China’s Regulatory Crackdown: No Sector Is Safe

The Chinese Communist Party (CCP), which is celebrating the 100th anniversary of its founding this year, is moving aggressively to solidify popular support for continued Communist Party rule in the country. In the name of promoting social equality and reasserting control over the economy and private life, President Xi Jinping is cracking the whip on every sphere from the tech industry to the education sector and from culture to lifestyle. The pace of the regulatory crackdown is such that no sector is safe.

The Communist regime is going after some of the country’s largest private enterprises in a bid to clock back what it perceives as the capitalist excesses of a previous era. Now, the party is making it increasingly clear that it intends to insert itself into the private lives of Chinese citizens to an extent not seen in decades. The party has unveiled restrictions on the amount of time Chinese young people can spend playing online video games. The restrictions come amid a crackdown on pop culture icons and follow moves to sharply limit after-school tutoring.

Taken together, these moves represent a shift in the social contract that existed under Xi Jinping’s two immediate predecessors, in which the party expanded personal freedoms in exchange for acquiescence to the party’s monopoly on politics. The party says it aims to more actively shape the next generation of Chinese people.

The push is captured by a catchphrase, “common prosperity,” now appearing everywhere in China, including in public speeches, state-owned media and schools. It is meant to convey the idea that leaders are returning to the party’s original ambitions to empower workers and the disadvantaged and will limit gains of the capitalist class when necessary to address social inequities.

President Xi has described the wider goal of common prosperity as an “essential requirement of socialism”. The government needs to “encourage high-income people and enterprises to give back to society more,” and “create opportunities for more people to become rich,” state-run Xinhua News Agency reported. The new policy priority is a factor in China’s recent clampdowns on powerful technology companies and other businesses whose growth and market clout are seen as contributing to social divides, experts and industry insiders say. The moves include fines for companies like Alibaba Group Holding Ltd. for antitrust failings, and a declaration that after-school tuition should become a not-for-profit industry to reduce families’ education costs.

Xi Jinping’s messaging could also mean more rule changes are coming in areas such as healthcare, pensions and social welfare, analysts say. “Xi Jinping is seeking to rebrand the Communist Party’s image domestically and internationally” by reducing income gaps and shifting to higher-quality development, said Bill Bikales, a former senior economist for the United Nations in China to Wall Street Journal. “He wants this to demonstrate that socialism is better than Western capitalism in caring for all the population.”

Unequal wealth distribution is now a major concern. While living standards have risen dramatically in China, the country’s Gini-coefficient, a measure of inequality, widened to 70.4 in 2020 from 59.9 in 2000, making China one of the world’s most unequal major economies, according to data from Credit Suisse.

Premier Li Keqiang made a stir last year when he revealed that more than 600 million people, or over 40 per cent of China’s population, had monthly income under $140, while many Chinese complain privately about the sway of rich business tycoons.

Morgan Stanley, leading global investment bank and wealth management firm, in its recent report,  observed that China’s new emphasis on “getting rich together,” or “common prosperity,” would likely mean further regulatory headwinds for companies in sectors associated with rising social inequality, and more support for businesses linked to healthcare and green energy.

As the Chinese Supreme Leader Xi’s second term in office is nearing an end and his expected push for a third term next year maybe adding some urgency to the common prosperity push, especially with the country’s economic growth now starting to slow down, every sector is awaiting its turn as no sector is safe amidst the Chinese season of regulatory crackdown.