China brings business down to its knees

Growing numbers of executives are going to jail. An entire industry is shutting down. For China’s leader, Xi Jinping, it’s all part of the plan. Under Xi, China is reshaping how business works and limiting executives’ power. Long in coming, but rapid in execution, the policies are driven by a desire for state control and self-reliance as well as concerns about debt, inequality and influence by foreign countries, including the United States.

Emboldened by swelling nationalism and his success with COVID-19, Xi is remaking China’s business world in his own image. Above all else, that means control. Where once executives had a green light to grow at any cost, officials now want to dictate which industries boom, which ones bust and how it happens. And the changes offer a glimpse of Xi’s vision for managing the economy, ahead of a political meeting expected to solidify his plans for an unprecedented third term in charge.

The goal is to fix structural problems, like excess debt and inequality, and generate more balanced growth. Taken together, the measures mark the end of a Gilded Age for private business that made China into a manufacturing powerhouse and a nexus of innovation. Economists warn that authoritarian governments have a shaky record with this type of transformation, though they acknowledge that few have brought such resources and planning to the effort.

In one week alone last month, creditors fretted about the fate of China’s largest developer, Evergrande, with no word from officials about a bailout; the central bank announced that all transactions involving unapproved cryptocurrencies would be illegal; and the authorities detained the top two executives at HNA Group, an indebted logistics and transportation conglomerate, and sentenced the chairman of Kweichow Moutai Group, a high-end liquor company, to life in prison for taking bribes.

At China’s annual World Internet Conference last week, an official signalled that efforts to rein in internet giants were not over, warning against the “disorderly expansion of capital.” Once a showcase for the might of China’s entrepreneurs, this year’s conference became a platform for pledging fealty to state efforts to spread the wealth.

Lei Jun, the founder of the smartphone maker Xiaomi, said big internet companies should help smaller ones. Alibaba’s chief executive, Daniel Zhang, hailed his firm’s new $15.5 billion plan to help small business and underdeveloped regions, invoking the aphorism “If you teach a man to fish you feed him for a lifetime.” “The very definition of what development means in China is changing,” said Yuen Yuen Ang, a political science professor at the University of Michigan. “In the past decades, the model was straightforward: It was one that prioritised the speed of growth over all other matters.” “It is clear by now that Xi wants to end the Gilded Age and move toward a Chinese version of the Progressive Era, with growth that is more equitable and less corrupt,” she added.

Shockwaves have been felt across China’s economy, the world’s second largest. Analysts argue that some measures, such as reducing debt and curbing anticompetitive behavior among internet platforms, have long been needed. But they worry that the new policies could hurt competitiveness and favor the inefficient, monopoly-dominated state sector, which Beijing has long avoided reforming.

Natasha Kassam, a director at the Lowy Institute, an Australian think tank, said private-sector dynamism could suffer. She likened the shifts to Xi’s anti-corruption campaign at the start of his tenure nine years ago, which curbed rampant graft but also consolidated power. “During the anti-corruption drive, no one knew who might be targeted next,” Kassam said. “What it led to was inertia. Officials were too terrified to make decisions in case they were the wrong ones; you’ll see a similar chilling effect on the private sector.” Mozur is a correspondent focused on tech and geopolitics for NYT©2021

The New York Times