Strategist on Chinese regulation of its tech giants, fintech

Recent moves by China to regulate its tech companies are not necessarily aimed at “taking the wings” of its entrepreneurs, a strategist told CNBC on Thursday.

When asked if there could be political mistakes in China’s crackdown on its tech companies, Andy Rothman, an investment strategist at Matthews Asia, explained that it reflected a different approach to regulation compared to to the West.

“They deal with regulatory issues in a different way than Western governments. So normally a Western government would establish a regulatory structure at the start of a new industry, like fintech being developed,” he said. he told CNBC “Street Signs Asia.”

“The Chinese experiment has been more about telling entrepreneurs to go ahead and give it a try. And then we’ll step in after we see how it works and decide how to regulate it,” Rothman said. “And I think that’s what they’re doing now.”

Chinese tech companies have been largely freed from regulation as they become some of the world’s largest companies. That has changed over the past year as regulators cracked down, especially those operating in the financial sector.

“I don’t see this as an attempt to take the wings of the private sector, which has been the engine of all job creation and wealth in the country,” said Rothman, who was previously chief of the macroeconomics bureau and domestic policy of the United States Embassy in Beijing.

Beijing’s tightening of regulations affected a number of sectors, including microcredit and what it saw as monopoly practices on internet platforms.

Much of the scrutiny has been around Alibaba and its financial technology affiliate Ant Group, whose massive initial public offering was pulled by regulators. However, authorities recently approved Ant Group to operate a consumer finance company, a move that experts said was a positive sign for Ant.

But that does mean investors need to be “really careful about valuations,” Rothman said. He explained that this had prompted him to take a more active approach to investing in China, rather than a passive approach based on exchange-traded funds.

An active approach means choosing individual stocks, versus passive investing as a strategy in which investors buy an index that largely follows the market, such as exchange-traded funds.