With apologies to the late and legendary James Doohan, those who try to make sense of how the planet’s economic systems function have likely been taken aback by the recent and continuing actions of the PRC Government/CCP in imposing a series of ever-expanding regulatory constraints not just on individual companies (vide Alibaba/Ant) but on whole industries (for-profit private tutoring). In the latter case, with a single bureaucratic cum political act, an entire industry was essentially “vaporized”, with investors suffering tens of billions of dollars of losses.
For a country which experienced the most extraordinary economic growth in recorded history because of decisions from 1978 onwards to encourage what was in reality competitive capitalism, such a development seems equally extraordinary.
However, subsequent actions and rhetoric appear to give a hint at possible underlying motivations, although trying to make sense of what emerges from the opacity of Zhongnanhai (the compound just to the west of Beijing’s Forbidden City which houses the headquarters of both the CCP and the State Council) is the Chinese equivalent of Kremlinology!
There is, of course, the risk of transposing western sensibilities onto a culture and political system which prides itself on its resilience and longevity, and in trying to posit a “simple” explanation. “What were they thinking?” gets one nowhere.
However, there does certainly appear to be an element of the CCP (re-)asserting its paramount status across all aspects of society, including private industry, and cutting down “tall poppies”, even if they did not have the temerity to challenge the Party’s authority. Conversely, “vaporizing” the for-profit tutoring industry may well be underpinned by the perception that it created and “arms race” and so was a major factor in making further education a prohibitively expensive goal, thus threatening not only social cohesion, but also demographics (even if the gaokao, or national university entrance exam is already considered notoriously brutal). In essence, the CCP seems to be initiating a form of re-distribution and equalization.
One could add to the mix (with rather less conviction) the thought that perhaps the CCP is not only trying to re-direct economic activity towards what it sees as more productive sectors in which it needs to catch up with the US and others (such as semi-conductors or advanced materials), but also to start re-directing its economy to a “war footing”, in which it can safely sever itself from the rest of the world (a theme which is recurrent in the history of the Middle Kingdom), and especially the US and its capital markets, because at some point there will be direct confrontation (say, over Taiwan). Call that the paranoid school of Sinology!
Attaching probabilities to the reasons is almost certainly a “mug’s game”, brought on by the human need for clear explanations and “certainty”. Observing actions and assessing likely outcomes is more productive.
In reality, there may not be any coherent set of underlying reasons, or the actions disclosed may be the direct expression of President Xi’s will, as he prepares for next year’s expected 20th Party Congress, at which he is almost certain to seek a third term as what amounts to paramount leader.
What we have just alluded to is that bane of risk management: “Nobody Really Knows”.
This does not mean, of course, that one simply “shrugs one’s shoulders” and despairs. It simply means that one now has to incorporate additional factors into one’s risk assessments and look for the second and third order effects of what is irrefutably fact.
The Awbury Team