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Key leaders of the ruling Communist Party on Wednesday laid out a plan for how they plan to continue to tighten regulatory screws on business over the next five years.
The country’s latest five-year plan includes promises to strengthen rules that would crack down on monopoly behavior and regulate technological innovation. The authorities also called on “law enforcement” to take action in areas “of vital interests of the people”, including financial services, education and mentoring.
The political map – issued jointly by the Party’s central committee and the State Council – was vague on the specific actions authorities want regulators to take.
But this suggests that Beijing’s unprecedented crackdown on private companies, which began late last year, could last for some time. China’s five-year plans are the cornerstone of the country’s economic and social policy, and the latest plan runs until 2025.
“The growing need of the people for a better life has put forward new and higher demands for building a government under the rule of law,” officials wrote in the guidance document, stressing the need to regulate those parts of the economy necessary for “social equity” or “public good”.
The directive comes at a time of massive upheaval for Chinese industries, ranging from technological and financial services to private tuition. A wave of regulations on private companies rocked global investors and raised fears about the future of innovation in China, as well as the ability of companies to tap capital markets.
The government spoke of the need to safeguard national security and protect the interests of its people. Regulators have largely blamed the private sector for creating socio-economic problems that could potentially destabilize society and affect the Party’s grip on power.
Beijing’s grievances with each sector vary.
Rideshare company Didi – which recently went public in New York City – has been accused of mishandling sensitive user data. Other Chinese tech companies listed in the United States have come under fire for endangering national cybersecurity. Ant Group, a top-flight subsidiary of Alibaba, which was supposed to go public during the world’s largest IPO last year, has been berated for its growing financial risk. And scores of private tutoring companies have been warned of worsening inequalities in access to education during a crackdown last month.
The crackdown has wiped out more than $ 1 trillion in market value for many powerful Chinese companies and even made some big supporters of Chinese investment think again.
SoftBank (SFTBF) CEO Masayoshi Son – whose company owns stakes in Ali Baba (BABA), Didi and ByteDance, owners of TikTok, said on Tuesday it would take a cautious approach to investing in China until the impact of the new regulations is clear.
“Is it six months, 12 months? I don’t know yet,” Son said. “[But] in a year or two, with the new rules, and with new orders, I think things will be much clearer … Once things are clearer, we will be open to the resumption of active investment. “
Chinese stocks were down slightly on Thursday. that of Hong Kong Hang Seng Index (HSI) was down 0.7%, while the Shanghai Composite Index (SHCOMP) fell 0.2%.
The low-key reaction suggests investors may be more accepting of the “new normal” for Chinese companies, “with China’s regulatory crackdown now appearing to be in years to come,” wrote Jeffrey Halley, senior market analyst for Asia-Pacific to Oanda, in a research note. .
– Michelle Toh contributed to this report.
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