China’s big crackdown on business appears far from over.
Top leaders from the ruling Communist Party on Wednesday laid out a blueprint for how they plan to continue tightening the regulatory screws on companies over the next five years.
The country’s latest five-year plan includes promises to strengthen rules that would clamp down on monopolistic behavior and regulate technological innovation. Authorities also called on “law enforcement” to take action in areas of “vital interests of people,” including financial services, education and tutoring.
The policy map — jointly released by the Party’s central committee and the State Council — was vague on the specific actions that authorities want regulators to take.
But it suggests Beijing’s unprecedented crackdown on private enterprise, which began late last year, could last for some time. China’s five-year plans are the cornerstone of economic and social policy in the country, and the latest plan runs through 2025.
“The people’s growing need for a better life has put forward new and higher requirements for the construction of a government under the rule of law,” officials wrote in the policy paper, stressing the need to regulate parts of the economy necessary for “social fairness” or “public good.”
The directive comes during a time of massive upheaval for Chinese industries ranging from tech and financial services to private tutoring. An onslaught of regulations on private business has rattled global investors and triggered fears about the future of innovation in China, as well as the ability for companies to tap capital markets.
The government has cited a need to safeguard national security and protect the interests of its people. Regulators have widely blamed the private sector for creating socioeconomic problems that could potentially destabilize society and affect the Party’s grip on power.
Beijing’s grievances with each sector vary.
Ride-hailing company Didi — which recently went public in New York — has been accused of mishandling sensitive user data. Other US-listed Chinese tech firms have been criticized for endangering national cybersecurity. High-flying Alibaba affiliate Ant Group, which was supposed to go public in the world’s largest IPO last year, has been chastised for increasing financial risk. And a slew of private tutoring firms were warned against worsening inequality in access to education during a crackdown last month.
The clampdown has wiped out more than $1 trillion in market value for many powerful Chinese companies and even caused some big proponents of Chinese investment to think again.
SoftBank (SFTBF) CEO Masayoshi Son — whose company holds stakes in Alibaba (BABA), Didi and TikTok owner ByteDance — said Tuesday that he would take a cautious approach to investing in China until the impact of new regulations are clear.
“Is it six months, 12 months? I don’t know yet,” Son said. “[But] in one year or two years, under the new rules, and under new orders, I think things will be much clearer … Once things get clearer, then we are open to resuming active investment.”
Chinese stocks were modestly lower Thursday. Hong Kong’s Hang Seng Index (HSI) was down 0.7%, while the Shanghai Composite Index (SHCOMP) dropped 0.2%.
The muted reaction hints that investors may be more accepting of the “new normal” for Chinese business, “with China’s regulatory crackdown now seemingly set for years ahead,” wrote Jeffrey Halley, senior market analyst for Asia Pacific at Oanda, in a research note.
— Michelle Toh contributed to this report.