A motorist travels past an Alibaba Group office building in Shanghai on December 24. China’s shift towards antitrust measures against Alibaba’s Ant Group and other tech giants could signal the start of painful deleveraging for some of the country’s most successful firms. Photo: Bloomberg
Opinion
Hao Zhou
Hao Zhou
China’s antitrust crusade against tech sector signals new policy direction
While it’s clear from the Central Economic Work Conference there would be no sudden turn in overall policy, the antitrust measures underline Beijing’s bottom line of preventing systemic risk, and signal it is learning from past market routs to achieve smoother market development
As a centrally planned economy, China prefers an organised, top-down approach when delivering the tone of its policies. Hence, to gauge the policy direction in the world’s second-biggest economy, the market tends to pay special attention to a few high-level policy meetings which are normally scheduled at the end of the year.
Among these meetings, the Central Economic Work Conference is widely seen as the most important event for China watchers. The 2020 session confirmed a general policy shift, which indicates a policy normalisation in the coming year. Moreover, there was a clear policy surprise as Beijing vowed antitrust efforts with a particular focus on the technology sector.
Chinese policymakers confirmed that overall policy would be gradually neutralised in the coming year, as Beijing said it would not make a “sudden turn” in overall policy. In general, this is in line with the consensus views and suggests that a policy tapering can be expected against a backdrop of steady post-pandemic recovery.
In the meantime, Chinese authorities emphasised the importance of technology innovation, food and energy security and financial stability. As Beijing has shifted its long-term strategy to a “dual circulation” approach with more emphasis on domestic development, it makes sense for China to eye long-term growth potential via adding more investment into critical economic sectors.
However, the market should be somewhat surprised by the mention of antitrust measures. In particular, the conference said China would prevent the disorderly expansion of capital. A few days after the conference, Chinese financial regulators summoned Ant Group, which reflects a policy change towards the rapidly expanding technology giants in China.
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China kicks off antitrust probes into Alibaba over alleged monopolistic practices
China kicks off antitrust probes into Alibaba over alleged monopolistic practices
The People’s Bank of China (PBOC) posted a statement on December 27. It laid out Ant’s issues including poor corporate governance, defiance of regulatory demands, illegal regulatory arbitrage, using its market advantage to squeeze out competitors and harming consumers’ legal interests.
Things have started to change after Chinese financial regulators unusually suspended Ant Group’s planned IPO in early November. According to PBOC deputy governor Pan Gongsheng, regulators have urged Ant to rectify financial regulatory violations – including in its credit, insurance and wealth management businesses – and overhaul its credit rating business to protect personal information, which Ant has said it would comply with. All these suggest Ant Group will go through a tough deleveraging process, which normally requires both capital enhancement and reduction of risk exposure.
If we take a longer perspective, a deleveraging normally takes place after a rapid and probably disorderly credit expansion. For example, local government debt in China rose aggressively after the stimulus package launched in 2009-10 to counter the impact of the global financial crisis. When the economy recovered in 2010, Chinese authorities spent the following few years addressing local debt issues and the shadow banking system.
However, history suggests that deleveraging is rarely smooth sailing. For instance, there was a cash crunch in 2013 and a stock rout in 2015, with both sending big shocks through the financial markets. Fortunately, Chinese policymakers eventually managed to calm investors’ fears and returned stability to the markets.
Investors monitor stock market data at a securities brokerage house in Beijing in November 2015. A stock market rout that began in June 2015 wiped out as much as US$5 trillion in market capitalisation within weeks. Photo: EPA-EFE
At the end of the day, Beijing tends to design its overall policy with a more proactive approach while keeping bottom-line thinking. Preventing systemic risk remains the critical bottom line.
In the meantime, policymakers take action when they deem it necessary. For example, the bond defaults among local state-owned enterprises in recent months have generated large market shocks. Even so, urgent meetings that were held on a weekend managed to prevent further risk-off activities, which reflects authorities’ proactive approach.
Therefore, if we take a medium-term view on China’s economic policy, one conclusion is that Beijing is learning from the past market routs to achieve smoother market development. From this perspective, avoiding a sudden turn in economic policy also means that China has gradually realised that more patience and effort are needed to steer policy shifts in a big economy.
Last but not least, China appears reluctant to conduct any outright policy tightening, as it would add further appreciation pressure on the renminbi. Hence, China has also taken global factors into consideration in its policymaking.
As the world’s major central banks continue easing measures in the coming year, a stand-alone tightening could drive up interest rates and trigger capital inflows, which would push up renminbi exchange rates and ultimately erode China’s export competitiveness. Therefore, if there is no immediate risk of inflation, China would prefer a policy tapering in the foreseeable future against the backdrop of a global easing cycle.
As usual, a carefully calibrated policy approach is clearly reflected in the Central Economic Work Conference. As the economy is heading towards further growth in the coming quarters, a blanket easing is no longer on the table. Therefore, a sector-specific approach will become the main theme, with certain sectors such as high-end manufacturing receiving strong government support while other industries will face inevitable deleveraging.
Hao Zhou is senior emerging markets economist at Commerzbank
