For more than two years, the Chinese authorities have been cracking down on large parts of the private sector, from indebted property companies to data-sensitive tech groups. The campaign was so intense that prominent tycoons such as internet billionaire Jack Ma sought refuge overseas.
But this week, just as China’s entrepreneurs were beginning to look like an endangered species, one of the most powerful regulators abruptly changed its tune. From now on, decreed the Cyberspace Administration of China, the “legitimate rights” of the corporate class would be respected. No one would be allowed to bad mouth the country’s bosses anymore.
“Slander, insults . . . the hyping of negative news” — all these would be sternly dealt with, declared Shen Yue, an official with the internet and propaganda watchdog, at a press conference.
As if on cue, Ma also suddenly reappeared on Chinese soil in his hometown of Hangzhou.
Worried about a sharp deceleration of growth caused by tight Covid restrictions last year, President Xi Jinping has launched a charm offensive to convince domestic and foreign capital that the world’s second-largest economy is reopening for business.
Xi’s number two, Li Qiang, who used to hobnob with the likes of Ma and Tesla’s Elon Musk in his old job as Shanghai party boss, sounded a pro-business clarion call at the annual meeting of parliament in March. Since then, the message has quickly been passed down through the bureaucracy. The southern province of Hainan, thousands of kilometres from Beijing, issued a missive last Friday ordering local officials to desist from detaining and prosecuting private sector entrepreneurs — where possible.
For Beijing, the stakes are high. On the tech front, China needs to muster its most innovative companies if it is to compete in areas such as artificial intelligence with the US, with Washington also trying to restrict Beijing’s access to cutting-edge semiconductors.
Although few have any illusions that the Communist party will back off its desire for deeper control over business, the wider economy needs sustained foreign investment to help boost productivity and create jobs for the millions of university graduates entering the workforce each year.
“Everyone is happy to see the strong and consistent messaging from the government in public and behind closed doors about China being open to business,” says Denis Depoux, global managing director of Roland Berger, the management consultancy, who attended business conferences this week with the senior Chinese leadership.
“For sure, what has developed in the past couple of years is a bit of unpredictability in policymaking. It’s good to see that the Chinese leaders feel the need to hammer home the message that it [policymaking] is predictable again.”
The tech crackdown
Nowhere did that “unpredictability” hit harder than in the tech sector. In 2020, the government abruptly canned a planned $37bn IPO of Ant Group, the fintech Ma pulled from his ecommerce group Alibaba, after the outspoken entrepreneur criticised financial regulators at a forum in Shanghai. The crackdown quickly spread through the sector, hitting ride-hailing apps and online education, gaming and other companies, as Xi brought the tycoons to heel under the auspices of his “common prosperity” programme.
The 58-year-old Ma spent much of the past year abroad in Japan and other countries, lying low and escaping China’s tough zero-Covid controls.
But in recent months, Chinese leaders, keen to resuscitate the country’s reputation among the business community, began reaching out to Ma, welcoming him to come home and guaranteeing his safety, people with knowledge of the matter say.
“It’s an important sign. Ma is a symbol,” says Duncan Clark, head of business advisory at BDA China.
But while the authorities will play up the pro-business message from Ma’s reappearance, the once-flamboyant tycoon is returning much chastened to a group that is a shadow of the empire worth more than $1tn he oversaw before he fatefully mounted that stage in Shanghai two and a half years ago to criticise the authorities.
Ant Group remains under a Beijing-directed revamp, with state-backed investors entering its most valuable business lines, such as lending and credit scoring. Ma this year also moved to give up control of Ant, hoping to quicken its regulatory rehabilitation.
Alibaba, which Ma founded more than two decades ago, is also embarking on a radical split after losing about $600bn of market value since Xi called off sister company Ant’s IPO.
Executives hope the restructuring will both rejuvenate the stagnant tech group and also please Beijing. For Ma, who has been involved in pushing the plan through, it will mean the carving up of his legacy to ensure pieces survive for decades to come, two Alibaba employees say.
The Jack Ma Foundation and Alibaba did not respond to requests for comment.
In the broader tech sector, meanwhile, the Communist party is still quietly tightening its grip on the industry. Nearly all of China’s largest tech groups are adding state-appointed directors and shareholders in key operating entities.
State groups generally make a token investment for a 1 per cent stake. These “golden shares” carry a slew of special rights. Alibaba, for instance, has handed the government “golden shares” in two units dedicated to streaming video and web browsing. At the start of the year, a state-owned fund tied to the CAC paid just Rmb350,000 ($51,000) for 1 per cent of an Alibaba unit in Guangzhou.
Documents seen by the Financial Times show the CAC appointed a mid-level official as a director of the company as part of the deal. The official has a vote on “business and investment plans”, mergers and acquisitions, and veto power over certain other business decisions, the company bylaws show.
“The government is facing a dilemma, with growth on one side and control on the other, and they are swinging between the two,” says BDA’s Duncan. “You have to pick one.”
Open for foreign business
Beyond the tech sector, the government has mounted a determined campaign to rekindle confidence among the broader business community, particularly foreign investors, many of whom have not visited China for three years because of Covid controls. At the annual parliamentary meeting in March, Li, the new premier, touted the country’s “supersized market” and promised a “new era” for private entrepreneurs.
He followed that up with a closed-door meeting with global chief executives at a conference in Beijing, even taking unscripted questions from the gathering, according to one attendee — a rarity for top officials in Xi’s China. Top chief executives, from Apple’s Tim Cook and BHP’s Mike Henry to Pfizer chair and CEO Albert Bourla, attended the forum. “Foreign companies are not guests, but family,” declared commerce minister Wang Wentao at the same conference.
“The clear message China wanted to convey to foreign businesses is China is open for business,” says William Klein, a consulting partner at FGS Global and former senior US diplomat in Beijing. “Party secretaries are calling in foreign companies and saying ‘what can I do?’,” he adds. The shift in sentiment appears to apply to China’s domestic private sector as well.
Outwardly at least, the global CEOs in Beijing echoed the new sense of optimism. “I’m thrilled to be back,” declared Cook, who despite US-China tensions was still welcomed as a corporate celebrity in China. “The atmosphere is great,” Mercedes-Benz Group board of management chair Ola Källenius told the FT of the conference.
But the underlying mood at the event and its sister meeting, the Boao Forum for Asia on Hainan island held later in the week, was also one of caution. US CEOs generally kept a low profile, assiduously sticking to their written speeches and dodging the media. This was partly because of congressional scrutiny of their China ties back home in the US. The government-appointed panel moderators studiously avoided sensitive topics, such as US-China tensions, the war in Ukraine and tech sanctions.
There were also constant reminders from the world outside the conference venues of the real risks of doing business in China.
“It is wonderful to be back in Beijing in a beautiful spring setting,” Sharon Thorne, chair of Deloitte’s global board of directors, told the conference, a reference to the cherry blossoms in the venue’s gardens outside. She did not mention that the government had just fined and shut down Deloitte’s Beijing operation for three months for “serious deficiencies” in an audit of a state-run bad debt manager.
In March, the state also detained without explanation five local employees of US due diligence firm Mintz Group and arrested a Japanese worker at pharmacy company Astellas Pharma on allegations of espionage. A month earlier, Bao Fan, China’s top tech dealmaker, disappeared before turning up in state custody a week later. The move spooked a financial sector that was already reeling from pay cuts as part of Xi’s “common prosperity” drive to reduce inequality.
These events were a reminder that the charm offensive should not be interpreted as Beijing relaxing control, say analysts.
“China may welcome investment but only on their own terms and that has not deviated from what’s happened in the past,” says Han Shen Lin, assistant professor of practice in finance at NYU Shanghai.
While Xi understands the importance of the private sector in underpinning growth and innovation in China, the 69-year-old leader also “tends to think in dialectical terms”, says Alfred Chan, a biographer of the Chinese president and emeritus professor at Huron University College, Western University, Canada.
The crackdown on people like Jack Ma over recent years, he says, reflected concern over “what the Chinese leaders call unregulated capitalism”. That included an attempt to rein in the monopoly powers of some companies. “You cannot let the private sector go out of control,” Chan argues.
Indeed, some foreign investors view the party’s methods, including its sudden policy changes, as a regular part of doing business in China. “Our view is that’s always been a feature of the landscape here,” says one global chief executive of a western multinational.
The positive news was that there is growing evidence the party has decided to pursue a pro-growth agenda as part of its next five-year plan, says Robin Xing, chief China economist at Morgan Stanley. At the same time, the economy was showing strong signs of recovering from last year’s low. He predicts growth could reach 5.7 per cent year on year in 2023, compared with the government’s official target of 5 per cent.
“This is a new government with a consistent message and the economic data is improving,” says Xing.
But for Beijing, whether it can genuinely reignite investor animal spirits in the longer run will depend partly on how it treats corporate champions, such as Ma.
Business confidence had definitely started to return since the end of last year, says Fred Hu, chair of investment firm Primavera. “The question is, will the rebound be quick and strong enough and can it be sustained?”