By Elles Houweling
To say that 2021 has been an eventful year for businesses in China would be an understatement. Apart from coping with the ongoing consequences of the Covid-19 pandemic, a constant flow of regulatory changes coming from Beijing rocked countless industries from real estate to gaming, ecommerce, edtech and many more. Given the speed and seemingly arbitrary nature at which new laws have been introduced, it can be difficult to understand what is happening in China and what the future may look like.
Verdict talks to business executives and analysts specialised in China to discuss what the next year might have in store for the Middle Kingdom.
In 2022 two major national events will dominate the narrative — first, the winter Olympics in Beijing in February. Then, after that global spectacle wraps up, the Chinese People’s Political Consultative Conference (CPPCC) will meet in March to start with preparations for the Communist Party’s (CCP) most important event in 2022: the 20th Congress in November.
The outcomes of that event will shape China not only in the next year but in the next decade — perhaps even the decades — to come.
In 2021, news in China was dominated by a slew of regulatory changes aimed at curbing Big Tech’s power.
“China has allowed things to develop very fast. But now they’re balancing things out from a regulatory point of view, and they’re taking action on monopolies,” David Messenger, CEO at China-based fintech company LianLian Global, tells Verdict.
It all began in November of last year, when, at the last minute, the CCP torpedoed the hotly-anticipated initial public offering (IPO) of Ant Group, retail giant Alibaba’s financial arm.
Since then, hardly any big name in the Chinese tech industry was spared. In May, Alibaba was slapped with a record-breaking US$2.8bn antitrust fine. Soon after, Tencent was probed by the Chinese government. Ride-hailing app Didi Chuxing experienced a disastrous New York IPO, which prompted countless firms to rethink their plans of going public in the US.
The saga goes on: In the summer, a ban on online private tutoring wiped out a multi-billion dollar industry almost overnight. In addition, the notion of “common prosperity” was introduced, which saw the likes of Alibaba and Tencent pledge significant sums of money to foster fairer economic growth in China.
Within just a year, Xi effectively changed corporate China.
At the end of 2022, the CCP will hold its 20th Party Congress, which in all likelihood, will see Xi Jinping re-elected as General Secretary for at least another five years. As a result, we can expect to see Xi more openly exercising the power he has accumulated over the past decade.
Going into 2022, large conglomerates and business moguls still need to be on their toes. GlobalData analyst Emilio Campa predicts that the property and banking sectors will be the new targets on Beijing’s watchlist.
Indeed, the ongoing crisis surrounding China’s most indebted real estate developer, Evergrande, has become a cause for concern among Chinese lawmakers. Earlier this year, Evergrande missed several foreign and domestic bond payments deadlines. Recently, the firm was officially labelled as a defaulter.
At the same time, another Chinese property developer, Kaisa Group, also defaulted on a US$400m offshore bond payment.
Arguably, these examples are but the tip of the iceberg in what could be a massive restructuring of China’s highly indebted real estate industry. Given the risk this poses to the country’s economic stability, it is likely that Xi and his team will go after property developers next.
Similarly, online brokerages like Futu Holdings and UP Fintech Holding, which offer offshore trading services to mainland clients, have also become recent targets in China’s clampdown campaign.
Nevertheless, early indicators show that in 2022 regulators may scale back on their aggressive crackdown strategy. In the latest economic plan revealed by the Politburo of the CCP, the keyword seemed to be stability.
The party stipulated that “actions should be taken to safeguard macroeconomic stability, keep major economic indicators within an appropriate range and maintain social stability to prepare for the Party’s 20th National Congress.”
The CCP further emphasised that economic plans for 2022 should prioritise stability and prudence, noting that China will “continue to adopt proactive fiscal policies and prudent monetary policies.”
The Chinese economy will likely experience its slowest growth rate in decades. In 2021, GDP growth was already far more modest than several years ago. In the third quarter, China’s economy grew by 4.9%, lower than analysts’ expectations.
GlobalData, a data analytics company, forecasts China’s real GDP to grow at an average annual rate of 7% between 2021 and 2023.
Maintaining stability and safeguarding economic expansion appears to be a logical and necessary goal to keep national spirits high. As such, Beijing will need to focus on boosting key economic areas.
“The Chinese government will support the companies that align with its priorities and will either shun or force other companies to realign,” says Campa.
This means that firms engaged in upstream high-tech sectors, such as semiconductors, artificial intelligence, quantum computing, robotics and similar industries, will continue to see support from the government.
In its latest move, China’s legislature is updating the country’s science and technology progress law to allow for more government spending on next-generation technologies.
Although it may become more difficult for foreign businesses to operate in China, the market remains one of the most lucrative ones in the world.
“Undoubtedly, China will be the biggest growth market for the next 20 years until India comes along, and India is in no way close to the growth prospects that China will exhibit. On the other hand, investing in almost any industry is a bit of a risk because the Chinese government has shown that it’s favouring social cohesion and social stability well above investors’ interests,” GlobalData analyst Cyrus Mewawalla recently said in an interview with CNBC.
One of the first problems is that, in a lot of cases, “the west doesn’t understand China,” argues Campa.
Messenger agrees, adding that one of the big challenges that companies face is not knowing how market regulation in China works.
“The process in China round regulations is fundamentally different. Even though I would argue that the goals of the regulators are actually very similar to the goals of the regulators in other countries.”
Traditionally, new industries in new sectors were given significant leeway to operate. They were given the freedom to test the waters and build up China’s infrastructure. For instance, that is how the likes of Alibaba and Tencent were able to grow exponentially over the past two decades.
“They allow a lot of grey areas. It’s not white, it’s not black. They observe and they let things develop. Once it develops, they will then take action. Everything in China happens at China speed,” says Messenger.
These regulatory grey areas can actually be an advantage for smaller companies. There are still many undeveloped industries where foreign businesses can find their niche in China, for instance, in areas of specialised fintech, says Messenger.
In addition, as these large tech companies are now being forced to play fair, it opens up the space for startups and venture capitalists to come in and expand into areas that these tech giants previously dominated, argues Campa.
The key, however, is to find the right partner. “If you’re a foreign company, one of the key things is, you’ve got to find the right partner in China who actually is China-born and they know how this works,” emphasises Messenger.
Of course, it’s not all rainbows and sunshine. Doing business in China has never been easy, and it will likely only become trickier henceforward. Data protection and areas that are deemed sensitive to national security will be the biggest hurdles.
“New regulations are really going to push companies to make sure they have the right data architecture so that data is stored and backed up in China. That is going to require some additional investment,” explains Messenger.
Companies have to keep their “eyes wide open”, he adds.
Then, of course, there is the risk of bad press of doing business in China. More and more companies are being caught between the West and China over human rights issues, being forced to choose between capitulating to Beijing or facing a backlash from western consumers.
Western brands such as H&M, Nike, Burberry, and Converse, which have openly voiced concerns about human rights abuses against China’s Uyghur Muslim minority in the western Xinjiang region, were quickly boycotted on Chinese soil.
Successfully doing business in China increasingly means knowing how to navigate between the opposing positions held by Chinese and Western consumers. “Maybe that’s what I would recommend; really good PR,” says Campa.
The latest international conglomerate that had to learn this lesson the hard way was Intel. After it told suppliers to ensure that no products or labour was sourced in Xinjiang, Chinese consumers threatened to boycott the US chipmaker. Soon after, Intel posted a letter on its Chinese social media accounts apologising to the Chinese public.
China says Biden comments likening leader Xi to a dictator ‘extremely absurd and irresponsible’
WASHINGTON (AP) — President Joe Biden’s remarks calling Chinese leader Xi Jinping a “dictator” and China a country with “real economic difficulties” drew fast condemnation from China on Wednesday, cracking open a new rift just after the two countries agreed to tentative steps to stabilize the relationship.
In Beijing, Foreign Ministry spokesperson Mao Ning condemned Biden’s unusually pointed comments as “extremely absurd and irresponsible.”
The clash of words comes after Secretary of State Antony Blinken concluded a visit to Beijing on Monday that sought to break the ice in a relationship that has hit a historical low. While both sides saw those talks as productive, they did not result in any significant breakthroughs beyond an agreement to return to a broad agenda for cooperation and competition.
China’s quick response to Biden, a president known for seemingly off-script remarks that venture beyond his administration’s policies, raises questions whether his remarks would undo the limited progress that had been made in Blinken’s carefully engineered trip or whether the two sides would move on.
Biden’s characterization of China comes as the campaign for next year’s presidential election is already taking off, with Republicans accusing him of being weak on China.
Biden also was preparing to welcome Indian Prime Minister Narendra Modi to Washington on Wednesday evening for a lavish state visit where a central theme will be a shared wariness of China.
Biden, at a fundraiser in California on Tuesday night, referred back to January and February’s two-week overflight of what the U.S. says was a Chinese spy balloon. The balloon’s surprise appearance over U.S. skies roiled relations and transfixed the American public.
Speaking to wealthy donors at the event for his 2024 reelection campaign, Biden depicted Xi as out-of-touch and embarrassed by the incident, which ended with the Air Force shooting down the balloon just off the East Coast.
“The reason why Xi Jinping got very upset in terms of when I shot that balloon down with two box cars full of spy equipment is he didn’t know it was there,” Biden told the crowd.
“No, I’m serious,” he added. “That was the great embarrassment for dictators, when they didn’t know what happened.“
Biden also played down trade competition from China, which is the world’s second-biggest economy after the United States but struggling to emerge from COVID-era financial troubles.
“By the way, I promise you, don’t worry about China. Worry about China but don’t worry about China,” Biden said. “I really mean it. China has real economic difficulties.”
Biden’s remarks came hours after his secretary of state, in an interview with MSNBC, had called for the two countries to put the balloon incident behind them, saying it was a chapter that “should be closed.”
In Beijing on Wednesday, Mao told reporters that Biden’s remarks “go totally against facts and seriously violate diplomatic protocol, and severely infringe on China’s political dignity.”
“It is a blatant political provocation,” Mao said.
Mao also reiterated China’s version of the balloon episode, saying the balloon was for meteorological research and had been accidentally blown off course.
Administration officials signaled Wednesday that Biden had no intention of walking back his comments.
Biden and Blinken have made clear “we will continue to responsibly manage this relationship, maintain open lines of communication with the PRC,” Vedant Patel, a State Department spokesman, told reporters, using an abbreviation for the People’s Republic of China.
“But that, of course, does not mean we will not be blunt and forthright about our differences,” including differences on the global competition between democracies and autocracies, Patel said.
U.S.-China tensions have mounted for years as rivalry builds over trade and global influence. Repeated flare-ups have helped escalate the tensions, including over the balloon, U.S. tariffs, sanctions on China, and self-ruled Taiwan.
The U.S. is pressing China to embrace direct communications between Biden, Xi and other senior U.S. and Chinese military and civilian leaders, as a channel to defuse tensions and keep incidents from escalating into open hostilities.
Despite the administration’s diplomatic efforts to soothe relations, analysts point to the Republican political pressure, and note Biden regularly seems to go off-script to criticize Xi.
Bonnie Glaser, Asia director of the George Marshall Fund of the United States, pointed Wednesday to Biden’s state of the union address in February, soon after the balloon flight, as Republican lawmakers in the audience heckled him over China and other issues. Waving a finger in the air, Biden cried out, “Name me a world leader who’d change places with Xi Jinping! Name me one! Name me one!”
For Biden, “he’s under a lot of criticism from the right. He doesn’t want to be seen as soft on China. He views Xi Jinping as a dictator,” Glaser said.
“And he’s not very good … at differentiating what should be said in public and what should be said in private,” Glaser said. “And the relationship pays a price for it. There’s no doubt about it.”
Xi was likely upset by the claim that he hadn’t been fully informed about the balloon incident, said Steve Tsang, director of the China Institute at the London University School of Oriental and African Studies and a longtime observer of Chinese politics.
“My sense is that Xi may not want to overreact and put the relationship back on ice again,” Tsang said in an email.
The initial Republican response to Biden’s remarks was approving. “It’s an appropriate description of their system of government,” Sen. Marco Rubio, the top Republican on the Senate Intelligence Committee, said.
While Xi heads a country formally named the People’s Republic of China, he faces no limits on his terms as head of state, commander of the military and leader of the ruling Communist Party, which brooks no challenges to its authority.
In California, Biden had told donors that Xi “wants to have a relationship again.”
Blinken “went over there … did a good job, and it’s going to take time,” he said.
Associated Press writer Seung Min Kim contributed to this report.
Macron appeals to China’s Xi to ‘bring Russia to its senses’
BEIJING (AP) — Chinese leader Xi Jinping called Thursday for peace talks over Ukraine after French President Emmanuel Macron appealed to him to “bring Russia to its senses,” but Xi gave no indication Beijing would use its leverage as Vladimir Putin’s diplomatic partner to press for a settlement.
Xi gave no sign China, which declared it had a “no limits friendship” with Moscow before last year’s invasion, had changed its stance since calling for peace talks in February.
“Peace talks should resume as soon as possible,” Xi said. He called on other governments to avoid doing anything that might “make the crisis deteriorate or even get out of control.”
Beijing, which sees Moscow as a partner in opposing U.S. domination of global affairs, has tried to appear neutral in the conflict but has given Putin diplomatic support and repeated Russian justifications for the February 2022 attack. Xi received an effusive welcome from Putin when he visited Moscow last month, giving the isolated Russian president a political boost.
The Chinese leader said “legitimate security concerns of all parties” should be considered, a reference to Moscow’s argument that it attacked Ukraine because of the eastward expansion of NATO, the U.S.-European military alliance.
During talks earlier, Macron appealed to Xi to “bring Russia to its senses and bring everyone back to the negotiating table.”
Macron pointed to Chinese support for the United Nations Charter, which calls for respect of a country’s territorial integrity. He said Putin’s announcement of plans to deploy nuclear weapons in Belarus violated international agreements and commitments to Xi’s government.
“We need to find a lasting peace,” the French president said. “I believe that this is also an important issue for China.”
Macron was accompanied to Beijing by European Commission President Ursula von der Leyen in a show of European unity.
Von der Leyen said she encouraged Xi to call Ukrainian President Volodymyr Zelenskyy, and the Chinese leader “reiterated his willingness to speak when conditions and time are right.”
“I think this is a positive element,” von der Leyen said.
Von der Leyen warned China against sending military equipment to Russia, echoing a warning Wednesday by NATO’s 31 member governments of “severe consequences” for shipments of weapons or ammunition.
“Arming the aggressor is a clear violation of international law,” von der Leyen said. “This would indeed significantly harm the relationship between the European Union and China.”
China is the biggest buyer of Russian oil and gas, which helps prop up the Kremlin’s revenue in the face of Western sanctions. That increases Chinese influence, but Xi appears reluctant to jeopardize that partnership by pressuring Putin.
“China has always adhered to an objective and fair position on the issue of the Ukraine crisis,” said a Foreign Ministry spokesperson, Mao Ning. “We have been an advocate of a political solution to the crisis and a promoter of peace talks.”
Also Wednesday, the French and Chinese governments announced agreements including the purchase of 160 Airbus aircraft by a Chinese leasing company and for their companies to collaborate on nuclear, solar, wind power and biofuel development.
ITF resumes tennis in China with no word on Peng Shuai
TOKYO (AP) — The International Tennis Federation will play tournaments this year in China with no word of a resolution to the case of Chinese doubles player Peng Shuai.
Peng disappeared from public view shortly after accusing a former high-ranking Communist Party official — in a web posting in November of 2021 — of sexual assault.
The ITF, which conducts tournaments below the elite level in its World Tennis Tour, lists its first tournament in China on June 5-11 at Luzhou. The ITF’s last full season in China was 2019, prior to COVID-19.
“The ITF anticipates a resumption of tournament activity within China for each of the ITF Tours later this year,” the ITF said in a statement.
The WTA, which runs the sport’s top-tier women’s events, hasn’t announced if it will resume staging tournaments in China.
In late 2021, WTA Chairman and CEO Steve Simon announced that the WTA would be suspending all of its tournaments — including the season-ending WTA Finals — that were held in China because of concerns over Peng, costing the tour millions.
The men’s ATP has scheduled several event for later this year in China. It canceled 2022 events because of COVID-19 restrictions in China.
Peng gave a controlled interview a year ago during the Winter Olympics in Beijing and had dinner at the event with International Olympic Committee President Thomas Bach. She left many questions unanswered and has largely been out of public view since then.
Simon has repeatedly called for a “formal investigation” into the allegations made by Peng, and has asked to meet privately with Peng. It’s not clear those conditions have been met.
In a statement announcing the ITF men’s and women’s tournaments returning to China, ITF President David Haggerty said the sport’s world governing body had to invest in the professional events that worked as “the main artery for the top level of the game.”
“As the global guardians of the game, we are passionate about providing a pathway for up and coming talent in all countries, and providing more opportunities for players to play closer to home,” Haggerty said, adding that the ITF was pleased to be returning to countries such as China, Burundi, Cyprus, Trinidad & Tobago and Taiwan.
AP Tennis: https://apnews.com/hub/tennis and https://twitter.com/AP_Sports