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Peter Granitz: It is Thursday, December 30th. I’m Peter Granitz for the Wall Street Journal and this is What’s News. All this week we’ve been taking a look at some of the biggest changes this past year brought to our lives, the business community, and global actors. To do it we’ve heard from a range of experts and different perspectives on what’s driving change and where things could go from here. Today we wrap our week of special episodes with a look at China and Beijing’s new hard stance on business.
Keyu Jin: The sectors that might meet the challenges next are financial technology and health, which includes insurance, because again, this is incredibly linked to consumer welfare. Consumers’ data could be misused. Consumer interest could be manipulated. So there will be a lot more regulation in my view in these sectors coming up.
Peter Granitz: That is Chinese economy expert, Keyu Jin. Coming up, what is driving Beijing’s business crackdown and how much further it could go. That’s after the break. This year China blew up what would’ve been the world’s largest initial public offering, launched probes into some of the biggest technology companies, and wiped out more than a trillion dollars in market value while investors scrambled for cover. And there are many signs the crackdown isn’t over yet. So what’s the future business climate look like in China? For more, I’m pleased to be joined by Keyu Jin. She’s an expert on the Chinese economy and an Associate Professor of Economics at the London School of Economics. Hailing from Beijing she’s worked for many financial institutions like the International Monetary Fund and the New York Fed and she advises the Chinese government on FinTech regulation.
There’s a new paradigm, a new playbook for the Chinese economy that is currently underway. It’s a very significant move, a shift from a blindless pursuit for GDP and growth and efficiency to consumer welfare and protection, and also more regulated and monitored growth for Chinese companies. This era of autonomous growth contributing to local GDP as the only measurement of company performance, those days are firmly over. The government asked the companies to be legal, reasonable, and even empathetic. So these are the new standards to judge these Chinese companies. I think the west has interpreted too liberally the current moves in China saying that it’s about killing private businesses or driving out billionaires. I think this is a wrong interpretation. If you actually look at some data, out of 400 plus companies that went for a public offering last year, and all of this has to be approved by the government, 80% of them have been private businesses.
Keyu Jin: In practice, it means first of all, abiding by the law, being environmentally friendly, not trying to use connections and illegal means to acquire land or obtain licenses as was the case in the past. It means treating well your customers and your consumers and your clients. It means having sound corporate governance. It means cleaning up the companies to adapt to the modern 21st century.
Keyu Jin: Well, ironically, I think China is tackling Western capitalism’s most intractable problems ahead of the west, and even more sweepingly with more commitment, albeit more dramatically. These kind of things are debated all around the world, including in the United States where corporate lobbying, too much corporate power has always been a problem, but very little has been done to change that. Now Chinese government comes in and wants to change this very quickly, sometimes even overnight. We tend to view it as a positive move because in the past 40 years, during which China grew so much, consumers were so suppressed in favor of firms who borrowed at low cost of capital, where the returns to saving and the households were low and wages were suppressed, corporates really thrived. So this is a shift to take away some of the big companies’ power and to punish those who don’t treat their workers right.
Keyu Jin: It’s about giving middle class more opportunities, fair opportunity, and upward social mobility. So the focus is on middle class, but also small and medium size firms to push Chinese innovation forward, the sophistication of products. And so the timing of this is interesting. I think one of the reasons is the pandemic and the zero COVID policy, which meant that everybody was bottled inside China. Nobody was going anywhere. The government officials were not traveling. Chinese businessmen rarely left China. The focus is on these domestic issues. And part of the reason is really observations from the west, how populism has emerged in no small part to rising inequality, how the top 1% in the US, the corporate power and the sway over government, and also in countries like Korea, where big family businesses have had political influence, societal influence. These are all patterns that the Chinese government would like to avoid. So I think the timing of it is important also because the extremity of the big techs’ power and manipulation of consumer interest has also intensified, especially in the last couple of years.