One day later, it all fell apart.
In the year that followed, the Chinese government’s regulatory might has changed industries ranging from tech and finance to gaming, entertainment and private education.
But the speed and ferocity with which Chinese authorities have acted against the country’s corporate titans have startled even the closest China watchers.
“The latest regulatory tightening cycle is unprecedented in terms of duration, intensity, scope, and velocity,” analysts from Goldman Sachs wrote in a recent research report.
The campaign has wiped out more than $1 trillion worldwide from the market value of Chinese companies. It has sent chills through the wider economy and stoked fears about the prospects of future innovation and growth in China.
While China’s decisions have rocked the corporate world and rattled foreign investors, Xi appears undeterred. To him, reining in private enterprise is the solution to fixing longstanding concerns about consumer rights, data privacy, excess debt and economic inequality.
In other words, for the Chinese Communist Party it’s not about killing the private sector: It’s about taming the excesses of capitalism and embracing the country’s history of socialism.
Dividing the ‘cake’
That meteoric rise accelerated under the leadership of Deng Xiaoping, who took power in the late 1970s after the death of Mao.
Under Deng, the country embraced the free market and opened up to global trade. He famously said in 1985 that “some people can get rich first” to help poorer people in the long run, so that the society can gradually achieve “common prosperity” — a use of the phrase that differed significantly from its invocation by Mao, who advocated for wealth redistribution nearly 70 years ago as he worked to cement the party’s control.
“We must divide the cake well,” Xi wrote in last month’s article, adding that his goal is to “achieve common prosperity of all people by the middle of this century.”
A desire for control
Analysts widely believe that Xi’s concerns about inequality are real, but that the unfolding crackdown also signals the ruling Chinese Communist Party’s desire for control.
Xi is “aware that a Communist Party regime only enjoys legitimacy as long as common people feel represented,” said Sonja Opper, a professor at Bocconi University in Italy who studies China’s economy and the private sector. “The ultimate motivation is more likely to gain control over powerful parts of the economy.”
Ma criticized China’s regulatory system at the time as being outdated and risk averse, an obstacle to the high flying, innovative tech firms that he said could bring banking to poor populations and smaller businesses that are otherwise locked out of traditional finance.
The tech entrepreneur also accused China’s conventional, state-controlled banks of having a “pawn shop” mentality by lending only to borrowers who could provide collateral. He touted more innovative, data-heavy approaches as capable of bringing banking to marginalized groups.
Those words likely spurred Beijing to retaliate swiftly. The Ant Group IPO was suspended just over a week later.
More than Jack Ma
The Communist Party “seems increasingly concerned that China’s tech sector has become so globally prominent that it runs the danger of outrunning the Party itself,” said Rana Mitter, a professor who specializes in the history and politics of modern China at the University of Oxford. “The crackdown helps to bring it down to size.”
Wary of private tech’s power
Experts point to the crackdown — and especially the measures directed at technology — as the start of a new era for regulation in China.
Beijing encouraged their rise at first. Such firms have been huge job creators and have attracted vast amounts of foreign and domestic capital. China’s influence as a hub for technological innovation has also exploded in recent years because of these firms, which compete head to head with Western rivals.
But now the government is growing wary of their size and power.
Firms like Alibaba, Tencent and Didi “will no longer be able to stay under the protective umbrella of Internet or technology, outside of supervision from the Chinese government,” said Doug Guthrie, a professor and director of China Initiatives at Arizona State University’s Thunderbird School of Global Management.
Beijing is also clearly concerned about the collection of data by these private firms. The technology they have created is so prevalent in Chinese life that they have access to sensitive information about hundreds of millions of people, ranging from where and when they travel to specific details about how they spend their money.
“It cannot go unnoticed that the industries and sectors that came under fire are all part of the modern tech economy, controlling vast amounts of individual level data,” said Opper from Bocconi University. She added that data “is an invaluable resource for any government wishing to control all walks of life.”
Beijing’s interest in Big Data was apparent this summer, as the government’s probe of Didi and other Chinese companies that trade in the United States took shape. Authorities focused on allegations that those firms mishandled sensitive data about their users in China, posing risks to personal privacy and national cybersecurity.
Those regulations “may therefore simply reflect the desire to gain control over the type of data and technology that is currently controlled by China’s most innovative, private technology corporations,” Opper said.
Economic slump may bring change of pace
Beijing has signaled the crackdown may not be over yet.
But other factors might force the government to slow the pace and scale at which it is trying to transform private enterprise.
The world’s second largest economy has encountered a slew of challenges that are weighing heavily on economic growth, including disruptions due to the global shipping crisis, a massive energy crunch and concerns about a debt crisis in real estate. Last quarter marked the slowest pace of GDP growth in a year.
The crackdown on tech and education firms hasn’t helped, with demands for rapid change resulting in job losses and a drag on retail sales.
“My prediction: The ‘crackdown’ is going to stop now,” Guthrie said.
“The Xi administration is very committed to economic growth,” he added. “They have made their point about the coordination between the government and the private sector. But they know they need an entrepreneurial private sector to continue to drive China’s growth.”
There has been some indication that the regulatory push is slowing down.
Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission, told state broadcaster CCTV last month that the new regulations for financial tech firms have “yielded initial results.” He said he expects to achieve “even more significant progress” before the end of the year.
The government wants companies to understand that they need to be in “lock step” with authorities, said Guthrie, who added that “no one gets to think of themselves as bigger or more global than the Chinese government.”
But he acknowledged that Beijing knows it needs Chinese tech to flourish.
“My sense is that the support and coordination between the government and the private sector is coming back into alignment,” he added.