Hyping China’s regulatory crackdown as a profound ‘revolution’ risks a vicious circle

Scaling back capitalist excesses and reining in tech companies amid Xi’s calls for ‘common prosperity’ are very sensible moves, long overdue and in line with the West’s shift in approach
But propaganda that hypes the crackdown as a ‘profound transformation’ risks another vicious cycle in which relaxing controls leads to chaos, which leads to tighter controls, then rigidity

Wang Xiangwei

Published: 9:30am, 4 Sep 2021

Why you can trust SCMP

Until recently, many people outside China looking at the country’s great transformation in the past 40-odd years failed to appreciate how capitalist the country had become.

The Communist Party leaders had adroitly labelled the development model as being in the primary stage of “socialism with Chinese characteristics”. But in fact, China had long practised raw capitalism through and through as it single-mindedly pursued economic development above everything else – at the expense of the environment and social equity.

The party’s embrace of a market economy and private enterprise has made the country what it is today – the world’s second largest economy. Much has been written on China’s quest to make the state sector bigger and stronger but it is worth highlighting the scale and influence of the private economy, as summarised by the figure 56789 – the private sector contributes 50 per cent of tax revenue, 60 per cent of gross domestic product, 70 per cent of industrial upgrades and innovation, 80 per cent of total employment, and 90 per cent of the total number of enterprises.

Now as China enters a new era, President Xi Jinping has decided to scale back what he sees as capitalist excesses as the party tries to exert stronger controls on the economy and society as a whole.

Starting from November last year, China’s intense regulatory crackdown has expanded from the e-commerce giants – including Tencent and Alibaba, parent company of the South China Morning Post – to other sectors, from fintech to food delivery to ride hailing to education to property.

The latest targets have been gaming companies and tax-dodging celebrities and their fan clubs.

01:32

China limits online gaming time for young people to 3 hours a week

At a key policymaking meeting on August 30, Xi called for more efforts to strengthen anti-monopoly regulations and promote fair competition, which was an intrinsic requirement for improving the socialist economic and market system.

A statement from the meeting noted initial progress in Beijing’s campaign to prevent “disorderly” expansion of capital and tackle “barbarous growth” in the technology sector. It added that the government would set clear boundaries and bottom lines for those companies in the form of “traffic lights”.

While the intensity of China’s regulatory actions has spooked overseas investors, Beijing has good reasons to rein in the freewheeling technology companies after explosive growth in the past decade. That is in line with the shift in approach in advanced economies including the United States and European Union, which are taking steps to address concerns about monopolistic power and data security.

As Xi calls for more efforts to promote equality and redistribute wealth in the name of “common prosperity”, the actions against the alleged abuses of regulations governing data security, anti-monopoly enforcement, labour and consumer rights are all very sensible.

02:53

Xi Jinping Thought to be introduced in China’s classrooms

After all, those are the things the Chinese government should have done a long time ago. In other words, it has merely started to practice what it has long preached by moving away from raw capitalism and becoming more socialist.

However, as repeatedly warned in this space, the Chinese leadership should be more vigilant against the risks of stoking narrow-minded populism.

A case in point is a widely shared commentary which described the recent regulatory crackdown as a “profound transformation and profound revolution”.

The opinion piece, entitled “Everyone can feel that a profound transformation is happening”, said the crackdown was “a transformation from a capital-centred to people-centred” approach and said anyone who resisted the effort would face consequences.

Giving support for such an ideologically laden commentary is counterproductive, to say the least

It suggested that Beijing would no longer tolerate capital markets acting as a paradise for capitalists to get rich overnight or the cultural markets as a paradise for sissy stars and the media to worship Western culture.

The commentary ended by saying that the “revolution” was aimed at countering “brutal and ferocious” attacks by the US, citing what it saw as Washington’s increasing military threats, economic and technological blockades, and political and diplomatic encirclement of Beijing.

The article was written by a nationalist blogger but the fact that it was widely shared by the country’s most prominent media outlets, including Xinhua and China Central Television, indicated it received the blessing of senior officials in charge of propaganda.

If China’s leaders want to engage the media, learn from Mao

But giving support for such an ideologically laden commentary is counterproductive, to say the least, as it does nothing but stoke the narrow-minded populism that Chinese leaders should be guarding against. To dial back those excesses, the government only needs to push for clearly-defined and transparent regulations and more effective oversight instead of “revolution”, which has already invited some tenuous comparisons to the Cultural Revolution era of Mao Zedong by some overseas analysts.

Moreover, encouraging this narrow-minded populism could be harmful to China’s long-term policy of opening up and could throttle the entrepreneurship sorely needed for elevating the economy to a new level. The country risks falling into another vicious circle known as “Yifangjiuluan, Yishoujiusi” in Chinese. The two phrases literally mean “once one relaxes controls, there is chaos; once one controls things, they die”. In most ways, this succinctly illustrates the tortuous path of China’s economic and social transformation throughout the history of the People’s Republic.

09:40

Tightened regulations among key trends shaping China’s internet in 2021

In the first 30 years of the planned economy, attempts to decentralise and combat stagnation would inevitably lead to chaos, which in turn led to re-tightening of controls, which then led back to the square one of rigidity.

The phenomenon continues and despite 40 years of reforms and opening up the government is yet to break out of the vicious circle.

This has much to do with the government’s top-down power structure and its traditional reliance on campaigns to get things done or push for major changes.

Once a campaign begins to support certain developments, both the central government and local authorities put all their effort into giving it political backing and financial support while playing down or ignoring problems such as fraud or infringements of consumers rights as necessary evils.

The reverse is equally true when the authorities decide to campaign against some developments, they focus only on the negatives without seeing the big picture.

Take China’s development of e-commerce and fintech platforms as an example. Just a few years ago, online peer-to-peer lending was hailed as a financial innovation that would serve the needs of private businesses despite its enormous risks. But initially the authorities deliberately kept regulation loose to encourage the development of the sector. This led to a wave of frauds and defaults, which prompted the authorities to wipe out the entire industry.

Beijing must recognise its own mistakes in US-China relations

Back in the heyday of China’s tech companies in 2016 and 2017, Chinese officials and state media openly touted “China’s four great new inventions” – high-speed railways, mobile payments, e-commerce and bike sharing, even though China did not invent any of those.

Now merely four years later, some companies excelling in and widely praised for those technologies have become symbols of capitalist excesses.

Thus the vicious circle continues.

Wang Xiangwei is a former editor-in-chief of the South China Morning Post. He is now based in Beijing as editorial adviser to the paper