Opinion: China is tightening its grip on outspoken CEOs. That's bad news for entrepreneurs

Perspectives Sonja Opper

Many overseas managers, traders and authorities officers — who as soon as thought that China would progressively emerge as a democratic, market economic system — now concern the tip of Chinese capitalism. Many sense a paradigm shift towards Maoist rules, guided by an authoritarian regime now extra highly effective than ever earlier than.

But the reality is that this isn’t a paradigm change. The West is just starting to comprehend what China’s self-selected label of a “socialist market economy, Chinese style” is all about. China’s leaders, present and previous, have at no level dedicated to Western-style capitalism. The authorities has all the time maintained a excessive diploma of direct political management over the economic system to safe the regime’s long-term survival. That management guidelines out a regulatory hands-off strategy.

In the Nineteen Eighties and Nineteen Nineties, markets for info, capital, land use rights and pure sources have been partly liberalized: Planned costs have been changed by market prices and new non-state opponents progressively entered the stage. But these markets have been nonetheless tightly regulated, giving the political management vast leeway to affect market outcomes at any time when it deemed vital — not just for financial and social causes, but in addition for political causes. The government continued to influence lending decisions, public procurement contracts and land allocation.
Further, the government has continued to operate state-owned enterprises to remain in control of critical industries, such as telecommunication, banking, energy and mining. Though the government has gradually allowed the rise of a thriving entrepreneurial sector, with millions of small- and medium-size enterprises providing employment for the masses, it has simultaneously strengthened and modernized the country’s state-owned economy by auctioning off small- and medium-size firms — oftentimes to former firm managers, employees or outside bidders — to concentrate state support and financial resources to modernize and scale up its large corporate giants. With considerable success, at least in terms of scale: 82 of the 135 Chinese corporations listed on Fortune’s Global 500 index are state-owned.
Xi Jinping’s administration is eager to frame current policies targeting the private tech economy as part of a broader effort to reduce extreme income inequality. References to “common prosperity” — a term initially used in 1953 — evokes Mao Zedong’s ideas of equal wealth distribution. The narrative is appealing, especially for those left behind in the country’s rapid ascent to global wealth and power. But as long as the government avoids standard fiscal tools to redistribute wealth and reduce income inequality at a larger scale, “common prosperity” remains elusive. If inequality were truly a central political concern, why not rely on a systematic tax reform and extension of public services? Why target select entrepreneurs and their businesses at the cost of creating uncertainty for investors and entrepreneurs?
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The timing of events suggests a different motivation. The start of the new era of intervention coincides with Ant Group co-founder Jack Ma’s outspoken critique last year of the country’s dated financial regulatory system, and the government’s immediate decision to withdraw Ant’s IPO. Ma’s business lost billions in value. The lesson has been made clear: Even China’s highly visible tech champions are not beyond the government’s reach.

Of course, China’s high-tech entrepreneurs have long been aware of the delicate balance they had to strike to scale in their specific niche. Most of those who succeeded so far did so thanks to close business-government relations and active support of government priorities.

Yet, as the technology gap with the West narrows, China’s desire for self-reliance rises, and once-servile entrepreneurs have become increasingly outspoken in their critique of China’s economic system. The government’s grip is tightening to bring those back into the fold who could pose a threat to the Communist Party. Some of China’s once-celebrated entrepreneurs have stepped down, such as Colin Huang, former CEO of the e-commerce platform Pinduoduo, and Zhang Yimin, founder of ByteDance. Ma, once an outspoken commentator and critic of current affairs, avoided public statements for months. For those tech entrepreneurs who wish to continue operating in China, they’ll have to pursue even closer business-government alliances — especially those who own and administer resources the government deems valuable for its own survival.

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