Tuesday, October 12, 2021

Chinas Red Deal

They never learn and they do not here as well.  Create a regulator and you get a gatekeeper who takes bribes somehow.  So away we go.

Of course all those successful folks are making too much money.  this informs the rest that it is possible and how it is done.

The future of China is a population approaching 500 million and a political aand beaurocratic regime similar to Latin amertica where regulators always can be counted on to misperform unless bribed.

India is at least coming out of all that..

China’s Red New Deal: Tracking all the different crackdowns on companies going on right now

Published September 9, 2021

People watch a giant screen broadcasting Chinese President Xi Jinping's speech at the celebration marking the 100th founding anniversary of the Communist Party of China, in Shanghai, China July 1, 

Updated October 5: SupChina's tracker of all of China's different crackdowns — now affecting 19 different industries or interest groups.

First published September 9, 2021; updated October 5, 2021.


Over the past year, the Chinese government has embarked on a wide-ranging, severe, and unprecedented onslaught of its technology industries along with an array of powerful business interests.

In many ways, the crackdowns reinforce the essential traits of the Chinese Communist Party on the centenary of its founding: its commitment to ideological conformity and intolerance of regime challenges. Yet much of the activity, seemingly directed by the top leader, Xí Jìnpíng 习近平, and his Common Prosperity agenda, is driven by the need to address the extreme wealth inequality that came with four decades of capital-fueled growth.

“Red New Deal” captures some of what is going on here: The government is promising to reduce inequality and make life better for ordinary people, and many of the moves seem to have genuine popular support. It’s red because the actions have old-fashioned communist rationale, but also because companies that get in the way of the government are going to bleed.

We summarized some of the major themes of the crackdowns at the beginning of August, but the government’s targets expanded so dramatically in the following month that we made this new guide to keep track.

There are at least 19 different crackdowns going on in China right now, according to our running list. Click on the name of one to skip to that section:

1. Fintech companiesIllustration by Derek Zheng

Perhaps the first casualty of the entire crackdown was Beijing’s suspension of Ant Group’s IPO in November following Alibaba CEO Jack Ma’s speech at the Bund Financial Summit, in which he compared global banking regulators to “an old man’s club.” Ant Group promised to democratize the accessibility of loans to all Chinese, but opponents say that the company was engaging in predatory lending and abusing its market position. (Along with Tencent, Ant is part of a duopoly that virtually controls mobile and digital payments in China.)

Since then, banking regulators have forced Ant Group to restructure as a financial holding company and spin off its consumer credit data operations. They have also called on Ant to help develop a state-backed digital currency, threatening the company’s popular payment networks.

2. Ecommerce and social media companies

Illustration by Alex Santafé

Regulators have come down on China’s largest ecommerce and social media companies for abusing their market dominance.

Alibaba became the first and largest victim when it was fined a record $2.8 billion on April 10. Three days later, 34 of China’s biggest platform companies were called in by antitrust regulators to rectify monopolistic practices, including Tencent (social media), Meituan (ecommerce), Baidu (search), ByteDance (social media), and JD (ecommerce). In the following months, SAMR has fined almost all of these companies for failing to disclose mergers, signing exclusive contracts, misleading marketing tactics, and other “merger irregularities.”

Ecommerce companies have also been the main target of regulations aimed at protecting the rights of workers. Months after a September 2020 exposé (in Chinese), which detailed the exploitative working conditions of delivery workers, Xí Jìnpíng 习近平 vowed to protect “the legitimate interests of truck drivers, couriers, and food delivery riders.” Regulators have since issued a number of rules, including ordering online food platforms to ensure their workers earn at least the local minimum wage. Six major parcel delivery companies in late August announced they would increase delivery fees to boost couriers’ incomes.

3. Celebrity and fan club culture

Illustration by Derek Zheng

China has taken harsh measures to curb what it describes as “chaotic” celebrity fan culture, amid growing concerns among officials that pop stars and actors are poisoning the minds of Chinese youths. The Cyberspace Administration of China has banned (in Chinese) the ranking of celebrities by popularity. In May, a popular idol group show was shut down by officials after a video (in Chinese) surfaced in which fans of the show were dumping milk into ditches in a dairy marketing campaign gone wrong. In September, Weibo, the popular social media app, announced bans on 21 K-pop fan accounts for a month after photographs of a customized airplane funded by a fan club of South Korean K-pop band BTS emerged online.

Other measures evince Beijing’s bugbears, such as the clampdown on artists with “incorrect political positions” or men who were insufficiently masculine from TV shows and movies.

4. High-income individuals who avoid taxes, or make “excessively high incomes”

Illustration by Derek Zheng

In August, the same day Xi Jinping made a speech calling for the promotion of “common prosperity,” he also called for China to “clean up and adjust excessively high incomes.” Ten days later, the State Taxation Administration announced a probe into people who have avoided taxes. Regulators have already fined a number of pop stars and actors for tax evasion and have even ordered broadcasters to wipe the content of blacklisted celebrities — their names and faces — from the Chinese internet. The most high-profile targets so far include the actresses Zhào Wēi 赵薇 and Zhèng Shuǎng 郑爽.

5. Tutoring and education companies, private schools

Illustration by Alex Santafé

China’s regulators made international headlines in July when they banned its sprawling $100 billion tutoring sector from raising capital and going public. The measures come amid growing concerns that education has become an expensive rat race with no reward for average people.

Officials also see the exorbitant cost of education as a potential obstacle to new Party plans to increase China’s birth rates. In March, Xi Jinping told members of an education committee that the tutoring industry placed undue burdens on children and mentioned the sector as an example of “disorderly development” (in Chinese). Tutoring companies must now register as nonprofits by the end of the year. Since the law came down, shares of China’s largest education company, New Oriental Education, have dropped 80%, and many tutoring companies have gone out of business.

The tutoring crackdown is also linked to wider reform of China’s private compulsory education sector, including by restricting profiteering in private education, banning foreign ownership of private schools, and trying to reduce the proportion of private school enrollments.

Regulations have also tried to sever the link between expensive homes and good schools. After regulators announced they would not guarantee school placements based on home proximity, purchases of school-district homes in several cities plummeted.

6. Gaming companies

Image via REUTERS/Aly Song

Since 2018, China has taken aggressive aim at gaming giants Tencent and NetEase, halting approval for new companies and issuing draconian gaming curfews for minors. Over the summer, the scrutiny returned. A state media article in August described video games as “spiritual opium.” That same month, China issued one of its more stringent policies yet on how long minors can play online video games. The National Press and Publication Administration banned players under 18 from playing more than three hours a week — and only between 8 p.m. and 9 p.m. on Friday, Saturday, and Sunday. The rules come after recent revisions to the Minors Protection Law meant to prevent Chinese youth from internet addiction.

In September, Beijing slowed down approvals for new video games, and later released guidelines that new games must follow socially conservative rules, such as requiring that male characters dress and act like stereotypical men.

7. Ride-sharing, car-hailing, bike-sharing, and power-bank-sharing companies

'A Meituan power bank or phone charger rental station in an apartment building lobby in Shanghai, April 2021. Photo by SupChina.

China’s antitrust regulators have tightened their supervision of the giants of the sharing economy. In late August, the State Administration for Market Regulation began investigating recent mergers in the power-bank-sharing industry, which dispenses portable phone chargers for rent across China’s major cities. In June, eight enterprises in the sharing economy were ordered to rectify prices after they suddenly hiked prices following years of growth and market consolidation. Some other companies such as ride-hailer Didi have also faced regulatory scrutiny over data security. The Alibaba-backed Hello, a bike-on-demand firm, also abruptly suspended its plans for a U.S. IPO in late July for unknown reasons.

8. Companies that want to IPO in the U.S.

Illustration by Alex Santafe

China has tightened its screws on domestic companies trying to list overseas amid data security concerns and mounting regulatory pressures from the U.S. Two days after ride-hailing app Didi’s IPO in the U.S., the Cyberspace Administration of China suspended its app for violating data security protocols. The probe then widened, and app freezes fell on two other U.S.-listed Chinese companies: freight-logistics app Full Truck Alliance and recruiting platform Kanzhun.

Regulators have since worked to patch a loophole in which Chinese tech companies have historically gone public overseas — known as a VIE structure — and sought to implement the newly passed Data Security Law (DSL). China is reportedly planning to propose new rules that would outright ban companies with large amounts of sensitive consumer data from going public in the U.S.

Business in the morning.

A lot happens in China’s economy when you’re sleeping. Luckily there’s SupChina A.M. – a free newsletter you can read in less than 2 minutes, delivered at 9am ET daily.
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Despite all the hurdles, it seems many Chinese companies are still willing to push ahead with Wall Street dreams.

9. Companies that make heavy use of algorithms

Illustration by Derek Zheng

China has issued unprecedented rules to stop tech companies from abusing recommendation algorithms. The new cyberspace guidelines (in Chinese) evince political and ideological motives — such as old-fashioned censorship — but many of them also resemble arguments leveled against Big Tech in the West. They include limitations on keywords, protections for minors, greater transparency, and better worker protections for couriers whose delivery schedules are made by machines. Algorithms are also prohibited from engaging in differential treatment based on consumer preferences and characteristics.

10. Cloud computing firms that sell services to state and Party organizations

Photo: VCG

As part of Beijing’s sweeping Data Security Law meant to ensure sovereignty over its data, the government’s state assets watchdog in Tianjin has ordered its state firms to migrate cloud services from tech giants like Alibaba and Tencent to the government’s own infrastructure. Firms owned by the municipal government were also barred from renewing or signing new leasing contracts with public cloud platforms owned by Huawei, Alibaba, Tencent, China Unicom, China Mobile, and China Telecom, according to Chinese media reports.

11. Bitcoin miners and crypto exchanges

Illustration by Derek Zheng

China has banned bitcoin mining as part of a wider crackdown on speculative investments and energy-intensive industries. Inner Mongolia became the first province in March to implement a thorough ban. That intensified in June, when four more regionsQinghai and Xinjiang, then Yunnan, and finally, Sichuan — announced plans to cut power supply to bitcoin mining operations leading to the shutdown of more than 90% of China’s bitcoin mining capacity. A June notice (in Chinese) by the central bank said that cryptocurrency trading “disrupts normal economic and financial order” and can facilitate money laundering and other crime. In late September, China’s financial and securities regulators initiated a blanket ban on cryptocurrency transactions and mining.

The country has had a firm stance against cryptocurrencies for many years. In 2013, China’s central bank barred financial institutions from handling cryptocurrency transactions after its price jumped tenfold in the span of a few months. In 2017, it also banned fundraising through initial coin offerings and shuttered domestic bitcoin exchanges. Chinese miners, which accounted for as much as 70% of crypto mining worldwide, have now been driven out of China. Some of them have relocated overseas to Kazakhstan, Russia, and Texas.

12. Real estate companies and landlords

Illustration by Derek Zheng

Beijing has sharpened its oversight of the country’s red-hot real estate market by tackling speculative borrowing that has fueled anxieties about financial risk. In June, eight government departments vowed to strengthen regulation and supervision over the real estate market, stressing that “housing is for living in, not for speculation.”

In August, the China Banking and Insurance Regulatory Commission launched a probe into the real estate arm of Ping An Insurance Group, one of the country’s most prominent financial firms. Regulators have asked Ping An to halt the sale of alternative investment products, leaving dozens of teams out of work. But Shenzhen is the main experimentation zone for new real estate regulations. There are rules limiting deposits to a maximum of one month’s rent, along with price caps on land.

The campaign to rein in unruly debt ramped up in October 2020 when regulators imposed the “three red lines,” which capped borrowing and forced developers to offload properties at increasingly steep discounts. That led to a liquidity crisis at China’s largest property developer Evergrande. The conglomerate is close to bankrupcy, which may slow down the entire global economy.

China’s campaign to cool its property market is alarming investors. Analysts at Bank of America, for example, are saying that the credit squeeze in the property sector is “unnecessarily aggressive” and may weigh on industrial demand and consumption. Beijing has a tight rope to walk, as it tries to stabilize its property sector without imperiling a vital sector of the economy — the industry accounts for more than 28% of gross domestic output.

13. Private investment funds

Illustration by Alex Santafe

China’s top securities regulator said that it will rein in the country’s private equity and venture capital funds, per Bloomberg.

The chairman of the China Securities Regulatory Commission said in a speech that the government is dedicated to rooting out embezzlement and public equities masquerading as private equities.

14. Online insurance providers

A man rides an electric bike past the China Banking and Insurance Regulatory Commission (CBIRC) building in Beijing, China February 14, 2019. REUTERS/Stringer

The China Banking Regulatory Commission (CBRC) is going to target the country’s growing online insurance sector, according to Shanghai Securities News (in Chinese, or see this Reuters report).

15. Online short-term rental platforms

Several government agencies summoned nine short-term rental platforms, including Airbnb and its major Chinese competitors, for a meeting on August 20, ordering the platforms to remove listings for properties in Beijing.

16. Cosmetics and packaged food brands

Credit: bunditinay via Adobe Stock.

China has sought to increase oversight over packaging and labeling in the rapidly growing food and cosmetics industries. In September, China’s regulators issued new guidelines (in Chinese) to prevent excessive packaging for food and cosmetic products. The rules follow a series of regulations earlier in the year that aims to prevent misleading labeling and product information in the cosmetics industry.

17. High-frequency stock traders

Illustration by Derek Zheng

Quantitative trading — a sector that has grown rapidly alongside China’s stock market — should be regulated in a way that “best suits” the country, per the state-run Securities Times (in Chinese).

​​In 2020, Chicago-based high-frequency trading firm Citadel Securities agreed to pay a $97 million settlement for alleged trading irregularities during a 2015 market rout in China.

Business in the morning.

A lot happens in China’s economy when you’re sleeping. Luckily there’s SupChina A.M. – a free newsletter you can read in less than 2 minutes, delivered at 9am ET daily.
Enter your email addressSUBSCRIBE

18. Virtual reality

Source: Nreal site

China’s consumer tech sector is rushing headlong into VR even amid regulatory fire. “Metaverse,” a 3D space based on virtual reality and augmented reality technology, has become a new fad among Chinese tech companies ever since it was popularized by Facebook’s Mark Zuckerburg in July. ByteDance bought China’s biggest VR headset maker in a push to enter the field in August and two Chinese internet companies announced plans to develop metaverse products in September, sending their Shenzhen-listed stocks surging 100% and 50%, respectively. That has apparently alarmed regulators. A commentary in state-owned Security Times days later denounced the technology as a “grand and illusionary concept.” Investors, it read, “will be burnt in the end.” Nevertheless, investors press on into the sector: Beijing-based Nreal, an augmented reality technology company, announced on September 23 that it had completed a Series C funding round of over $100 million.

19. Casinos

Photo via Jennifer Morrow on Flickr.

China is ramping up its scrutiny of casinos in Macao, the only place in the country where gambling is legal. Officials said in mid-September that they would tighten restrictions on casino operators, including appointing government representatives to “supervise” them. Lei Wai Nong (李偉農 Lǐ Wěinóng), Macau’s secretary for economy and finance, issued a 45-day consultation period on the gambling industry pointing to deficiencies in industry supervision. Macao’s casinos, which must all rebid for licenses when permits expire in June 2022, now face an uncertain future. $18 billion evaporated from casino stocks immediately after the news.

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