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China's regulatory rejig: Move towards self reliance, internal demand and domestic innovation

world | Aug 5, 2021 9:53 PM IST

China's regulatory rejig: Move towards self-reliance, internal demand and domestic innovation


China has turned the markets over the past none months with a deluge of new regulations on fintech, big tech, after-school tutoring, cryptocurrencies, and carbon emissions.

China has turned the markets with a deluge of new regulations on fintech, big tech, after school tutoring, cryptocurrencies, and carbon emissions. That has been happening over the past nine months.

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First, food tech companies were told to provide more insurance protection for delivery stuff.
Second, big tech giant Tencent has been banned from signing any exclusive music copyright agreements in the future because of anti-competitive practices. It must be noted, Tencent holds more than 80 percent of exclusive music library resources, which have increased its leverage over upstream copyright parties, and therefore allows it to restrict new entrants into the fray.
Third, online coaching classes were forbidden from running for profit. The aim was to ease the financial burden of children's education on poor families.
Home loan rates have been raised while property prices and rents have been curbed so as to make the urban-dwelling more affordable.
As China targets peak carbon dioxide emissions by 2030 China, the government has cracked down on illegal mining. It has also moved to increase the use of renewable energy and electric vehicles.
There are also more hurdles for data-rich companies seeking global listing so that data doesn't go abroad and there is no security risk.
Meanwhile, in a bid to cool domestic inflation, China has imposed export curbs on a variety of commodities, ranging from pig iron to special steels.
Eswar Prasad, an economist, and China expert said, “We have seen fairly dramatic shifts in policy in the last few months and it is hard to imagine there isn't a common thread here. First, let us start with the context so China does not take major policy moves that might have economic and financial implications when things are not going well.”
He said by the end of 2020 there was a sense that the Chinese government had managed to quell the COVID-19 pandemic, and the economy was back on track for relatively good growth. This gave significant confidence to Chinese policymakers, not only in their ability to manage growth but also in the ability to use state control to get over a very rough patch of the economy.
After growth seemed secure, the other context, Prasad said, was on making sure there is social stability as well.
“One of the important changes in Chinese policy in the last few years has been this increasing move towards self-reliance and a more inward-looking orientation of policies. The dual circulation policy that Xi Jinping articulated a couple of years ago, which emphasises internal demand, self-sufficiency, and domestic innovation all points to this and I think now the Chinese government feels that the time is ripe, to shift towards is more inward-looking orientation, and that the economy is in good shape to be able to handle this,” he said, adding that the government needs to undertake the policies related to the property market to ensure social stability.
Speaking about the impact of the rejig on foreign investments, Prasad said, “Now, this speaks to the confidence of Chinese policymakers, they know that China doesn't need foreign capital as much as other countries. Certainly, it is good to have foreign money coming in but China has a very high domestic saving rate of its own, and it needs to be able to channel that savings much more efficiently through a better financial system.”
Prasad’s long-held view, he said, has been that Chinese policymakers are really interested in foreign capital, not just because of the money, in fact, less because of the money than about the discipline, the innovation that foreign investors bring to the markets.
“Recent Chinese policy shifts matter to foreign investors in a very big way because the prospect of buying shares in large corporations, which are near-monopolies or duopolies, that is, at very little competition, is going to be restrained by Beijing,” he said.
He added that there are certain sectors of the economy that impinge on social policies. According to Prasad, in the private education sector, the pickings are going to be slim, so it is going to be a very rocky ride ahead, especially for shorter-term investors. However, for selective, longer term investors who are willing to look carefully at which sectors might be good, which firms in those sectors might be good, China is still a pretty good place to invest and that is what the Chinese government seems to be betting on as well, he said.
For the full interview, watch the accompanying video...
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