‘Barbaric growth’: China looks to tighten grip on engine that powers its economy

February 9, 2022 — 11.58am
February 9, 2022 — 11.58am

After destabilising its giant property and tech sectors last year the Chinese Communist Party is now foreshadowing more crackdowns on its private sector to prevent the “barbaric” growth of capital.

Commentary in the party’s official mouthpiece, the People’s Daily, this week sought to put some flesh on the bones of the plans for this year that the party’s leadership developed at last December’s Central Economic Work Conference.

The ultimate relationship between private capital and China remains unclear.

The ultimate relationship between private capital and China remains unclear.Credit:Getty

China should, it said, support and guide the healthy development of capital. Efforts to prevent the “disorderly” expansion of capital had produced initial results and the “order” of market capitalism was improving.

“Preventing the disorderly expansion of capital does not mean doing without capital but means orderly development of capital,” the paper said. It also said, despite its reference to “barbaric capital,” that preventing its growth doesn’t mean China is against private capital.

Last year China’s “three red lines” policy, restricting leverage in its property companies, triggered an implosion in the sector that has been the largest contributor to its growth, a meltdown which has yet to stabilise amid a cascade old defaults by major property developers and massive losses for offshore capital providers.

There was also a crackdown on the big technology platforms, initially the fintechs, which evolved into a wider assault on big tech, private education, ride-sharing and celebrities. Investors lost billions, if not trillions.

Chinese billionaires were “encouraged” to donate billions of their wealth to a drive for “common prosperity” and more “orderly” capital. They have lined up, meekly, to hand over their contributions.

The purpose of preventing disorderly capital, according to the People’s Daily, is to “guide and urge enterprises to obey the party’s leadership, obey and serve overall economic and social development, encourage and support enterprises to play an active role in promoting scientific and technological progress, promote a market economy, facilitate people’s lives and play an active role in participating in international competition.“

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That could be summed up as a campaign to tighten the party’s grip on a sector that accounts for the majority of China’s economic growth.

The authorities aren’t against private capital as long as it does what the party tells it to do and doesn’t become too profitable or powerful.

The crackdown on technology companies last year started after Alibaba’s Jack Ma made some public, hubristic and quite derisive, comments about China’s financial system, regulation and its state-owned and managed banks. He disappeared for quite a while, the planned $US37 billion ($51.8 billion) float of his Ant Group was aborted two days before its launch date and soon after the broader assault on big tech began.

Ever since, observers outside China (and one, suspects, plenty within) have been trying to understand what Xi Jinping’s motivations, future actions and endgame might be.

It is apparent that he is tightening the party’s grip on the economy and shifting the emphasis of policy from wealth creation and growth to redistribution of wealth under the banner of “common prosperity” even as he and the party continue to reassure the private sector of its continued importance within the economy.

Another strand of the actions taken against the big tech companies has been an attempt to regulate their collection and use of consumer data, ostensibly to protect consumers’ privacy, promote competition and to safeguard the data on national security grounds.

The central government has also, as part of its new approach to the big tech platforms, sought to give itself access to the vast hoards of data the private companies hold on China’s citizens.

The crackdown might lead to the private sector companies effectively becoming quasi state-owned enterprises.

The crackdown might lead to the private sector companies effectively becoming quasi state-owned enterprises.Credit:Bloomberg

While it is apparent that the party is tightening its grip on the economy, a billionaire class that had started to flaunt its wealth and independence and its broader population, the ultimate relationship between private capital and the state remains, however, unclear.

The People’s Daily and the senior party figures at the meeting last December have talked cryptically about “traffic lights” for capital development but haven’t explained what that might entail. The People’s Daily said the approach set rules and a bottom line aimed at ensuring businesses obeyed the leadership of the party.

The best guess is that it means China’s private companies will face greatly increased regulation of their activities and access to capital, with the party dictating the limits of their discretions. It might lead to the private sector companies effectively becoming quasi state-owned enterprises.

The commentary certainly indicates that last year’s abrupt shift in attitude and policies towards private capital hasn’t, as many had been led to believe by comments last year from Xi and other party leaders, ended. There is, apparently, more action to come.

Whether that improves growth and productivity in an economy whose growth is slowing as the combination of Xi’s “zero-COVID” approach, the woes in its property sector and the uncertainty generated by its clampdowns on the tech sector and wealth is a moot point.

The authorities aren’t against private capital as long as it does what the party tells it to do and doesn’t become too profitable or powerful.

It does threaten the dynamism and entrepreneurialism of China’s private sector and the continuing flow of the foreign capital that has been attracted by the growth that has generated. The risks don’t appear to concern the party’s leaders.

There is an obvious explanation for the timing of the campaign for common prosperity.

Later this year the five-yearly People’s National Congress will meet to decide China’s leadership and policy goals for the next five years. At that congress Xi , who has essentially eliminated any rivals with his corruption purges, will seek to extend his party leadership for an unprecedented third term.

The tighter grip on the private sector and the effective shift from policies that prioritised wealth creation and relied on “trickle down” economics to drive China’s dramatic increase in living standards to socialisation of private capital and wealth will play well with the party faithful because it strengthens and broadens the party’s grip on power.

Whether what’s good for Xi and the party is good for the greater China’s long-term interests is, of course, another debatable question.

Stephen Bartholomeusz is one of Australia’s most respected business journalists. He was most recently co-founder and associate editor of the Business Spectator website and an associate editor and senior columnist at The Australian.Connect via email.

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