China's private sector is feeling pressure from the government. From tech firms to real estate and even to video games the Chinese CommunistParty is ramping up regulation on these high profile industries.
These changes have many different drivers from economic concerns to ideological ones. Microsoft recently pulledLinkedIn from China and plans to release a China-specific option for job hunting in the country. Evergrande, a giant firm inChina that deals in real estate and several other ventures have run into debt problems that could require government intervention. Meanwhile, the government pressures big names in techs such as Chinese business magnate and Alibaba founder Jack Ma. But even as the crackdown seems to be hitting a high point Goldman Sachs has been granted full ownership in a joint securities venture. China's business climate is closing in on some sectors and opening and others, creating a hurricane of opportunities and pitfalls. Jack Ma is a titan of Chineseentrepreneurship, the astronomical rise of Alibaba. And also Ali pay, which is owned by ant group was unparalleled inChina, and it followed it up with a big entrance in the US. But after a group's IPO was paused, things started to hit in a different direction for Jack Ma, Jack Ma is probably the best example of a figure that CCP is looking to, if not take down at least to reduce his public profile. Of course, he gave this speech that was you know, incendiary to put it lightly and sort of considered rude by many people in China, and many people think that sort of contributed to the IPO being pulled. But again, if you look at the specific reasons that were given by the government, there was you can trace back several years of work to regulate this industry, namely consumer credit and small business lending. his management style and work ethic filtered throughout the Chinese tech industry resulting in what's known as the 996 workstyle, China's Supreme Court announced that the so-called 996 culture is illegal. Jack Ma is famous for advocating the 996 culture, which means that you are expected to work from 9 am to 9 pm, six days a week, an unpopular policy among workers. Another component to Jack Ma'stroubles is the Communist Party's priorities and fears seeing these figures like Jack Ma and others emerge who have become, you know, influential celebrities in their own right. And while those figures have never actually challenged the party have gone out of their way to signal that they will not change the party.
Even the possibility of the private sector getting that power seems threatening to the regime. Shortly after, Xi Jinping came into power as the General Secretary of the Communist Party in 2012, he began to crackdown on corruption. Now, the Chinese government is taking a look at the burgeoning power of big-tech and under Xi Jinping's guidance, the government has begun a campaign to bring Tech Under even more state control. One element of this is Xi's consolidation of power within the party, that Xi himself is coming into this period of deep uncertainty. Where, although he's you know, secured, like the abolition of the term limits that previously held Chinese leaders to like a decade in power, he still has to solidify that in 2022 - 2023. Make sure that the transition goes smoothly. There's also a fear of big tech wielding too much power or using it irresponsibly. One instance of the state asserting itself over Chinese enterprises was the failed launch of the Didi IPO Didi is a rideshare service that managed to beat out Uber in China as the go-to app for grabbing a ride. Didi raised more than 4 billion for its IPO on the New York Stock Exchange, but Chinese regulators unhappy with Didi's data practices pulled the IPO. Just before its IPO the Chinese government warned or advised Didi to cancel it, ignored that advice, and went through with it. So that got it in trouble because it directly went against the Express advice of the Chinese government. China has made it very clear in the past couple of years starting in 2016. That cybersecurity data security is going to be a major concern of the government especially because China's heavily investing in becoming more and more digital Tencent, which offers video gaming and messaging software such as the GuJian game franchise and WeChat a popular messaging app in China has focused on adjusting to the new regulatory environment that among other things, limits video gaming for Chinese minors. Another push underway by the state is to change how characters are even portrayed in video games. But GuJian impact is also you know, deeply influenced by like, Korean and Japanese game design, which includes things like quote-unquote, effeminate characters. And so just at this point where you know, the video game market was potentially about to be a real source of international success with China, it feels like they're taking measures that are going to, you know, may well cripple that Evergrande is a titan of real estate in China. But the debt load for Evergrande became overwhelming totaling around 300 billion in liabilities. The Chinese state is currently evaluating what to do aboutEvergrande situation. I think the consensus is that this will be I think the term that's used that is most apt is probably controlled the detonation. One reason Evergrande ended up in this situation has to do with how real estate is managed inChina, the local governments in China have a huge budget deficit, because most of the tax revenues go to the central government, and they make up that deficit by selling real estate or working with real estate developers, you know, licensed, selling and selling the use of the land. And that has led to this sort of asset bubble and has led to these unsustainable practices of funding, worries of a real estate bubble in China causing reverberations throughout the economy are not new. But Evergrande has put the spotlight on this troubled industry. But that is a fraction of the total debt that the real estate sector has accrued, which is about $5trillion. And about 3 trillion of that I believe, is since2016.
Alone. So you've had this massive buildup of debt that is now kind of going to unspool as the property market deflates, it hasn't exactly crashed yet, but they're having massive problems moving that future stock. And that's causing, you know, huge worries. And the way I think that the party will react to that is by cracking down because, in part, that's the language that word that the party understands. One recent example reported by the New York Times is the detention of two executives for suspected crimes who worked for the HMA group, a Chinese conglomerate, which recently collapsed. The effects of this regulatory crackdown are still being learned. Microsoft recently announced that LinkedIn will be pulled from the China market due to the new data compliance requirements and the difficult regulatory environment. These new data requirements could force foreign companies to hand over user data to the Chinese authorities, which in turn could potentially be used for the government's purposes. One of the consequences of this is that the China market will be a riskier place than it has been for foreign investors. It's been risky all along, in part because china's even the private companies are not very transparent, you can't know what the underlying facts and figures are to guide your investments hard doing due diligence in the Chinese market. And these new restrictions may make that more difficult, there is hope that some of the efforts will result in more competitiveness within China, the regulations are not necessarily to boost the competitiveness of a specific company, right?
It's not like to create some national champion so that Alibaba, you know, can go and compete against Amazonglobally, or anything like that. It's not about that. It's about leveling the field and then creating a more fair ecosystem. So one of the things that both Alibaba and Meituan the food delivery giant have gotten heavy fines for is this practice of two trees, one, which was, you know, exclusivity, where they said, if you are on our platform, you can not be on competing platforms, as you can imagine, the hat is, of course, helpful to Alibaba, but very, very hurtful o the vendors and merchants, but the ideological concerns of the regulatory push me into being an economic wildcard that for the last 40 odd years, you've had three pillars of party support in China ideology, the economy, and nationalism. Now, ideology has always been the weakest. And while they've been trying to prop it up, they've been trying to, you know, reassert kind of map-like Marxist ideology, Marxist feeling, it's still very weak, there's not a lot of genuine like Beli for support there. The economy was by far the strongest pillar. But that's been worn away. And so they are going o learn more and more and more n nationalist the future could be brighter for Chinese investment in other sectors than the tech areas that are experiencing heightened regulation. There are new companies that are working on completely different things that, you know, might become more of a global brand, you know, than that the companies I just mentioned, and let's not ignore the fact that even those consumer internet giants have also started investing in those new sectors at least five years ago. So I think we're going to see very different technology innovations coming out of China going forward.
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