We documented just days ago that China was expanding its crackdown on tech billionaires after spoiling the Ant Financial IPO. Now, it looks like part of a larger plan for Beijing to consolidate power at a crucial time in U.S./China relations.
President Xi Jinping is openly tightening his grip on China's Communist Party, as denoted by a series of actions he has taken over the last few weeks. The most obvious of these actions was the shocking suspension of the Ant Financial IPO, which was pulled literally hours before the company, valued at $35 billion, was set to begin trading.
In addition to that, Xi has also implemented new anti-monopoly rules to rein in companies like Tencent and Alibaba, who may be viewed as long term threats to the party. He has also "moved to further snuff out any opposition in Hong Kong’s legislature," according to Bloomberg.
It is proof positive that the Chinese government is acutely focused on anyone and anything that could grow powerful enough to eventually begin to undermine its power.
George Magnus, research associate at Oxford University’s China Centre told Bloomberg: “Xi Jinping certainly seems to be cracking the whip with a purpose and a force that, if not new, is certainly designed to impress upon the party, entrepreneurs, citizens and the rest of the world his authority and determination. I don’t see much that is pre-emptive or getting ahead the curve here. If there were, Xi would be channeling his inner ‘reform and opening up’ appetite. The point is that he doesn’t really have any.”
The moves come at a time where the outgoing Trump administration is rumored to be preparing more steps that could further distance the U.S. and China. For the last 4 years, the U.S. has worked with global allies to try and secure itself from China's tech companies, like Huawei, which has been accused of IP theft.
China hopes an incoming Biden administration could help put an end to some of those policies.
The change in attitude between the two countries has forced China to a strategy of "greater self-reliance". Party leaders have focused on domestic growth and less reliance on U.S. industry. Xi has said he wants to double the country's economy by posting growth of 4.7% to 5% annually.
Part of Xi's moves to consolidate power have coming from trying to "create a balance" to allow domestic growth to occur. Hong Hao, chief strategist for Bocom International in Hong Kong, said: “It is about how best to share the growing pie of economic development and tech innovation.”
The anti-monopoly rules being put into place give the government "wide latitude" to rein in billionaires like Jack Ma. Beijing likely saw Ant Financial as a risk because its business model "allowed it to charge higher fees for transactions while state-run banks took on most of the risk," Bloomberg notes. A banking regulator in Beijing last weekend said FinTech companies “shouldn’t form oligopolies, reap excessive returns and harm public interests.”
Rebecca Fannin, author of “Tech Titans of China”, stated: “Startups will welcome any decline in their monopolistic power because these huge Chinese companies have stifled them, and used their leverage and size to out-innovate them quickly or buy them out.”
In addition, the state made a big statement last ween when it let a AAA- rated state owned coal miner default on a bond payment, as we documented at the time.
The main message that Xi appears to want to get across to his country, the U.S. - and really, anybody that wants to listen - is that no one is bigger than the party.
Rana Mitter, professor of Chinese politics at the University of Oxford, said: “Making it clear that the ultra-rich can be brought to heel is important symbolically. However, it also seems likely that the CCP is concerned that major business figures may have political ideas about power, beyond mere wealth. So the use of regulators is in part to reinforce the message that nobody is bigger than the party."
“The party values stability over everything. They value it over competition, over fairness, over money. Maybe the only thing they value more than stability is power, and it’s stability that maintains their power,” she concluded.