Something is going a bit wrong in China. It is hard to put a finger on what exactly has gone awry. Just like a clown’s car in a circus act, so many parts of China’s command economy are starting to fall apart, spectacularly.
If China doesn’t handle matters carefully, Krusty could find himself riding out of the Big Top on a depleted chassis.
Many, it must be said, were always sceptical of China’s claim of socialism with Chinese characteristics. But it was Jack Ma who dared to openly criticise the system.
He took aim at Chinese banks by saying that they move with a pawn-shop mentality. He also said it is not possible to use railway-station management to regulate commercial airports.
His outspokenness has not gone unpunished. Jack Ma, Alibaba, and even his brainchild, Ant Financial, have been summarily disciplined.
He is not alone. Tencent, Baidu, ride-hailing outfit, Didi Chuxing, and food-delivery company, Meituan, have been targetted, too. The regulators have also taken aim at companies that provide private tutoring.
Who’s next? That’s a good question. No company, it seems, is safe from the long arm of the CCP.
Their throwing toys out of the pram doesn’t even begin to describe what is going on in the Middle Kingdom. The crackdown on Chinese tech companies has already seen hundreds of billions of dollars wiped off their collective market valuations.
Clearly investors cannot ignore the “P” or “Politics” in the PEST analysis when looking at companies. The other is the “E” or “Economics”. That doesn’t look too great for China either.
In the second quarter of this year, China’s economy expanded 3.2%, which was better than expected. But experts reckon that the headline growth numbers were boosted by state-supported heavy industries. By contrast, and perhaps worryingly, retail sales fell for a fifth straight month.
China is learning the hard way that elephants don’t gallop. Question is whether it will be able to convince the people of China that the extraordinary growth rate of the past decades is unlikely to be repeated.
As for investors, the business environment for tech companies in China today is not the same as it once was. It is unclear if it will ever be business as usual if the China crackdown is designed to rein in the dominance of tech titans.
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David does not own shares in any of the companies mentioned.