Sequoia. Still, Sequoia China stands apart. It started investing in the country years before most and still invests at very early stages. The strategy has led to it owning large stakes in high-profile Chinese IPOs.
This positioning makes for an unenviable task for Neil Shen, the investment guru who has run Sequoia’s China presence since 2005. While many rival firms have committees outside China that approve or nix investments there, Sequoia China is one of the few with its partners making their own on-the-ground decisions.
Shen has overseen a series of China-focused funds, including the recently raised Sequoia Capital China Growth Fund VI and Sequoia Capital China Venture Fund VIII. Together, those two funds raised more than $4 billion, according to a person familiar with the matter.
Shen has adeptly managed relationships with startup founders, Chinese officials and a global investor base. Now, as even the most successful Sequoia portfolio companies are getting caught up in the crackdown, investors are wondering whether his connections with government bureaucrats will provide much value and how much protection from investigations and draconian rule changes, if any, Sequoia China’s portfolio companies might receive.
Shen, along with U.S.-based Roelof Botha, has been considered a contender to become the de facto leader of the firm, taking the mantle from Doug Leone. If he is unable to successfully manage the portfolio through this moment of tumult, it could hurt Shen’s chances.
The firm has made no announcements or decisions on its succession plans, and for now, Shen is in good standing, with the China funds showing solid returns, according to a person familiar with the situation. Sequoia China and Sequoia Capital declined to comment for this story.
A ‘Complicated Dance’
Sequoia’s China portfolio is important to the company’s wider business ecosystem. Sequoia is an umbrella brand for three different venture entities: one focused on China, another on the U.S. and Europe, and a third for India and Southeast Asia.
The China portfolio companies account for a sizable chunk of the venture capital behemoth’s global growth funds — for one such fund, more than half. Generally, money from that pool of capital is used to provide large follow-on investments into existing Sequoia-backed companies. The firm raised its third global growth fund, of $8 billion, three years ago.
Limited-partner investors typically commit to multiple Sequoia funds. Yasuda, the UC-Davis professor, said the latest regulatory changes may nudge Sequoia to make less effort to jointly market its funds, as some U.S.-based investors reconsider how much they want to back Chinese companies.
At the same time, Yasuda suspects others will see China’s distancing from the U.S. as a reason to invest there more, as a hedge against any relative U.S. weakness.
“There is a tension between the two ways of thinking, and that again adds to the [venture firms’] complicated dance,” she said.
For now, investors worry about whether China’s crackdown will end up engulfing an even wider swath of consumer-oriented companies, and that it won’t matter how carefully CEOs cultivated government officials and endorsed Communist Party rhetoric in the past.
Tencent Holdings Ltd., a company known for being compliant with government demands, was still fined for anti-monopoly practices and accused by state media of inducing gaming addiction.
The government’s latest moves have been enough to give at least one prominent investor cold feet. On a recent earnings conference call, SoftBank CEO Masayoshi Son told analysts, “We don’t have any doubt about future potential of China, but again new rules and new regulations are beginning to be implemented. So until things get settled, we want to wait and see.”
Lines of communication between big-name firms and top government officials are still open, people familiar with the situation said. Still, many officials not directly authorized to talk with investors and entrepreneurs have stopped responding to overtures and phone calls, a change from the past when many bureaucrats would help smooth startup paths.
Yet another fresh hurdle for the venture firms could come from China’s entrepreneurs, some of whom are starting to say quietly that taking money from top players like Sequoia will hurt more than it helps, because those firms are so high-profile that their investment attracts intense scrutiny from regulators.
About one-third of China deals by value include U.S. investor participation, according to PitchBook, a percentage that has held fairly steady over the past five years. In 2020, some $25 billion in venture-capital fundings in China included participation by U.S. investors, according to PitchBook. This year through Aug. 2, some $20 billion in deals have included U.S. participation, with almost five months left in the year.
Investors in venture funds with China exposure said the funds largely have not publicly criticized the regulatory moves, perhaps mindful that any letter or email might be read by Chinese officials and could lead to negative repercussions. The firms are often trying to put a good spin on the situation, telling investors, for example, they anticipate pressure will ease over time.
“Those who know aren’t talking,” said one investor in several affected funds, who declined to be identified because the situation is sensitive. “And those talking have no clue.”
China Has Thousands of Hydropower Projects It Doesn’t Want
As President Xi Jinping calls for greater environmental protection, officials are eager to demolish badly-planned dams. But the country will need vast amounts of clean hydroelectric power to meet its net-zero goal.
China is trying to wean its massive economy off coal and fossil fuels to meet its ambitious goal of becoming carbon neutral by 2060. So why is it trying to shut down as many as 40,000 hydropower plants?
The answer lies deep in the nation’s troubled history of trying to control its rivers. Ever since Chairman Mao Zedong exhorted workers in the 1950s to “conquer nature,” China has been throwing up dams large and small at a prolific rate to generate power, tame flooding and provide irrigation for fields and drinking water for cities. The long-term effects of that often chaotic policy are now coming home to roost.
Many dams in the country are too small to generate meaningful amounts of power. Others have simply become redundant as their rivers ran dry, their reservoirs silted up or they were superseded by dams built upstream. “For a long time, people thought it was a waste to let the river just run away in front of you without doing something,” said Wang Yongchen, founder of Green Earth Volunteers, a Beijing-based non-governmental organization that focuses on river protection.
In a western suburb of Beijing, one of the nation’s most famous early hydropower projects is being turned into a tourism site. Workers are busy paving roads and beautifying houses at a new “ancient business street” near the retired Moshikou station.
Built in 1956, the 6,000 KW project in Shijingshan, Beijing’s former industrial center, was the first big automated hydro station designed and built independently. It was constructed on a diversion canal of Beijing’s “mother river,” the Yongding, the capital’s main source of drinking water until the water became too polluted in the 1990s, and was a source of pride for the new People’s Republic.
Moshikou never officially ceased operation. It just gradually stopped generating power, a victim of worsening droughts in the north of the country and increasing demands on its waters from towns and villages upstream that built hundreds of barriers to harvest its water. More than 80 water conservancy projects were built in the Beijing region alone, according to Chinese local media.
By the 2010s, the river was running dry an average of 316 days a year.
“The weather in Beijing has changed,” said Jin Chengjian, 60, who spent all his life in Shijingshan district. “As a child, I often swam in the diversion canal near the station. Now, the water gets less and less, and dirtier and dirtier.”
Moshikou’s proximity to the capital has given it a new lease of life, but many of China’s old dams have not been so fortunate. In Weizishui village, 90 minutes’ drive upstream, a 68-meter tall concrete dam was completed in 1980 to control flooding. It took six years to finish and was never needed once.
“Bad planning,” said local villager Gao, 75, who like many Chinese people declined to give his first name. “It could just collapse one day, so I never go too close.”
Last year, the government blocked the only access route to the dam for “virus prevention.” The structure had been attracting social media pundits who compared it with the Hoover Dam in doomsday movies.
The scale of China’s dam-building frenzy is hard to grasp. By the end of 2017, China’s longest river, the Yangtze, and its tributaries had more than 24,000 hydropower stations spread over 10 provinces. At least 930 of them were constructed without an environmental assessment.
Many old dams pose serious safety threats, especially during summer floods. According to China’s Ministry of Water Resource, 3,515 reservoirs burst between 1951 and 2011. They include the infamous Banqiao dam in Henan province which, along with another 61 dams, broke after six hours of torrential ran in August 1975, killing 240,000 people.
Dams still fail in China. Earlier this year, two in Inner Mongolia gave way in heavy rain. In floods that killed more than 300 people in Henan this summer, the army warned that the Yihelan dam “could collapse at any time.”
Large dams and their reservoirs are also increasingly criticized for environmental damage. They alter the flow of rivers, submerge habitats and disrupt the migration and spawning of fish. Since the mighty Three Gorges Dam was completed on the Yangtze in 2006 after two decades of construction, several lakes downstream that absorbed the river’s overflow, have shrunk dramatically or disappeared.
China continues to build big water projects, including the 16GW Baihetan hydropower project that opened in time for the Chinese Communist Party’s 100 anniversary this year. But the government has said it wants to halt the development of smaller ones.
In the 13th Five Year Plan for the hydropower industry starting 2016, the government for the first time said it would “strictly control the expansion of small hydropower stations” to protect the environment. In 2018, after Xi visited the Yangtze region and Qinling mountains in the northwest and called for better environmental protection, a national campaign was launched to remove or improve 40,000 small hydro stations.
“Our rivers are over-exploited after decades of constructing without proper planning,” said Ma Jun, director of the Institute of Public & Environmental Affairs.
But proponents of hydropower say more is needed, not less, to help wean the country off fossil-fuel energy. “Provinces are applying the ‘one size fits all’ approach now, and officials consider demolishing large amount of projects as an achievement in their careers,” said Zhang Boting, deputy general secretary of the China Society for Hydropower Engineering.
“It should not be like this. We should remove coal projects first, not hydropower which China needs to become carbon neutral.”
A further problem is who will pay to get rid of the unwanted projects. Closing down a hydropower plant is one thing, but removing a dam, especially a large and potentially dangerous concrete structure, is a major engineering project.
Zhouzhi county in Shaanxi province in the northwest owes over 100 million yuan ($15.5 million) to a company that agreed to demolish three hydro stations. The county’s revenue for the first half of 2020 was only 135 million yuan, and it has another 26 hydro plants that need to be removed. In many places, due to the costs of demolition, only the hydroelectric turbines have been removed. The dams remain.
“China benefited so much from decades of water conservancy projects,” said Ma, from the Institute of Public & Environmental Affairs. “Maybe it’s time for the industry to pay back for the environmental restoration.”
Few of the projects enjoy the government funding and attention lavished on Moshikou, the future tourist attraction, which is part of a Yongding River Culture Belt being built by Beijing. Among the belt’s famous industrial sites is the Beijing Capital Steel Factory, once the nation’s biggest steel mill and now home to the 2022 Winter Olympic Games Committee.
On a weekday morning, people jog and play badminton in the park or fish in the dam’s Sanjiadian reservoir. Antique sellers set up stalls beside the old hydropower station, repainted in white and cream for the Party’s centenary.
The reservoir is full again, not because the Yongding River has recovered, but because of an almost $4 billion water diversion project to “restore the ecological environment.” The water comes from the Yellow River, the country’s second-longest waterway. It’s also one of the most stressed bodies of water in the country, and tends to run dry.
“The government has spent a lot of money, but only to solve superficial problems — to make the river look good, rather than addressing the ecosystem,” said Wang. “We shouldn’t solve one river’s problem by putting pressure on another river that’s also in trouble.”
China Unveils New Rules Targeting Anticompetitive Practices by Internet Companies
Part of a recent wave of regulatory action, the draft guidelines detail prohibited behaviors such as blocking rival products and discriminatory pricing.
China issued new draft guidelines that would prevent its internet companies from engaging in anticompetitive practices such as unfairly blocking rival platforms, extending Beijing’s efforts to rein in the powerful technology sector.
The guidelines, released by China’s State Administration for Market Regulation on Tuesday, include a detailed list of prohibited behaviors that regulators said could harm internet users and limit market competition, including controlling user traffic, blocking competitors’ products and discriminatory pricing.
It’s the latest in a wave of regulatory actions over the past year, as government officials pressure Chinese tech giants and other companies to overhaul their operations, embrace competition and emphasize social good.
Shares of Chinese tech companies declined Tuesday, extending a monthslong slump driven by heightened regulatory oversight. Alibaba Group Holding Ltd. fell 4.8% and Tencent Holdings Ltd. more than 4%, while short-video specialist Kuaishou Technology, video and gaming group Bilibili Inc., and search giant Baidu Inc. fell to record lows. The Hang Seng Tech index in Hong Kong, which includes Tencent and Alibaba stocks, has declined some 40% in the past six months.
The market regulator said the new guidelines targeting internet companies were intended to clarify an existing law on unfair competition. China also finalized new antimonopoly rules for online platforms this year.
Angela Zhang, author of “Chinese Antitrust Exceptionalism” and an associate professor of law at the University of Hong Kong, said the guidelines would allow China’s antitrust regulator to move more quickly to regulate the digital economy. It would streamline the procedure to target such issues by requiring a lower burden of proof compared with the current framework, she said.
The list specifically mentions several practices in China’s tech sector that have been the subject of recent regulatory criticism and action, including forced exclusivity and the blocking of competitors’ links.
Alibaba was hit with a record antitrust fine of $2.8 billion this year over a practice known as “er xuan yi,” or “choose one out of two.” An investigation by Beijing’s top market regulator found the e-commerce company had abused its dominant market position by forcing vendors to exclusively sell on its platform. Food-delivery giant Meituan is now under investigation for the same practice.
The habit of blocking traffic to competitors and external sites has also come under scrutiny as an impediment to market competition, prompting some major tech companies to contemplate changes. Previously, a Tencent platform such as its social-messaging app WeChat generally wouldn’t allow links to rival Alibaba’s platforms—for example Alipay for payments or Taobao for shopping—and vice versa. Now the two rivals are considering lowering those barriers.
The draft guidelines, which are open for public feedback for a month, stipulate that operators cannot use data, algorithms or other technical means to influence a user’s choices or access to another operator’s products or services. That could include tricking users to click on their own offerings over competitors’, adjusting search rankings, or installing and running software without the user’s knowledge or consent.
Operators would also be banned from charging varying prices for a single product to different consumers based on their transaction history, shopping habits, credit or other personal data that the operators have collected.
Chinese companies have rushed to comply with shifting requirements from regulators, pledging to fix outstanding issues and follow new rules. Outside of e-commerce, officials have targeted other industries in their regulatory campaign to rein in businesses such as education and financial technology.
China’s Communist Party Goes Back To Basics: Less For The Rich, More For The Poor
President is signaling plans to more assertively promote social equality, with the catchphrase ‘common prosperity’ appearing everywhere
China gave priority to economic growth for most of the past 40 years. Now, Xi Jinping is signaling plans to more assertively promote social equality, as he tries to solidify popular support for continued Communist Party rule.
The push is captured by a catchphrase, “common prosperity,” now appearing everywhere in China, including in public speeches, state-owned media and schools—and in comments from newly chastened business tycoons like Jack Ma.
Like many Communist party slogans, details remain vague. But officials and analysts who have tracked the phrase’s use say it is meant to convey the idea that leaders are returning to the party’s original ambitions to empower workers and the disadvantaged, and will limit gains of the capitalist class when necessary to address social inequities.
In a major meeting on financial and economic affairs Tuesday, President Xi described the wider goal of “common prosperity” as an “essential requirement of socialism.”
The government needs to “encourage high-income people and enterprises to give back to society more” and to “create opportunities for more people to become rich,” state-run Xinhua News Agency cited an official report of the meeting as saying.
The new policy priority is a factor in China’s recent clampdowns on powerful technology companies and other businesses whose growth and market clout are seen as contributing to social divides, experts and industry insiders say. The moves include fines for companies like Alibaba Group Holding Ltd. for antitrust failings, and a declaration that after-school tuition should become a not-for-profit industry to reduce families’ education costs.
The government’s messaging could also mean more rule changes are coming in areas such as healthcare, pensions and social welfare, they say.
The push builds on earlier announcements by Chinese leaders, who have been trying to focus more on quality of growth as they address downsides of rapid development like environmental pollution. When Beijing unveiled a new five-year plan this year in the midst of the Covid-19 crisis, it abandoned the long-term tradition of setting a numerical gross domestic product target, a sign it wants to play down emphasis on growth for growth’s sake.
“Xi Jinping is seeking to rebrand the Communist Party’s image domestically and internationally” by reducing income gaps and shifting to higher-quality development, said Bill Bikales, a former senior economist for the United Nations in China. “He wants this to demonstrate that socialism is better than Western capitalism in caring for all the population.”
How wealth is distributed has always preoccupied the party, though its views have morphed over the years. Mao Zedong once branded capitalists as enemies of the Chinese people. In the 1980s, Deng Xiaoping said it was OK to “let some people get rich first” as China embraced market reforms, though he also highlighted the need for wealth to be spread across society eventually.
Unequal wealth distribution is now a major concern. While living standards have risen dramatically in China, the country’s Gini-coefficient, a measure of inequality, widened to 70.4 in 2020 from 59.9 in 2000, making China one of the world’s most unequal major economies, according to data from Credit Suisse.
Premier Li Keqiang made a stir last year when he revealed that more than 600 million people, or over 40% of China’s population, had monthly income under $140, while many Chinese complain privately about the sway of rich business tycoons.
The phrase “common prosperity,” though not totally new, started appearing much more widely after China said last year that it had succeeded in eradicating extreme poverty, achieving a longstanding goal of becoming what it called a “moderately prosperous society.”
In a February speech celebrating that achievement, Mr. Xi highlighted reaching “common prosperity” as the next stage of China’s development.
Around that time, Mr. Ma, co-founder of Alibaba and fintech giant Ant Group, made his first public appearance after authorities shut down Ant’s planned initial public offering, and said it was entrepreneurs’ responsibility to “work hard for rural revitalization and common prosperity.”
In June, Mr. Xi picked eastern Zhejiang province, where he once served as a top leader, as a “common prosperity” pilot zone. Under the plan, the province aims to lift average per capita disposable income to 75,000 yuan, equivalent to $11,600, by 2025, from around 52,000 yuan in 2020.
The plan also pledges to narrow the gulf between rich and poor and reform income allocation by adjusting “excessively high income,” cracking down on illegal gains and encouraging businesspeople to expand philanthropy.
Yuan Jiajun, Zhejiang’s party boss, said the province is trying to showcase to the rest of the country that it is possible to close gaps between regions and in people’s incomes. He also tried to reassure the business community that the program isn’t about “kill the rich and help the poor,” according to state media.
Investment bankers, bloggers and Chinese entrepreneurs have zeroed in on the “common prosperity” theme, seeking to explain its implications.
In a 50-plus page report released earlier this month, Morgan Stanley economists noted that China’s new emphasis on “getting rich together,” or “common prosperity,” would likely mean further regulatory headwinds for companies in sectors associated with rising social inequality, and more support for businesses linked to healthcare and green energy.
“Compared with just five years ago, China’s leadership is paying a lot more attention to social equality,” said Larry Hu, chief China economist at Macquarie Group. In addition to cracking down on tech companies like Ant, which regulators accused of luring young people into debt traps, he said Beijing’s priorities now include diverting more financial support to poorer regions and taming property prices.
Gaming and social-messaging company Tencent Holdings Ltd. said in April that it would spend $7.7 billion toward curing societal ills and lifting China’s countryside out of poverty. More recently, Meituan founder Wang Xing donated a $2.3 billion stake in the Chinese food-delivery giant to his own philanthropic foundation to fund education and science.
On Wednesday, Tencent, after posting a quarterly net profit equivalent to $6.57 billion, said it would donate another $7.7 billion to promote projects related to “common prosperity,” including healthcare and education. “This new strategy of Tencent is also a positive response to the national strategy,” the company said in a statement.
Mr. Xi was already envisioning a shift toward more emphasis on social equality before he took power in 2012, as a once-a-decade power struggle within the party entered its final days, according to people familiar with his thinking.
The debate was expressed publicly through obscure talk about cake, a metaphor for China’s wealth, these people said.
Some officials argued for first making the cake bigger and then distributing it. Others, including Bo Xilai, a party chief in Chongqing who was seen as a contender for higher office before being sentenced to life imprisonment for corruption and abuse of power, insisted on first distributing the cake more equally before making it bigger.
Mr. Xi, who was vice president at the time, didn’t agree with either group, the people said. He said that his goal was to both make a bigger cake while also distributing it equally and that one shouldn’t contradict the other.
More recently, China’s relatively strong recovery from the Covid-19 pandemic has given the country’s leadership more flexibility to pursue its longstanding social goals, after addressing other priorities like corruption, experts say.
The end of Mr. Xi’s second term in office—and his expected push for a third term in a power reshuffle next year—may be adding some urgency to the “common prosperity” push, especially with growth now starting to slow.
“Xi is hoping to calm the public as the economy slows down and intends to appear concerned about popular livelihoods,” said Dorothy Solinger, a professor emerita of political science at the University of California, Irvine.
But “there are still many forgotten poor people in China who’ve been left out and will continue to be.”
Chinese Academics Call For Wealth Tax To Redistribute Income
Chinese academics in a province that’s piloting measures to reduce income inequality said the government should impose wealth taxes, including on property and inheritance.
In a front-page article published Thursday by the official Economic Daily newspaper, two researchers at Zhejiang University argued that the taxes would help adjust the earnings of high-income groups and narrow the income gap. Li Shi, a professor, and Yang Yixin, a researcher, said the taxes should be imposed at an appropriate time to promote “common prosperity.”
Zhejiang province, home to Alibaba Group Holding Ltd. and known for its active private sector, was selected as a pilot zone to test policies to help reduce inequality. It’s part of the government’s broad push to ensure more people share in the wealth of the country.
The academics said residents’ tax burden is not light, and any wealth taxes should be introduced on condition other taxes are reduced or the overall tax rate is lowered.
The government should also continue to reform the compensation system at state-owned and monopolistic industries, they said. It should also create an environment conducive to the development of the philanthropic industry, and guide high-income groups to become the backbone of it, they said.
Zhejiang province aims to have 80% of all households earn an annual disposable income between 100,000 yuan ($15,413) to 500,000 yuan by 2025, according to a detailed plan published last month. Such families only accounted for half of all households in 2020 and were mostly in cities, according to the researchers’ estimate.
China Is Blocking Fleeing Hong Kongers From Getting Their Retirement Money
HSBC, Manulife and AIA are among financial institutions embroiled in a fight over billions of dollars in savings in retirement accounts.
As tens of thousands flee Hong Kong for a new life in the U.K., they’re confronting the risk that they will be forced to leave behind their retirement savings as China intensifies its crackdown on the city’s freedoms.
Scores are being denied access to money in the Mandatory Provident Fund because of the cascading impact of Beijing’s decision in January to withdraw recognition of British National Overseas passports as valid official documents.
The U.K. government anticipates more than 300,000 residents will use the passport to leave Hong Kong, putting billions of dollars at risk of being trapped. About 30,000 visa applications under the so-called BN(O) passports were made in the first quarter of 2021 alone.
The city’s retirement fund has told account providers that these passports can’t be used to prove departure from Hong Kong, a pre-requisite for early access to funds. Trustees, which include major institutions like HSBC Holdings Plc, Manulife Financial Corp., AIA and Sun Life Financial Inc., now aren’t allowed to release the money to those who’ve relocated on the passports.
A 37-year-old real estate professional who participated in Hong Kong’s unprecedented street protests in 2019 said his request to access his funds in the city’s Mandatory Provident Fund (MPF) had been repeatedly rejected even after he resubmitted his application with his British residency permit.
Struggling to find work in London in the middle of the Covid-19 lockdown, the lack of access to the money has deprived him of a crucial cushion — he says his MPF money with Manulife would be equivalent to more than a year and half’s rent.
Manulife said it follows industry practices and regulatory requirements when processing applications.
One couple who moved to the U.K. in April have about HK$400,000 ($51,350) stuck in two retirement accounts in Hong Kong. Initially, HSBC staff accepted their documents and told them to expect approval in three weeks. Then the company asked for more documents, including a housing lease in the U.K., along with electricity and water bills. Despite providing this, HSBC didn’t approve their withdrawal, they said.
“As with all MPF service providers, we follow the regulator’s requirements for processing applications related to early withdrawal of accrued benefits by MPF scheme members,” HSBC said in a statement.
An accountant in her 30s, now in London, said she has more than HK$500,000 worth of funds that are stuck, mostly held by Principal Trust Co. (Asia) and AIA. In May, she applied to withdraw her savings from Principal, but the firm rejected her request, while AIA is yet to respond to a similar request.
Spokespeople for Principal and AIA both said they process requests in accordance with the MPF regulations. Sun Life directed questions to the MPF’s March guidance, which said that members “cannot rely on BN(O) passport or its associated visa as evidence in support of an application for early withdrawal of MPF.”
Bloomberg couldn’t independently verify the details provided by those trying to withdraw their money.
Prior to the change in rules, Bank of America had estimated that retirement fund outflows due to migration to the U.K. would amount to HK$53.8 billion over the next five years. Before Hong Kong stopped recognizing the passports, MPF withdrawals on the grounds of permanent departure had jumped more than 40% to a record HK$3.87 billion for the six months ended March from the same period a year ago, according to figures from the fund.
“One of the reasons for Hong Kong’s historic success has been protection of private property, freedom of capital and this cuts against that,” said Johnny Patterson, policy director at U.K.-based charity Hong Kong Watch. “This MPF policy seems to be designed to stop both the free movement of people and the free movement of capital. And that then undermines a number of the qualities which have set Hong Kong apart from the mainland and obviously in the long run that’s not going to help its standing as a business hub.”
Not everyone who leaves the city for the U.K. wants to take out their retirement funds, and many such plans around the world have limitations on when and how money can be taken out. But what’s frustrating Hong Kongers who have moved to the U.K. is the sudden change in rules and a lack of clarity about how they can access their money if they choose to.
Financial institutions say they have no choice but to block access to the MPF money, and that they are obliged to follow local laws — an example of the thorny environment companies operating in the city are being forced to navigate. In July, the U.S. sanctioned Chinese officials in Hong Kong and issued an advisory warning companies and investors of the risks of doing business there, citing Beijing’s efforts to exert more control over the financial hub.
In response to China’s introduction of controversial national security legislation in Hong Kong, the British government offered holders of BN(O) passports — which are available to those born before Hong Kong was handed back to China in 1997 — the right to move to the U.K. as well as a pathway to full citizenship.
Relations between the British and Chinese governments have deteriorated sharply since.
“MPF trustees have the duty to observe Hong Kong laws when handling the administrative matters of MPF schemes including processing applications for early withdrawal of MPF,” the Mandatory Provident Fund Schemes Authority said in a statement.
The Chinese government didn’t comment on the specifics of this story, but said in an email that the U.K. had “blatantly violated its pledges by changing BN(O) policy. It’s an attempt to interfere in Hong Kong’s affairs and China’s internal affairs.”
In the year that ended in June, Hong Kong saw 89,200 residents leave, though that includes people who left to places other than the U.K. as well. The outflow maintains the 1.2% rate of population decline set at the end of last year, the biggest drop in at least six decades for the city.
Those unable to get their money have few places to turn. It would be “very difficult” for claimants to sue the trustee as it’s complying with its statutory obligations, according to Duncan Abate, partner at law firm Mayer Brown.
If claimants can show that they have the right to reside in the U.K., independent of the BN(O) — such as receiving full British citizenship after six years — then they may be able to claim their MPF funds, Abate said.
That’s what the Hong Kongers that Bloomberg spoke to in the U.K. are holding out for, but they also wonder if China will change the rules again and whether they’ll ever be able to get hold of their assets.
Both the Hong Kong government and MPF wouldn’t comment on whether BN(O) holders who receive British citizenship would be able to access their money under the early release scheme.
Chinese authorities consider the BN(O) policy as a “means to destabilize Hong Kong,” said Joseph Cheng, a retired political science professor who left Hong Kong shortly after the security law was imposed. “These people are seen as traitors and fugitives.”
China To Build Global Clearing Network For Mobile Payments, Using Digital Yuan: State Media
RMB internationalization is inevitable, wrote People’s Daily.
China aims to build an international clearing and settlement network for mobile payments using the digital yuan, the People’s Daily wrote in an op-ed Monday.
* The network will be a “breakthrough point” in the cross-border use of the digital currency, the op-ed said. China also wants to use the digital yuan to improve the monitoring and early warning capabilities regarding cross-border flows of the yuan, according to the article.
* The internationalization of the renminbi is a necessity for China’s economic development, but also an inevitability given its economic progress, the op-ed said, citing Song Ke, deputy director of the Institute of International Monetary Studies at the Renmin University of China.
* Official Chinese sources have been reluctant to talk about the central bank digital currency as a vehicle for RMB internationalization, even though state planning documents like the Five Year Plan affirm that internationalizing the national currency is one of the government’s goals.
* China’s central bank digital currency (CBDC) has been in trials since spring of 2020, and has so far been used in at least $5 billion worth of transactions, including some cross-border payments.
China Slashes Kids’ Gaming Time To Just Three Hours A Week
China will limit the amount of time children can play video games to just three hours most weeks, a dramatic escalation of restrictions which dealt a blow to the world’s largest mobile gaming market, as Beijing signaled it would continue a campaign to control the expansion of large tech companies.
Gaming platforms from Tencent Holdings Ltd. to NetEase Inc. can only offer online gaming to minors from 8 p.m. to 9 p.m. on Fridays, weekends and public holidays, state news agency Xinhua reported, citing a notice by the National Press and Publication Administration. The new rules are a major step up from a previous restriction set in 2019 of 1.5 daily hours most days.
The escalating restrictions on the lucrative gaming business are likely to spook investors who had cautiously returned to Chinese stocks in recent days, exploring bargains after a raft of regulatory probes into areas from online commerce to data security and ride-hailing ignited a trillion-dollar selloff in past months.
“This ruling is the strictest one to date and will essentially wipe out most spending from minors, which we note was already extremely low,” said Daniel Ahmad, an analyst at Niko Partners.
Later in the day, Beijing signaled its efforts to rein in large tech companies will continue. A top-level committee led by President Xi Jinping said that efforts made to prevent the “disorderly expansion of some platform companies” had been a success while also vowing “more transparency and predictability” in setting policies, according to Xinhua.
Xi also told the meeting that anti-monopoly policies were a requirement for improving China’s economy, Xinhua reported.
Netease slid as much as 9.3% in pre-market trading in New York, while Prosus NV, Tencent’s biggest shareholder, fell in Europe.
“Three hours per week is too tight. Such a policy will have negative impact on Tencent too,” said Steven Leung, an executive director at UOB Kay Hian (Hong Kong) Ltd. “I thought regulatory measures would take a break gradually, but it’s not stopping at all. It will hurt the nascent tech rebound for sure.”
Tencent and other companies have said children account for only a fraction of their businesses, especially after recent restrictions. The country’s largest games company has said the revenue from minors yields less than 3% of its gross gaming receipts in China.
Other Key Points In The New Rules Include:
* All Online Games Should Be Linked To A State Anti-Addiction System, And Companies Can’t Provide Services To Users Without Real-Name Registrations
* Regulators Will Ratchet Up Checks Over How Gaming Firms Carry Out Restrictions On Things Like Playing Time And In-Game Purchases
* Regulators Will Work With Parents, Schools And Other Members Of The Society To Combat Youth Gaming Addiction
China Limits Online Videogames To Three Hours A Week For Young People
New regulation will ban minors from playing videogames entirely between Monday and Thursday.
China has a new rule for the country’s hundreds of millions of young gamers: No online videogames during the school week, and one hour a day on Fridays, weekends and public holidays.
China on Monday issued strict new measures aimed at curbing what authorities describe as youth videogame addiction, which they blame for a host of societal ills, including distracting young people from school and family responsibilities.
The new regulation, unveiled by the National Press and Publication Administration, will ban minors, defined as those under 18 years of age, from playing online videogames entirely between Monday and Thursday. On the other three days of the week, and on public holidays, they will be only permitted to play between 8 p.m. and 9 p.m.
The government announcement said all online videogames will be required to connect to an “anti-addiction” system operated by the National Press and Publication Administration. The regulation, which takes effect on Wednesday, will require all users to register using their real names and government-issued identification documents.
Other details of enforcement weren’t made public, and phone calls to the National Press and Publication Administration went unanswered after business hours on Monday.
In response to previous moves by the government to limit videogame playing by young people, Tencent Holdings Ltd. , the world’s largest videogame company by revenue, has used a combination of technologies that, for example, automatically boot off players after a certain period and use facial-recognition technology to ensure that registered users are using their proper credentials.
In restricting online videogame play for younger people, the government is seeking to “effectively protect the physical and mental health of minors,” China’s state-run Xinhua News Agency said Monday.
The People’s Daily, the Communist Party’s principal newspaper, said in a commentary that there was no room for compromise and negotiation on the new measures. In regulating the videogame industry, the commentary read, “the signal sent by this move is very clear—the government can be ‘ruthless.’”
Monday’s new rule is likely to be felt through China’s online games industry, one of the world’s largest. The new curbs come as the Chinese government seeks to rein in China’s technology industry, a campaign that has ignited a trillion-dollar selloff in Chinese equities and hit a range of businesses, including for-profit education providers, ride-hailing services and e-commerce platforms.
“This ruling is certainly extremely harsh and will essentially wipe out most spending from minors,” said Daniel Ahmad, a London-based senior analyst at Niko Partners who tracks the Chinese videogame market.
Mr. Ahmad said the new rules appear to apply only to online videogames since the rules involve a real-name registration system embedded before download—conditions that aren’t possible for offline games.
The measures follow a string of regulatory actions targeting China’s biggest technology giants for alleged antitrust violations.
In a separate move Monday, China’s main antitrust regulator, the State Administration for Market Regulation, said that it is launching a review of Chinese food-delivery giant Meituan’s 2018 acquisition of bike-sharing firm Mobike.
The new restrictions targeting videogames, however, highlight the emphasis that Beijing has placed on cultivating morality in its youth, a preoccupation of senior officials that has come to the fore in recent weeks. Over the past month, a number of celebrities—some of whom have generated headlines for alleged sexual and other misconduct—have had their internet presences disappear overnight, amid state-media calls to better protect young people from being led astray.
Videogames have become a particular object of ire as Beijing seeks to reshape an industry it has described as motivated by profit at the expense of public morals. A state-media outlet this month triggered a selloff in shares of Tencent, after it published an article that described online games as “opium for the mind.”
Chinese leader Xi Jinping, too, has warned publicly in recent months about the perils of youth videogame addiction, remarks that have put more pressure on officials to act.
After the regulations were published on Monday, following the close of stock-market trading, Tencent said it had introduced a variety of new functions to better protect minors. It vowed to continue to do so as it “strictly abides by and actively implements the latest requirements from Chinese authorities.”
Tencent backs some of the biggest videogames in the industry and has invested in “Fortnite” maker Epic Games Inc. and “World of Warcraft” creator Activision Blizzard Inc.
Shares of Chinese-based videogaming companies listed in the U.S. pulled back modestly Monday. American depositary receipts for Tencent fell 1.1%, NetEase Inc. slid 3.4% and Bilibili Inc. pulled back 1.6%.
Widening regulatory crackdowns have caused some investors to rethink their portfolios. Individual investors, however, have used the fall in at least one company—the U.S.-traded American depositary receipts for Alibaba Group Holding Ltd. —as a buying opportunity.
Individual investors purchased a net $550.7 million of Alibaba shares in the past month ended Friday, according to data from Vanda Research’s VandaTrack, making it the third-most purchased stock by the group during the period.
The impact on U.S. game makers from the government’s decision is expected to be somewhat limited, given their indirect exposure to the Chinese market. Beijing treats videogames as publications and imposes its censorship rules on videogames before they can be sold in China.
Over the years, U.S. companies such as Activision Blizzard and Take-Two Interactive Software Inc. looking for access to the Chinese market have teamed up with domestic technology giants such as Tencent, which have served as distributors for foreign-made games. Roblox Corp. entered into a joint venture with Tencent in 2019 to help bring a version of its videogame platform to users in China.
Shares in Activision Blizzard and Take-Two closed 1.6% and 1.2% lower, respectively, in Monday trading, as the broader Nasdaq Composite market ticked higher. Roblox shares fell 4.1%. Activision, Take-Two and Roblox didn’t respond to requests for comment.
In 2018, China stopped issuing videogame licenses for almost nine months amid similar concerns, costing Tencent more than $1 billion in lost sales, according to analyst estimates, and leading to a prolonged slump in its share price.
In 2019, the government banned users younger than 18 from playing videogames between 10 p.m. and 8 a.m., and restricted them from playing more than 90 minutes of videogames on weekdays. Users between 16 and 18 years old aren’t permitted to spend more than 400 yuan, the equivalent of about $60, each month on videogames.
Tencent President Martin Lau warned during an earnings call this month that regulators are focused on limiting the amount of time and money that minors devote to online games across all platforms.
The company also said minors were only a small percentage of its online game revenue. Players under the age of 16 accounted for just 2.6% of its gross game receipts in China during the April-to-June quarter, it said, a quarter in which the company’s electronic-game revenue rose at its slowest pace since 2019.
China Hedge Funds Pay $300,000 To Beat Wall Street To Best Graduates
When computing major Garen Zhou deferred his studies in the U.S. because of the pandemic, he applied for internships at China’s biggest internet companies.
In the end, the Peking University graduate chose Ubiquant, a local hedge fund managing $8 billion of assets which is offering top college leavers like Ph.D.s annual salaries of as much as $300,000. After a year, Zhou became a permanent employee, giving up his enrollment at Johns Hopkins University.
“The benefits of staying in this job far outweigh those of studying in the U.S. both in terms of knowledge and financial return,” said 23-year-old Zhou.
For elite students in artificial intelligence and computer science, companies like Ubiquant offer triple the $100,000 sticker price for freshly minted college graduates on Wall Street, illustrating a shift in global financial hiring driven by the pandemic and rising emerging market wealth. Rather than aspire to an education in the U.S. that often leads to opportunities at global companies or even staying in America, some of the nation’s best and brightest are choosing to stay home.
Graduates are in particular demand at funds which use computer models to trade, which have been lifted by inflows from rich individuals in the world’s second-biggest economy. Assets at such funds in China have jumped tenfold compared with four years ago to exceed 1 trillion yuan ($155 billion), according to Citic Securities Co. estimates.
But quant funds are also competing for hires with internet titans from TikTok owner ByteDance to Alibaba Group Holding Ltd., and global hedge funds including Bridgewater Associates LP and Citadel LP. The battle for talent even transcends business as China and the U.S. make technological superiority important national objectives, channeling increasing amount of support toward research and innovation, as well as data security.
“It’s very important for us to identify talent early on, because once they go abroad to study, they’ll have more options and we’ll have to compete with global companies,” said Wang Chen, 39, founder of Beijing-based Ubiquant. “Their willingness to join has increased quite a lot compared with a few years ago.”
Seeking an elite education abroad is a well trodden path, and the number of Chinese students pursuing computer science degrees in the U.S. has steadily risen in the past decade. Now with more students deferring their studies as the global pandemic restricts travel, companies like Ubiquant have adjusted their hiring strategy by offering one-year internships.
So far that tactic is working. Ubiquant has seen an influx of talent, partly due to Covid-19 and also because a humbled tech industry in China is grappling with regulatory change. Applications have jumped six times this year to more than 300 compared with when the company was founded.
Zhejiang High-Flyer Asset Management is also capitalizing on the changing priorities of graduates. The country’s largest quant fund managing more than $10 billion hired about 10 researchers over the past year, many of whom gave up overseas studies amid the pandemic, according to Chief Executive Officer Simon Lu. Shanghai Minghong Investment Co., which manages $8.5 billion in China, hired more than 10 experts in artificial intelligence and natural language processing in recent years, according to founder Qiu Huiming.
And Lingjun Investment, which manages about $7.7 billion, plans to expand its investment and research team by as much as a third to 140 people by the end of the year, the firm said. It plans to boost spending in the area, including salaries, to about 1 billion yuan in the 15 months through March next year, up from an annual average of between 200 million yuan and 300 million yuan in the past three years.
China’s private quant funds have been facing a persistent shortage of new talent since 2018 amid the industry’s expansion, pushing up salaries, according to Eric Zhu, Shanghai-based head of financial services at recruiter Morgan McKinley.
The higher wages are in line with a broader global trend that goes beyond hedge funds, as business at financial firms is booming. In the span of a few months, entry-level salaries at top investment banks have quickly shot up into six figures, even before bonuses, as executives responded to a rebellion against the demands of Wall Street life sparked by a damning presentation from a group of first-year analysts at Goldman Sachs.
And while President Xi Jinping has stepped up rhetoric about “common prosperity” as the Communist Party takes aim at wealth extremes, higher salaries are helping China to hold on to graduates in priority areas like artificial intelligence.
High-Flyer’s investment and research team now numbers almost 160, Lu said. It already includes Olympiad gold medalists, experts from internet giants and senior researchers from global rivals. He expects the mix of young scientists and top talent from Wall Street to inspire each other.
Stationed near China’s prestigious Tsinghua University, Ubiquant tests people on everything from coding to statistics and examines their academic research papers, hiring about 10 fresh graduates last year.
Wang says he has offered more experienced hires salaries of $1 million a year. The company also gives extra incentives to top staff like one-time bonuses of 10 million yuan or profit sharing from breakout trading strategies, as he gets more comfortable poaching talent from global corporations.
“If we think someone is worth hiring, we will try to hire them, sparing no efforts,” said Wang.
Back at Ubiquant’s headquarters, Zhou and his colleague Nathan Lin, who both joined last year, focused on studying natural language processing and the firm’s existing research for the first four months of their internships.
“I like the fact that your code and work speaks for itself,” instead of having to socialize and meet clients, said 22-year-old Lin, adding that this combined with the better salary offer from Ubiquant was the reason he joined the company instead of ByteDance or a job in banking.
The work pace also appeals. Starting at 10 a.m. every day, they work for an hour and a half before heading for a lunch break and getting a quick nap at their desks. They resume at 1 p.m., writing codes and brainstorming strategies till about 7 p.m. or 9 p.m. before hitting the gym. Often they’ll play ping pong in the office with other colleagues.
“Working here matches the spirit of being a self-branded geek,” said Zhou. “As long I’m still learning, I’ll be staying on.”
China Economist Is Rare Voice Of Caution On ‘Common Prosperity’
An influential liberal Chinese economist has warned against excessive government intervention and the erosion of the market economy in the nation’s pursuit of “common prosperity” and more income equality.
Targeting rich people and entrepreneurs will only hurt jobs, consumers, charitable giving and lead the nation back into poverty, Zhang Weiying, an economics professor at Peking University, wrote in an article published by the Chinese Economists 50 Forum, a think tank that includes some of the nation’s most prominent economists.
Market-oriented reforms since the late 1970s have made China a fairer and more equal society, said Zhang, a long-time vocal critic of big government whose early work has influenced China’s price system reforms. A free economy has given common people opportunities to climb out of poverty and become wealthy, he said.
“If we strengthen our confidence in the market economy and continue to push forward market-oriented reforms, China will move toward common prosperity,” he said. “If we lose our faith in the market and introduce more and more government intervention, China will only go into common poverty.”
Zhang’s article was a rare voice of caution as Beijing ramps up efforts to reduce income inequality and reshape society under a broad campaign of achieving common prosperity in the country. Crackdowns across various industries have triggered concerns and speculation that China will backtrack on market reforms that propelled the economy over the past four decades and led to a class of powerful billionaires.
Top leaders have alluded to strengthening “tertiary distribution,” or philanthropy, to encourage the rich to give back to society. Zhang warned it’s crucial to preserve entrepreneurs’ motivation to create wealth, because without it “the government will have no money to transfer payments, and charity will become a source of water.”
BMW Shows That Luxury Brands Can Pull Off ‘Common Prosperity’
The Germany company could soon be able to make more quality cars at increasingly affordable prices in China. The timing couldn’t be better.
BMW AG is set to effectively bail out its flailing Chinese joint-venture partner. For the German carmaker, that’s a smart move.
BMW’s China unit is close to a deal to buy production assets worth $252 million from the parent of its main partner, Brilliance Auto, Bloomberg News reported citing people familiar with the matter. The information was disclosed at a creditors’ meeting for Brilliance Auto on Tuesday. State-owned, Shenyang-based Huachen Automotive Group Holding Co., the parent, has been navigating a bankruptcy restructuring process since last November after it defaulted on 6.5 billion yuan ($1 billion) of debt. The deal, if approved, would allow it to pay down some of its borrowings.
Beyond alleviating the debt troubles of its China partner’s parent, premium carmaker BMW’s move to pick up production assets out of the restructuring in its biggest market is a clever one — especially right now. With this potential purchase, the German company can make more quality cars at increasingly affordable prices. That’s in keeping with Beijing’s focus on “common prosperity,” or a more equitable distribution of incomes across the country.
The plan to address regional, urban-rural and income gaps matters for automakers, as Beijing’s proclamation is likely to affect how consumers make and spend their money. Cars account for one of the largest portions of discretionary expenditure in China. President Xi Jinping’s common prosperity push will thus force a rethink of how vehicles are priced. As disposable incomes rise, and Beijing focuses on closing the large wealth gaps between tiers of cities, the likes of BMW and its peers will have to find a way to be part of the solution.
Navigating this impending shift in spending power is critical for BMW. Around 36% of the company’s premium cars are priced at less than 250,000 yuan – the lowest end of the range — compared with more than 40% for its competitors such as Volkswagen AG-owned Audi and Mercedes-Benz AG. As China tries to create what officials are calling an “olive-shaped social structure,” with a wider middle class, lifting the portion of cheaper but better-made cars would give it a leg up in lower-tier cities, where Brilliance has historically (although still relatively poorly) made and sold cars.
“To BMW, Liaoning province and the city of Shenyang have become the crucial innovation and production base in China, and the cornerstone of our future success in China,” BMW said in a statement to Reuters, without giving details about how it plans to participate in Huachen’s restructuring.
BMW’s China business has always done well. It grew 11.7% in the second quarter and over 40% in the six-month period ending June. Most of the cars it makes for Chinese buyers are manufactured on the mainland. The company imports around 20% to 25% of its sales volumes of its almost 800,000 units. Even the troubles of its local partner haven’t gotten in the way.
BMW was the first international automaker to increase its holdings in its China venture after Beijing allowed foreign companies to raise their stakes a few years ago. At the time it seemed expensive, but now the move looks prescient. While Brilliance will only have a 25% stake in the joint venture in 2022, the dividend from BMW and investment income will still be significant, according to Daiwa analysts. The German company’s latest move, much in the same way, will likely keep it well ahead of its peers — and could give its flagging partner a lift, too.
China’s New Blockchain Infrastructure To Digitize Securities And Futures
Chinese regulators held a meeting in Beijing to promote blockchain development, which was first mentioned in China’s 14th Five-Year Plan.
Chinese regulators, including the Securities Association of China and the China Securities Regulatory Commission (CSRC), held a meeting in Beijing to promote blockchain technology in the securities industry and discuss regulations.
In the symposium organized by China Securities Industry Alliance Chain and Off-Site Alliance Chain, the deputy director-general of the Science and Technology Regulatory Bureau of CSRC, Jiang Dongxing, spoke about the consensus of Chinese businesses to digitally transform the securities and futures industry.
Citing the 14th Five-Year Plan, which details China’s intent to use blockchain technology, Dongxing mentioned that blockchain technology can build a trust mechanism in the network environment, which will be key to the digitization of the securities and futures industry.
The announcement also states that the Science and Technology Bureau will base the construction of the said blockchain on a two-tier structure: a chain of custody (for tamper-resistant forensic evidence of asset control and transfers) and business (smart contracts and supply chain).
In addition, Dongxing has asked Chinese businesses to jointly explore and build a blockchain, smart contracts and related regulatory services.
Along with the push to develop new blockchain developments, China has also amped up efforts to explore new markets for the digital yuan.
On Tuesday, state-backed Chinese banks, including Bank of Communications (Bocom) and China Construction Bank (CCB), will reportedly allow citizens to buy investment funds and insurance products using the e-yuan, a digital form of the local currency.
While Bocom continues to explore e-yuan use cases around fund management and the insurance space, CCB has reportedly opened up a total of 8.42 million e-yuan wallets for citizens and companies.
Nationalization Is Coming To China’s Data Centers
Beijing is taking steps that will give the government not only access to, but purported ownership of, the vast amounts of information that companies collect.
Anyone in China who creates, collects, stores, processes or sells data should consider themselves on notice: Nationalization is coming.
Ant Group Co. is about to have its credit-scoring business taken over by stated-backed firms, Reuters reported Wednesday. It’s safe to say that the Alibaba Group Holding Ltd. affiliate itself doesn’t have much say in the matter. Under the restructuring, according to Reuters, Ant will become a minority holder in a joint venture that will own the fintech company’s repository of data on more than 1 billion users.
As yet, there’s no suggestion that Ant will lose control over its suite of products, including lending and payments. This is purely about the data. That said, Ant has been copping it from all sides over the past year: from its aborted listing in November to concerns over a probe of top political leaders in its home city of Hangzhou last month. These controversies — which include regulatory scrutiny of its broad reach within the financial industry — could explain various concessions it has made, including taking only a 50% stake in a new consumer finance business that won approval in June.
However, it would be a mistake to believe that Ant being forced to forfeit control over its data trove, and its related credit-scoring business, was targeted solely at the company and its past troubles. In reality, Ant is not alone. Other major collectors and users of data have faced fresh injections of Beijing control to various degrees.
ByteDance Ltd. is best known internationally for its TikTok short video service. Yet most of its revenue comes from China, with a vast product offering that extends into news aggregation, augmented reality, translation and analytics. Such services mean it stores reams of data.
Beijing is aware, and quietly installed a director onto the board of ByteDance’s local subsidiary, Beijing ByteDance, earlier this year. In the process the unit also sold 1% of its shares to entities that include China’s internet regulator, Bloomberg News reported in August. That tiny stake pales in comparison to the massive concession Ant made, but having a government official placed on your board is a clear signal that Beijing is watching.
Meanwhile, Didi Global Inc., the nation’s leading ride-hailing provider, looks set to face a similar predicament. The company may hand over control of its data to a third party, one that is likely to be state-owned, Bloomberg News wrote. That possible move is being billed as Didi’s attempt to appease Beijing after its decision to go ahead with a U.S. IPO despite pushback from the Cyberspace Administration of China.
The desire to make amends for perceived transgressions only partially explains Chinese companies’ apparent willingness to cede control over their data. In reality, they’re about as amenable as a recalcitrant child agreeing to be grounded. We should instead look at previous wrongdoings as mere regulatory leverage. The past two decades of free-wheeling Chinese industrial development can surely turn up more infractions should the government have the need.
Instead the transference of data into state hands is part of President Xi Jinping’s broader neo-Cultural Revolution that will give him more control over content, culture, capital and commerce. For its part, the government has explained its crackdowns as being part of efforts to protect consumers and create “common prosperity” — meaning a more equitable distribution of wealth.
In August, the government approved a broad privacy law that’s somewhat modeled on Europe’s General Data Protection Regulation. Beyond restricting the data that organizations can collate, the new rules open the door for the government to have deep access to whatever information is held by any entity in the country.
But having data delivered upon request isn’t so helpful. The very definition of data is open to interpretation, while knowing what is collated and available is as important as being able to access it. Beijing doesn’t want to drink from a fire hose of data when instead it can elect to have a fridge full of bottled water within arm’s reach.
To get there, though, we may see more and more data repositories, like Ant and its credit-scoring service, fall under direct or indirect government control, including the real-time processing and analysis that comes with it. Beijing’s message to companies is clear: Your data belongs to us. Right now that edict is merely figurative. Before long, it could be literal.
China’s Curbs On Videogames, Celebrity Fandom Seek To Make Kids Tougher
Measures Also Target For-Profit Education.
Under President Xi Jinping, China’s Communist Party has moved to aggressively reassert control over the economy, going after some of the country’s largest private enterprises in a drive to dial back what it sees as the capitalist excesses of a previous era.
Now, the party, which is celebrating the 100th anniversary of its founding this year, is making it increasingly clear that it intends to insert itself into the private lives of Chinese citizens to an extent not seen in decades.
This week, party officials unveiled tough new limits on the amount of time Chinese young people can spend playing online games. The restrictions come amid a crackdown on pop culture icons and follow moves to sharply limit after-school tutoring.
Taken together, these moves represent a shift in the social contract that existed under Mr. Xi’s two immediate predecessors, in which the party expanded personal freedoms in exchange for acquiescence to the party’s monopoly on politics.
The party says its aim is to more actively shape the next generation of Chinese people.
On Monday, state-run Xinhua News Agency described the new online gaming rules as an effort to “protect the physical and mental health of minors”—a move that came weeks after another state-backed media outlet called videogames “opium for the mind.”
From now on, Chinese regulators said, they would effectively ban minors—those under 18 years old—from playing online videogames from Monday to Thursday, and restrict them to one hour of gaming on the other three nights of the week plus public holidays.
Communist Party leaders have also gone after other influences on the lives of young people that they deem harmful. Among them: for-profit education services that have added to school pressures and a pop-culture industry that Beijing says has fostered an unhealthy culture of celebrity fandom around what state media terms effeminate male stars.
On Monday, Xinhua published a question-and-answer spelling out the government’s rationale behind its new videogame regulations with language that echoed the 20th century Russian idea of a “new Soviet person.”
“The youth represent the future of the motherland,” the Q&A read, adding that ensuring the health of China’s young people “touches upon the nurturing of a new generation of man for the rejuvenation of the nation.”
The government’s recent focus is on children, whom the party says it fears are being inundated with a toxic culture that poisons their minds, isolates them from society and saps young boys of their masculinity.
Mr. Xi signaled the new direction at China’s annual legislative meetings in March, when he told delegates to be wary of addiction to online games and “other dirty and messy things online” that could have a bad influence on young Chinese people.
The country’s powerful internet regulator, the Cyberspace Administration of China, kicked off the campaign in June when it announced plans to rein in the culture of online celebrity worship.
On Friday, it banned the ranking of celebrities by name on social-media platforms, saying only their songs and films could be ranked without mention of who created them.
Focus more on the performances, rather than the performers, the guidance said.
To help their favorite stars rise up the rankings on the Twitter -like Weibo platform or on the short-video app Douyin, which is operated by buzzy Beijing-based startup ByteDance Ltd., circles of fans often engaged in frenzied competition to repost, like and comment on content about their favorite idols. Authorities said the competition often led to online trolling and excessive purchases of consumer goods promoted by celebrities.
The ban deals a blow to the entertainment industry, which has developed a business model based primarily on drawing the largest possible fan base—with more followers increasing the exposure for potential brand endorsements.
Chinese authorities have also taken aim at the influence of male celebrities who embrace a gender-neutral style, saying they encourage young Chinese men to be insufficiently manly.
Last week, state-owned newspaper Guangming Daily published a commentary denouncing what it called the spread of niangpao, or “sissy pants,” pop culture.
“The new era needs healthy aesthetics,” the commentary read, referring to the period under Mr. Xi’s leadership. A healthy social culture is crucial “in the critical period for the formation of adolescents’ values,” it read.
Around the same time, a group of celebrities and officials from China’s film industry gathered in Beijing to announce an initiative to distance themselves from “sissy pants” culture while creating “good work full of courage, morality and warmth.”
The attacks on insufficiently macho celebrities followed a notice from China’s Ministry of Education late last year warning that young Chinese men had become too “feminine” and urging schools to promote sports like soccer with a view to “cultivating students’ masculinity.”
Moves to mold the lives of China’s youth haven’t been limited to entertainment. In July, Chinese authorities imposed strict limits on the country’s lucrative for-profit education industry, which had exploded in response to demand from parents hoping to get their children a leg up in the country’s ultracompetitive schools.
The limits were intended in part to level the playing field for less wealthy families that couldn’t afford weekend and after-school tutoring sessions, but they were also aimed at producing more well-rounded children—or, as Mr. Xi put it, “socialist builders and successors that are fully schooled in morality, knowledge, sports, art, and labor.”
Xinhua’s Monday Q&A on the videogame restrictions called for the public to “better guide minors to actively participate in physical exercise, community life, and a variety of colorful, healthy and beneficial recreational activities.”
The recent moves are part of “a comprehensive social transformation project” that speaks to public hunger for moral direction, said Zhan Jiang, a retired journalism professor at Beijing Foreign Studies University. “Such actions can win the hearts of the public,” he said.
It is unlikely to meet much resistance from the companies that benefited most from the earlier status quo. On Tuesday, the team in charge of “Honor of Kings,” the blockbuster role-playing smartphone game owned by Tencent Holdings Ltd. , said it would implement the new restrictions but also went further, saying it would temporarily stop allowing players to access the game offline.
During a quarterly earnings call Tuesday, William Ding, chief executive of internet and game company NetEase, Inc., said the new regulations are a positive development for children’s health and studies, and predicted little financial impact since less than 1% of the company’s revenue comes from gamers under 18.
“We vigorously endorse and support this decision, and will strictly implement it,” Mr. Ding said. “We also hope that the entire industry can actively carry out this decision, allowing China’s minors to grow up in a healthier environment.”
China Big Tech’s Charitable Donations Are Hurting Their Stocks
Chinese tech giants’ increasing charitable pledges may be contributing toward Xi Jinping’s “common prosperity” vision, but they have also been costing investors.
Stocks of all seven listed companies giving details of donations and pledges for various causes this year were sold off in the trading session following those moves, according to Bloomberg compiled data, which don’t include pledging announcements that were clubbed with earnings releases.
Philanthrophy Isn’t Free
Chinese stocks dropped after companies or their leaders made donations.
Alibaba Group Holding Ltd. was the latest Chinese tech company to pledge $15.5 billion over five years on 10 initiatives encompassing technology investment and support for small companies, local media reported Thursday. Tencent Holdings Ltd. said last month it will double the money it’s allocating for social responsibility programs to about $15 billion.
“It’s actual dollar going out of the door,” Hao Hong, a chief strategist at Bocom International, said about Alibaba’s move. “Just bear mind the volatility is going to stay here for some time.”
Chinese corporations and billionaires have pledged and directed more than $37 billion to charity so far this year through corporate interests, foundations or personal wealth, data compiled by Bloomberg show.
Alibaba Pledges $15.5 Billion As Chinese Companies Extol Beijing’s ‘Common Prosperity’ Push
Tencent and others also rush to support government initiative to bolster social equality in China.
Alibaba Group Holding Ltd. vowed to spend the equivalent of $15.5 billion fostering social equality, becoming the latest big Chinese company to take up Beijing’s drive for what it calls “common prosperity.”
Businesses and individual entrepreneurs are in some cases pledging billions of dollars to good causes, and companies have quickly adopted the newly popular slogan, as they seek to stay on the right side of President Xi Jinping’s government amid a series of corporate crackdowns.
Alibaba said it would spend 100 billion yuan, the equivalent of $15.48 billion, by 2025 in support of Beijing’s common-prosperity campaign.
The funding would be deployed in areas such as technological innovation, economic development, the creation of high-quality jobs and care for vulnerable groups, Alibaba said in a statement Friday. It listed 10 key initiatives, including supporting digitalization in underdeveloped areas, helping smaller businesses to grow and to expand abroad, and improving the welfare of gig-economy workers.
A fifth of the money would help develop Alibaba’s home province of Zhejiang, the company said. The ruling Communist Party’s top leadership designated the eastern province as a showcase locality for common prosperity in May.
“We firmly believe that if society is doing well and the economy is doing well, then Alibaba will do well,” said Daniel Zhang, Alibaba’s chairman and chief executive officer. “We are eager to do our part to support the realization of common prosperity through high-quality development.”
Alibaba’s pledge is substantial, even for a company of its heft. The e-commerce giant had a market value of about $461 billion as of Wednesday, according to FactSet. Analysts polled by the data provider expect it to generate about $143 billion in revenue in the financial year ending March 2022.
Common prosperity isn’t a new term, but has taken on greater significance recently. It was used by Mr. Xi at a major meeting on financial and economic affairs last month, reflecting his government’s heightened focus on social equality.
That focus helps explain recent clampdowns on powerful technology companies such as Alibaba and Tencent Holdings Ltd., the gaming and social-media giant, as well as on other businesses seen as contributing to social divides.
A day after Mr. Xi’s comments, Tencent said it would spend the equivalent of $7.7 billion promoting common prosperity this year, by investing in matters such as medical care, education and revitalizing rural areas. It had pledged an investment of equivalent size in April. Tencent was valued at $596 billion as of Wednesday’s market close, according to FactSet.
Businesses in a range of sectors also have jumped on the bandwagon. Companies that have mentioned common prosperity in recent earnings reports include state-owned banking giant Industrial & Commercial Bank of China Ltd. , property developer Logan Group Co., and Ping An Insurance (Group) Co. of China.
“It makes sense for every company in China to align themselves” with the common prosperity push, said Elizabeth Kwik, Asian equities investment manager for Aberdeen Standard Investments.
She added, “But it doesn’t mean the government is placing society over earnings or shareholders—they just want companies to play a part and help achieve fair distribution of income.”
China’s newer tech companies are also getting with the program.
Without using the term common prosperity, on Aug. 24 Pinduoduo Inc., a fast-growing rival to Alibaba, said it would earmark the equivalent of $1.55 billion in profit from the second and subsequent quarters to help farmers and rural areas, with an initiative focused on agricultural technology.
Food-delivery giant Meituan has also stressed its adherence to the cause. “We will never stop creating greater value for all the participants in our ecosystem and promoting ‘common prosperity’ for the larger society,” the company said in financial results published Aug. 30.
Meituan Chairman Wang Xing, who has personally donated shares worth billions of dollars to a charitable foundation, said his group would live up to higher expectations from government and society, help create more jobs and work to achieve carbon neutrality.
In time, the drive to share wealth more widely could lift the cost of doing business over and above any one-off donations, analysts and economists say.
For example, companies are likely to lift wages, which will lower their profits, said Carlos Casanova, a senior economist for Asia at Union Bancaire Privée. By next year, Mr. Casanova said he expects more clarity on how the government will pursue common prosperity, making it easier to understand which sectors will benefit from or be hurt by the reform.
Companies could be asked to contribute in the form of paying higher taxes or making greater charitable donations, said Ben Luk, senior multiasset strategist at State Street Global Markets.
Some executives say their core business is already contributing to the wider good. Entrepreneur Guo Guangchang, the co-chairman of conglomerate Fosun International Ltd., told investors recently that common prosperity was “our core value.”
Growing Fosun’s business would aid common prosperity by benefiting staff, customers, investors and partners, he said, while its Fosun Foundation was involved in social and charity initiatives.
What ‘Common Prosperity’ Means And Why Xi Wants It
Chinese President Xi Jinping is on a campaign to remake the world’s second-biggest economy with an emphasis on “common prosperity.” The hope is that a mix of policy moves, market forces and philanthropy will address the country’s wide and persistent wealth gap, which could become a political threat to the ruling Communist Party if left unchecked.
Regulators have targeted some of China’s most successful private enterprises, the data-rich tech sector in particular, alarming investors. They’re also trying to rein in what the government sees as the excesses of civil society, including rabid celebrity fandom, academic cram schools and video gaming.
1. How Big A Problem Is Inequality In China?
China’s richest 20% earn more than 10 times the poorest 20%, a wider gap than in the U.S. or European countries such as Germany and France, and one that hasn’t budged since 2015. Though the number of people living in extreme poverty has dropped dramatically over the past decade, more than 600 million people — about half of China’s population — live on an annual income of 12,000 yuan ($1,858) or less.
At the other end of the spectrum, rapid economic growth and market-based reforms created tremendous wealth: China has 81 billionaires on Bloomberg’s ranking of the world’s 500 richest people, more than any other country after the U.S., and there are thousands more billionaires and multimillionaires who don’t crack the top 500.
2. Is ‘Common Prosperity’ A New Theme?
Not at all. The idea was introduced into party documents by Mao Zedong to reflect the pursuit of a more egalitarian society. It fell out of frequent use under Deng Xiaoping, who shifted the focus to developing an economy that would allow “some people to get rich first.” Common prosperity, he said, would come later. Xi made it a central part of his 2017 speech at the party congress to mark the start of his second term, and the messaging really took off in 2021. The slogan has since been adopted by state agencies and private companies as a way to signal their allegiance to this Communist Party priority.
It’s hard to know. One theory is it’s part of Xi’s ambition to serve a third term as president, a possibility now that the decades-old system of term limits has been overturned. That’d be easier if he’s popular. Another possibility is that these measures have long been on Xi’s agenda, but other things got in the way. After his 2017 speech, China became embroiled in a broad trade war with the U.S. Then once a deal was reached, the pandemic hit.
Now he’s got a clearer path to put the ideas into action. Ahead of its 100th anniversary in July, the Communist Party declared the completion of a long effort to create a “moderately prosperous society.” That opened a door for Xi to set the pursuit of common prosperity as a new guiding principle. (Forecasts from Bloomberg Economics suggest China could become the world’s biggest economy as soon as 2031.) Also, several of China’s tech behemoths are now bigger than the largest state-owned enterprises, and their founders have amassed incredible wealth, which may seem politically threatening to the Communist Party.
4. What Has The Government Done To Companies?
China has announced a sweeping overhaul of the $100 billion for-profit education industry, banning tutoring companies from making a profit and teaching the school syllabus on nights and weekends, among other restrictions. It’s announced a reform plan for health-care costs in public hospitals designed to keep prices from rising too quickly, having already tackled excessive charges for drugs and medical supplies. It’s leaned on ride-hailing and food-delivery companies to improve conditions for their low-wage workers. China’s top court issued a long essay detailing how the pervasive culture of excessive overtime — known as “996” — may violate the law.
5. And Society?
The government seems to be trying to mold model citizens. It extended limits on online gaming for minors, allowing just three hours a week, and used accusations of sexual misconduct at Alibaba Group Holding Ltd. as an opportunity to warn against business drinking. Authorities have vowed to increase investigations of tax evasion among high earners and made a prominent example of actress Zheng Shuang, who was ordered to pay 299 million yuan in overdue taxes, late fees and fines.
There’s also a broader effort to weaken stars’ influence among their fans, which is seen as unhealthy and “Western.” Regulators have directed TV and movie studios to cap actors’ salaries and shun those with “incorrect politics” or “distorted aesthetics,” using a derogatory term for effeminate men. Fan sites are no longer allowed to post celebrity rankings and must block access for minors. Zhao Wei, a popular actress with her own business interests, has been mysteriously erased from the Chinese internet for reasons as yet unknown.
6. Is There More Coming?
China has been trying for years to make housing more affordable, particularly in the biggest cities, and often blames speculators for driving prices up. There are mounting signs that it’s preparing to move on an idea that’s been discussed for a long time: imposing a residential property tax to deter speculation. The municipal governments in Shanghai and Chongqing have been conducting trials since 2011, levying a tax on second homes or high-priced ones.
7. How Far Will This Go?
The central government hasn’t set any specific goal, leaving everyone to speculate about massive wealth redistribution and the nationalization of private companies. But some investors have also noted Xi’s comments about paying equal attention to enforcing regulation of companies and supporting their development. A pilot program suggests change will be gradual, rather than radical. In June Beijing designated Zhejiang, the wealthy coastal province where Alibaba and Zhejiang Geely Holding Group Co. lead a thriving private sector, as a “demonstration zone” to test common prosperity initiatives.
The plan calls for more access to education and health care, encourages investment in rural areas and nudges rich people to be more philanthropic. The actual targets, though, are incremental improvements over the status quo, ones Zhejiang was on pace to hit without any policy changes at all. Meanwhile, at least one prominent economist has defended the market economy as the best way to provide opportunity for the masses, arguing that too much government intervention would result in common poverty instead.
8. How Are Billionaires Taking It?
They’re opening their wallets, in line with the government’s call for individual distributions of wealth driven by “moral obligation and social pressure.” Seven billionaires directed a combined $5 billion to charity in the first eight months of 2021, a sum that exceeds all giving nationally the year before. Still more is coming from the private sector. Automaker Geely said it plans to enrich its employees with stock awards. Tencent Holdings Ltd. earmarked about $15 billion for social responsibility programs, and Alibaba pledged $15.5 billion. Pinduoduo Inc. set aside $1.5 billion in future profits for agricultural investments. The flood of donations will accrue primarily to state-backed initiatives.
China’s ‘Mr. Income Distribution’ Explains Common Prosperity
China’s push for “common prosperity” is not just about taxing the rich but also directing resources into rural areas and the lower-income group, according to one of the country’s most prominent experts studying income inequality.
The income gap has widened in the country over the past five years due to the rise of technology and financial sectors, and taxation has done little in narrowing the gap, said Li Shi, an economics professor at Zhejiang University, who has previously advised the government on poverty alleviation. He’s known in international academic circles as “Mr. Chinese income distribution” because of his work, according to the university’s website.
China’s top leaders have ramped up a campaign to address inequality in the country, pledging to grow the economy and better redistribute incomes. That would require raising taxes on individuals, including rolling out a property tax and inheritance tax, and boosting spending on public services in villages, according to Li.
Here Are Highlights From A Recent Interview With Li, Which Has Been Lightly Edited For Clarity:
How Bad Is China’s Income Inequality?
China’s income gap has expanded since the 1980s to reach a peak in 2008, when the Gini coefficient reached around 0.5. After that, it declined for a few years slowly, but has rebounded since 2015. Now it’s at a high level of around 0.47, according to an official estimate. The actual income gap could be larger, because the estimate is based on household surveys, which tend to under-represent high-income respondents.
China is among the 20% most unequal countries in the world. Inequality is quite serious. The inequality within cities and within rural areas has also been expanding. Now urban residents roughly earn 2.5 times that of rural residents. The main problem is unbalanced development, with the household registration system restricting people’s movement and leading to all kinds of discrimination for migrant workers.
In addition, China’s overall development strategy has focused on cities and neglected villages. A city-oriented strategy has led to public services concentrated in urban areas, hurt the economy in rural areas and the income growth of residents there.
What’s Caused The Rebound In China’s Gini Coefficient In Recent Years?
Many new industries have emerged, especially the digital economy has expanded rapidly in recent years. Digital platforms, coupled with AI technology, have attracted highly-educated workers who enjoy high wages that also grow fast. In addition, China’s expanding financial industry has a strong monopolistic characteristic, which led to exceptionally high salary. Wages in other industries expanded slowly at the same time.
The rapid rise of income from assets also contributed to inequality, because high earners usually have more assets than low-income groups. Even though the government has dialed up taxation and transfer payments, it has failed to reverse the trend of a widening income gap. As China’s economy slowed, low-income groups suffered more from slower income growth, contributing to the wider gap.
How Do You Evaluate Zhejiang Province’s Plan To Achieve Common Prosperity?
Zhejiang’s plan has two priorities: achieving high-quality growth and sharing wealth. The policies are mainly on narrowing the income gap, equalizing access to basic public services and narrowing the urban-rural gap. The next step is to formulate specific implementation rules so they can make a real impact. For example, questions like whether it should launch a property tax or inheritance tax, and whether it should reform the personal income tax — all of these details will need to be confirmed, which will take some time.
On one hand, we need to lift the income of rural residents and people in poorer areas. On the other hand, we need to enhance the quality of public services, including education and medical services. The goal is also about narrowing people’s development gap, giving children and teenagers more education opportunities to create higher-quality human capital.
How Should China Reform Its Tax System?
China’s taxation has played a very limited role in redistributing income. There are two types of taxes: direct tax and indirect tax. Direct tax helps narrow income inequality, while indirect tax widens it. In China, the proportion of direct taxes is low, accounting for a third of the fiscal revenue, while indirect tax makes up two thirds. The ratio is usually reversed in developed countries. If we don’t enhance the tax structure, it would be difficult for taxation to adjust income distribution.
China needs to increase direct taxes, including income tax, property tax and inheritance tax — all the taxes directly imposed on residents. It can increase the share of direct tax under the condition of maintaining the overall tax burden.
When Will China Roll Out The Property Tax To More Places?
Despite many discussions on launching a property tax, it still hasn’t entered the legislation process. It’s hard to tell how long this will take. Policy makers also have other considerations: a property tax could be a shock to the economy and create a negative impact. The economy is currently in a sluggish state and is still recovering from the impact of the pandemic. A property tax could be a blow to the property sector and weigh on housing prices. It’s a question whether the economy can withstand it. So such policies are best to be launched when the economy is booming.
What Kind Of Social Reforms Are Needed To Address The Urban-Rural Gap?
There’s a huge difference between public services in rural areas and cities, such as the quality of schools and teachers. We need to invest more resources in rural areas and poorer regions through public spending. The government also needs to use more of its expenditure on improving people’s livelihood. We need to make greater use of taxes to adjust high earners’ income and use transfer payment to improve low-income groups’ earnings.
What Role Should Private Businesses Play In Promoting Common Prosperity?
The private economy should play an important, positive role. That’s the experience from Zhejiang, which has lower inequality with better growth. The private economy, especially small businesses, played a critical role in that. Zhejiang’s private businesses are dynamic and provided lots of jobs, attracting workers from other provinces. Without the private economy, common prosperity is just an empty slogan.
How Will Life Of The Rich Be Affected?
Rich people’s lives won’t change much. Top leaders have repeatedly said that common prosperity is not egalitarianism or robbing the rich to feed the poor. Rich people may have to make more contribution in terms of taxes and charitable donations. But paying 5% or 10% more taxes won’t bring a huge impact to their lives.
China’s Vice Premier Liu Reassures Businesses Amid Crackdowns
China’s Vice Premier Liu He made a strong pledge to continue supporting private businesses after a spate of regulatory crackdowns in sectors from after-school tutoring to Internet platforms rocked financial markets.
“The principles and policies for supporting the development of the private economy have not changed,” Liu, who is President Xi Jinping’s top economic adviser, said in a video speech to a digital economy expo in Hebei province, according to a Xinhua News Agency report. “They don’t change now, and will not change in the future.”
China must stick to socialist market economy reforms and persist in opening up the economy, Liu said, vowing the country will protect property rights and intellectual property rights. He reiterated that the private economy has contributed to over half of China’s tax revenue, more than 60% of economic growth and 80% of urban jobs.
The comments came after the government tightened restrictions across a range of sectors, triggering a selloff that at one point wiped off $1.5 trillion from Chinese stocks. Authorities are taking more aggressive action as they shift their focus to longer-term goals like promoting income equality and achieving “common prosperity,” boosting the plunging birthrate and protecting national security.
China must heavily support the development of private industry to make it play a bigger role in stabilizing the economy and employment as well as enhancing the structure of economy and promoting innovation, Liu said.
China Sets Weekday Ban On Kids’ Videogame Play. Should You Do That, Too?
How to balance game time and homework: It’s about more than just limiting screens.
China’s decision to limit the amount of time kids can play online videogames is its latest move to rein in the technology industry and cultivate youth morality, no matter how intrusively.
Yet upon hearing about the move, plenty of exasperated parents in the U.S. surely thought, even briefly, could we do that here?
China’s rule, which went into effect on Wednesday, bans people under the age of 18 from playing online videogames during the school week, and allows for only one hour a day of gaming on Fridays, weekends and holidays.
Of course, that could never work in the U.S.—nor would I want the government to exert that level of control. But for parents, efforts to limit gaming can get so tiresome, it would be nice to make someone else Bad Cop for once.
The struggle over gaming is intensifying as kids return to school and parents face nightly homework battles. Kids got used to unfettered screen time during remote and hybrid learning, and it continued into the summer, according to a new report from the Digital Wellness Lab at Boston Children’s Hospital.
China’s drastic measure, taken in an apparent effort to protect young people’s mental and physical health—and to ensure they aren’t distracted from school and family responsibilities—raises an important question for parents everywhere: How much gaming is too much? Can we limit games without making it feel like punishment?
The rule change in China made me rethink how I manage my kids’ game time at home. With the help of some experts, I’ve drawn up a new plan that might be helpful in your home, too.
Several studies have found that playing videogames between one and three hours a day allows kids to enjoy them while still earning good grades, having enough time for other pursuits and maintaining psychological well-being.
Yet a recent study led by Rutgers University researchers found that middle-school students in China who used technology for entertainment purposes for more than an hour each school day, and for more than four hours daily on the weekends, had worse academic performance one year later and reported more boredom and a lack of concentration in class.
The study didn’t distinguish between playing videogames and scrolling social media, however; nor did it ask whether the kids went online before or after completing their homework. “It’s an important piece of the information we don’t have,” said lead study author Wen Li Anthony, assistant professor at Rutgers School of Social Work and the Center for Gambling Studies.
Many parents—myself included—have used videogames as an incentive to get kids to complete their homework. The problem with doing that, I’ve learned, is that kids often rush through their homework to get to their gaming consoles faster.
Just the other day I asked my sixth-grader for a peek at his math worksheet, only to discover that he hadn’t answered several problems. He said he didn’t know how to solve them. But instead of asking my husband or me for help, he just left them blank and went on to videogames.
Clearly my strategy wasn’t working. We came up with a plan that seemed counterintuitive: Let him play videogames first, and build the rest of the evening’s schedule around that. We also decided he could earn more game time by doing his homework thoroughly and correctly.
I ran this by some experts in digital media use. They liked the first part of the plan.
“We can turn the paradigm of limiting screen time upside down and discuss with children how to fill their 24-hour day like an empty glass,” said Michael Rich, director of the Digital Wellness Lab at Boston Children’s Hospital.
“What I often recommend is when kids get home, get them some food, and if you can, have them do something physical because they’ve been sitting all day. Then block out time for gaming and homework. If it’s done consistently, it becomes routinized, like putting on a seatbelt.”
But Dr. Rich didn’t think we should use videogames as a carrot for homework completion.
“It gets into the forbidden-fruit thing if you use videogames as a reward or punishment, and it can drive kids to hack the system,” he said.
Dr. Rich suggests creating a schedule with your kids so they feel ownership. “Write it down and put it on the fridge so you don’t get into disputes about what the agreement was later,” he said. “In that schedule, put something your kids really like to do after the gaming, so it’s not about stopping something they like but about starting something else they like.”
Experts mostly agree there’s no magic number of gaming hours per day, but there are some guideposts.
Jean Twenge is the author of “iGen: Why Today’s Super-Connected Kids Are Growing Up Less Rebellious, More Tolerant, Less Happy—and Completely Unprepared for Adulthood.” In a study of U.S. eighth-, 10th- and 12th-graders, she found kids who spent six-plus hours a day gaming reported being the least happy. The ones who said they were happiest had more in-person interaction, and spent fewer than three hours a day gaming.
“The most important consideration is, what is gaming replacing in your child’s life?” said Dr. Twenge. “Are they sleeping enough, getting their homework done, having face-to-face time with friends and family, getting outside and reading books?”
So here’s what my three kids and I came up with: After an hour of games or other screen activities, they need to do their homework. Once that’s done satisfactorily, they can help make dinner (an activity my oldest son loves), set the table or play with our kittens.
After dinner, we can all go on a walk, on a hike or to the park. At around 8 p.m., I’m giving them an hour to do whatever they want. My oldest will probably hop on his PS5 most nights to play with his friends.
At 9 p.m., it’s time to brush teeth then read in bed for 30 minutes before the lights are out. (Some experts say kids should refrain from screens for an hour before bedtime, but mine don’t usually need more than a half-hour to completely zonk out.)
We’ll see if extracurricular activities get in the way as the school year progresses, but I’m trying to ease them in and not overschedule after the past year-and-a-half. I haven’t decided on any new restrictions for the weekend, but we continue to go screen-free on Sundays.
One new rule my kids weren’t enthusiastic about: No screens in the morning. My 11-year-old has been getting up early to play videogames. Dr. Rich explained that when videogames serve as a motivator to wake up, it can result in kids not getting enough sleep.
When I explained this new rule to my son, his face contorted. I said, “Look, you’re still getting way more videogame time than kids in China.”
Xi Jinping May Be Leading China Into A Trap
“Common prosperity” has been portrayed as an effort to reduce income inequality and reassert core Communist Party values. In reality, it risks leaving the country stuck at middle-income status.
An ancient Mesopotamian tale tells of a servant in Baghdad who meets Death at the marketplace. Terrified by Death’s menacing expression, he takes his master’s horse and flees to Samarra. Later, the master sees Death and asks why she made a threatening gesture to the servant. Death replies that it was only a start of surprise. “I was astonished to see him in Baghdad, for I had an appointment with him tonight in Samarra.”
It’s a parable with relevance for China’s development dilemma. In early 2012, the World Bank and the Development Research Center, a think tank under China’s State Council, released a 473-page report that spelled out the reforms the country would need to undertake to avoid the “middle-income trap” and ascend to the ranks of high-income nations. China had reached a turning point in its development path, then-World Bank President Robert Zoellick told a press conference in Beijing. “As China’s leaders know, the country’s current growth model is unsustainable.”
The first of six strategic shifts laid out in China 2030 could be summarized as: more markets, less obtrusive government. Li Keqiang, who within a year would be anointed as China’s first premier with a Ph.D. in economics, was said to have shown “unwavering commitment” to the China 2030 project. Li, though, didn’t become China’s supreme leader. Xi Jinping did.
The incoming Communist Party general secretary, an ideological purist with no comparable economics training, assumed much of the premier’s role in managing the economy. And weakening the party-state’s power to intervene has never been part of his agenda.
Xi’s increased use of “common prosperity” in speeches this year — in tandem with the government’s regulatory barrage against technology companies and inveighing against excessively high earners — has been portrayed as a sign of his determination to reduce China’s income inequality and reassert core Communist Party values.
It might just as easily be seen as impotent flailing against an inescapable fate. That’s because Xi’s approach has little chance of delivering the results he desires. China’s road to Samarra leads back to a place he has already spurned.
The middle-income trap describes how economies tend to stall and stagnate at a certain level of development, once wages have risen and productivity growth becomes harder. Relatively few make the transition to high-income status. The history of those that have, such as South Korea and Taiwan, points to a need for the state’s role to retreat as markets advance.
Ad hoc interventions by governments may work at more basic levels of development. At higher income levels, economies become too complex for command-and-control management by individuals. Systems are increasingly what matters. Rules that are transparent, predictable and fairly applied enable market forces to take over the job of directing economic activity, raising efficiency and allowing innovation to flourish.
This inevitably implies some ceding of power by the rulers. It also potentially implies political change. South Korea and Taiwan both transitioned from authoritarian to democratic political systems as they became richer. The largest high-income economies are almost all democracies. Xi, a believer in the historic mission and preordained victory of the Communist Party, is far from receptive to such a message.
The party has embraced markets, but from a position of superiority. Like laws, they are there to be used, when useful; the party remains supreme, above all.
Browbeating technology corporations into making charitable donations or erasing wealthy, tax-dodging celebrities from the internet may grab attention but won’t change the fundamental equation. The real action is in institution-building: developing pension and social security systems; changing the hukou residential permits that discriminate against rural migrants; implementing a recurrent property tax; remodeling the system of land-use rights so that farmers get fair compensation when local governments appropriate their land for development.
These reforms are necessary both to reduce inequality and to lay the foundation for further income growth. China has talked about such changes for years, and indeed China 2030 gives significant space to them. Yet progress has been scant to nonexistent in many areas.
So why now, then? Xi has been in power for more than eight years. China’s income inequality is wide — albeit not as bad as some countries, such as Brazil and India — but the trend hasn’t changed significantly since he became president in 2013. The stridency of this year’s inequality rhetoric is hard to square with the government’s relative inaction during that period, especially when China’s own researchers in partnership with the World Bank pointed out the urgency of these changes as far back as 2012.
That suggests there is more going on here than a straightforward impulse to improve the lot of those left behind by China’s spectacular economic rise. Populist crowd-pleasers such as bringing over-mighty tech corporations to heel deflect attention from the failure to tackle more intractable challenges. Xi’s motivation may have more to do with shoring up support for the party than effectively addressing the underlying issue.
“The answer has to be the politics,” said economist George Magnus, an associate at Oxford University’s China Centre. “As China’s home-made economic problems have mounted and the external environment has deteriorated sharply, I think there’s a plausible case to say that he’s doubling down on repression and control and ideology to strengthen the party’s position.”
Magnus, who devoted a chapter to the middle-income trap in his 2018 book Red Flags: Why Xi’s China is in Jeopardy, argues that in pursuing these policies and strategies, “China’s government will stifle incentives and innovation, and make it even more difficult to generate the productivity growth that all high-middle-income countries need to avoid the middle income trap.”
Some analysts are unperturbed. Hao Hong, head of research at Hong Kong-based Bocom International Holdings Co., says that foreign investors have misconstrued “common prosperity” and that devising a fairer process to share the fruits of economic development will help alleviate problems such as insufficient demand and deflation, to which wealth and income disparities have contributed.
If Xi succeeds in steering China into the high-income bracket without undertaking the institutional reforms that have accompanied the transition in other countries, then it would rewrite the rules of conventional economics and burnish the international standing of Beijing’s authoritarian governance model. Developed democracies have hardly demonstrated their superiority in this regard recently, having failed to reverse their own decades-long trend of widening inequality (even if disparities mostly remain far narrower than in China).
In fact, China is already on the cusp of gaining high-income status. Based on the World Bank’s current threshold and International Monetary Fund forecasts, the country should achieve that goal before 2025:
China Is Projected To Reach High-Income Status Before 2025
Gaining admission to the rich-nations club doesn’t denote lifetime membership, though. It’s possible for countries to go into reverse and drop back into the middle-income category — just look at Russia. More important than an economy’s (somewhat arbitrary) classification at a point in time is the direction of travel.
The likelihood is that in resisting reforms other economies have found necessary to compete at higher income levels, Xi will condemn China to a future of subpar growth. Galloping away from prescriptions that would limit the autocratic power of the Communist Party, he may end up inadvertently undermining the foundations of its legitimacy. Some appointments with destiny cannot be dodged.
BlackRock’s China Blunder
Pouring billions into the country now is a bad investment and imperils U.S. national security.
BlackRock, the world’s largest asset manager, has begun a major initiative in China. On Aug. 30 it launched a set of mutual funds and other investment products for Chinese consumers. The New York-based firm is the first foreign-owned company allowed to do so. The launch came just weeks after BlackRock recommended that investors triple their allocations in Chinese assets.
This will push billions of dollars into China. “The Chinese market represents a significant opportunity to help meet the long-term goals of investors in China and internationally,” BlackRock Chairman Larry Fink wrote in a letter to shareholders.
BlackRock takes its responsibilities for its clients’ money seriously and is a leader in the environmental, social and governance movement. But it appears to misunderstand President Xi Jinping’s China.
The firm seems to have taken the statements of Mr. Xi’s regime at face value. It has drawn a distinction between state-owned enterprises and privately owned companies, but that is far from reality. The regime regards all Chinese companies as instruments of the one-party state.
This possible misunderstanding could explain BlackRock’s decision, but there may be another explanation. The profits to be earned from entering China’s hitherto closed financial markets may have influenced their decision. The BlackRock managers must be aware that there is an enormous crisis brewing in China’s real-estate market.
They may believe that investment funds flowing into China will help Mr. Xi handle the situation, but the president’s problems go much deeper. China’s birthrate is much lower than official statistics indicate and Mr. Xi’s attempts to increase it have made matters worse.
The president recently launched his “Common Prosperity” program, which is a fundamental change in direction. It seeks to reduce inequality by distributing the wealth of the rich to the general population. That does not augur well for foreign investors.
Pouring billions of dollars into China now is a tragic mistake. It is likely to lose money for BlackRock’s clients and, more important, will damage the national security interests of the U.S. and other democracies. Mr. Xi faces an important hurdle in 2022.
Many believe he intends to overstep the term limits established by Deng Xiaoping and make himself ruler for life. He is bound to have enemies, whom he must prevent from uniting against him. Thus, he needs to bring to heel any entity rich enough to exercise independent power.
This process has been unfolding in the past year and reached a crescendo in recent weeks. It began with the abrupt cancellation of a new issue by Alibaba’s Ant Group in November 2020. Then came the disciplinary measures against Didi Chuxing after it floated an issue in New York in June.
Things culminated with the banishment of U.S.-financed tutoring companies from China. This had a profoundly negative effect on offshore markets, hammering New York-listed Chinese companies and shell companies. Chinese financial authorities have tried to reassure markets ever since.
The leaders of Western asset-management firms, such as Stephen Schwarzman, co-founder of investment firm Blackstone, and former Goldman Sachs President John L. Thornton, have long been interested in the Chinese consumer market—and in the prospect of business opportunities dangled by Mr. Xi.
BlackRock is only the latest company trying to engage with China. Earlier efforts could have been morally justified by claims that they were building bridges to bring the countries closer, but the situation now is totally different. Today, the U.S. and China are engaged in a life and death conflict between two systems of governance: repressive and democratic.
The BlackRock initiative imperils the national security interests of the U.S. and other democracies because the money invested in China will help prop up President Xi’s regime, which is repressive at home and aggressive abroad. Congress should pass legislation empowering the Securities and Exchange Commission to limit the flow of funds to China. The effort ought to enjoy bipartisan support.
China Official Says Intelligent Vehicles Can Pose Security Risks
China needs to adapt regulatory measures to guard against Internet and data security risks associated with the development of intelligent vehicles, such as the unauthorized collection of personal information, according to an official at the information technology ministry.
“If regulatory measures cannot keep up in time, network security issues such as network attacks and network intrusions may post major security risks,” Xin Guobin, a vice minister with the Ministry of Industry and Information Technology, said at a forum in the city of Tianjin on Saturday.
Industry regulators will require companies to conduct self-inspections on automobile data security, network security and software upgrades, Xin said. It will study entrance standards for access to the intelligent-car network, according to the vice minister.
Xin, who forecast China’s sales of alternate-energy vehicles may rise to more than 1.7 million in the first eight months of this year and account for more than 10% of total new vehicle sales, said it is important to curb blind investments in the electric-vehicle sector.
China has been limiting redundant construction in the industry, Xin said, without providing details. The government will also take measures to ensure there is an adequate supply of key raw materials such as lithium, cobalt and nickel, according to the vice minister.
China is the world’s biggest market for alternative-energy vehicles, prompting concerns of over-investment and excessive capacity building. Of the 846 registered auto manufacturers in the country, more than 300 produce new-energy cars. The expansion in the country of companies such as Tesla Inc., NIO Inc. and BYD Co. has been accompanied by increasing number of EV businesses that run into financial difficulties.