China’s economy at an ‘inflection point’ as Xi Jinping embarks on sweeping regulatory crack down

Beijing has in recent weeks issued a deluge of new regulations on industries ranging from Big Tech to private education

Some analysts say tighter government control of the increasingly tech-driven economy could have long-term ‘consequences’

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Xi Jinping’s regulatory crackdown on tech companies, private education firms and overseas listings has triggered huge losses for investors. Photographer: Xinhua

Published: 8:00pm, 22 Aug 2021Updated: 9:45pm, 22 Aug 2021

The regulatory storm sweeping across China’s economy has raised concerns about the scale of government intervention in local markets, while some analysts question whether the changes are enough to boost innovation and ensure “quality growth” amid an increasingly challenging external environment.

In recent weeks, Beijing has unleashed a flurry of new regulations for internet-oriented tech companies, private education firms and overseas listings, disrupting global markets and triggering huge losses for investors. The government has cited concerns over data privacy, national security and the tech sector’s expanding influence on society as reasons for tighter oversight.

“We are witnessing an inflection point in Chinese economic life that could prove every bit as significant as Deng Xiaoping’s Southern Tour nearly 30 years ago,” said Larry Brainard, chief emerging markets economist at TS Lombard in a research note on Monday. In 1992, the former Communist Party leader toured key Special Economic Zones in the south to reinforce China’s reform and opening up.

“While Deng sought to give China a socialist market economy with Chinese characteristics, Xi appears to be aiming to give China a real socialist economy, not just its characteristics.”

The macroeconomic consequences of these actions are difficult to project

Nicholas Borst

While Beijing’s new regulations, such as its antitrust push against China’s digital giants, could potentially introduce more competition that benefits consumers, there are also worries tighter government control could harm the increasingly tech-driven economy.

“The macroeconomic consequences of these actions are difficult to project,” said Nicholas Borst, vice-president and director of China research at Seafarer Capital Partners. “If state control over a sector becomes too overbearing, or too unpredictable, it certainly has the potential to damage entrepreneurial dynamism and investor confidence.

“A sector that was subject to low amounts of state control is now becoming much more tightly regulated. It doesn’t matter that most of these companies are privately owned, they are still subject to Beijing’s influence.”