Is The Future Still Clear for Chinese Entrepreneurial Capitalism?

For years, Chinese entrepreneurial capitalism has been a powerful economic force, particularly in the technology sector. However, China’s massive tech crackdown has left many wondering what the future holds for the country. 

Due to China’s regulatory crackdown and the impending delisting of Chinese firms from the American stock exchange, Chinese tech stocks have fallen precipitously over the past year. The Hang Seng tech index has plummeted by over 40% since last year. In the same time frame, the price of Alibaba’s shares listed in Hong Kong and the United States fell by approximately 49%.

China’s recent tech crackdown

The Chinese government claims that it is cracking down on “irrational exuberance” and a “blind pursuit of money,” but many are skeptical of this claim, especially considering that China’s government has long been known for its heavy hand in business. 

In November 2020, the stock market launch of Ant Group, Alibaba’s finance arm, was delayed. It marked the beginning of government control over major internet enterprises. The Xi government looked sternly at the company, which was growing its influence in financial markets, as the financial authorities pointed out the “unsound corporate governance” of Ant as a problem.

The government fined Alibaba the biggest amount ever in April 2021 because its online commerce division had broken the competition law. The authorities also unveiled new legislation, cracking down on Tencent, Meituan, and Alibaba. The ride-hailing company DiDi began the process to delist from the New York Stock Exchange at the directive of the Chinese government.

At one point, some of the most well-known corporations in China lost billions of dollars in value as a result of China’s crackdown on big tech. Regulators are now suggesting they might lessen their sector oversight if the nation’s economic outlook grows bleaker.

A hint at relaxing control

CNBC reported on May 17, 2022 that Chinese Vice-Premier Liu He comforted tech CEOs by saying that the government-backed the sector’s growth and that public listings for technology businesses were further indications that the sector’s control was relaxing. Liu spoke at a gathering organized by China’s main political advisory body, the Chinese People’s Political Consultative Conference (CPPCC).

At the meeting, Liu stated that China would try to “properly manage” the market and government interaction. According to state broadcaster CCTV, the country will encourage tech companies seeking listings both domestically and overseas and work to support the healthy growth of the platform economy. Digital platforms, which are a major engine of economic activity and include those utilized for online commerce, are referred to as the platform economy. Concerns that the second-largest economy in the world would contract in the second quarter have grown due to Covid-19 limits and other measures to combat the pandemic, which have wreaked havoc on businesses and supply chains across various sectors.

What the future holds

However, tech analyst Linghao Bao cautions everyone not to get their hopes up. In an interview with CNBC’s Squawk Box Europe, Bao says he thinks the big tech firms will have a grace period, possibly for the next six months.

“However, this is really not a U-turn on the tech crackdown, the long-term outlook hasn’t changed yet,” Bao further added. He explained that since Beijing has already concluded that it is not a good idea to let big tech firms run wild because it creates unfair market competition. In such situations, wealth might be concentrated at the top, thus having a tendency to influence politics.

Bloomberg also pointed out that despite indications that the Communist Party’s attack on big tech is softening at the edges, interviews with more than a dozen industry leaders suggest the picture of Chinese entrepreneurial capitalism is still anything but good.

“China’s tech crackdown has happened. There is no comeback from that,” an anonymous entrepreneur said in an interview with Bloomberg. The source says the regulatory pressure on Chinese tech firms may have slowed down for now because of the sluggish economy. However, it’s unthinkable that regulators in China would loosen their grip on platform companies ever again.

According to Bloomberg, these insiders feel that there is still persistent paranoia and paralysis, as well as the disturbing knowledge that the exorbitant growth rates of the previous two decades will probably never return.

For many years, Chinese entrepreneurial capitalism has been a thriving force, and it has come to represent innovation and growth in many ways. In fact, Chinese companies now account for nearly half of all venture capital investments worldwide! Is there any hope for Chinese entrepreneurial capitalism? The future appears to be unclear at the moment.