Several weeks ago, an opinion article appeared in a certain pro-China newspaper in Taiwan that warned of the danger posed to Hong Kong’s financial sector by several of Beijing’s policies.
This kind of criticism, which would in the past have been branded as “talking down” China, is now being advanced as well-meaning advice by pro-Beijing Taiwanese media. This suggests a degree of anxiety. At its heart, it is probably a reaction to the many dangers that have appeared following a succession of policies from Beijing over the past year that run contrary to the “dual circulation” economic development strategy unveiled by Chinese President Xi Jinping (習近平).
Last year, Beijing was facing a double whammy from a COVID-19 outbreak and a trade war with the US. To turn around China’s declining fortunes, Xi proposed a new “domestic and international dual circulation” development strategy, which would involve expanding internal demand while creating space for external expansion.
However, Beijing has adopted Middle Kingdom thinking that has closed off China to the outside world and weakened the international element of Xi’s strategy.
At the same time, the harsh and crude tactics employed by Xi to deal with internal political problems have broadly affected the domestic element of the strategy and increased risk in China’s financial system, which has spread to stock markets in Hong Kong and New York.
The abrupt policy shift toward China’s tech monopolies has either forced them to drastically scale back their business operations or swallow enormous fines. As a result, e-commerce giant Alibaba Group’s share price has sunk 35 percent so far this year, vaporizing almost US$300 billion from the company’s total market capitalization. Alibaba’s competitors were not spared either; Tencent Holdings’ share price has dropped 33 percent, while Baidu and JD.com have seen their share prices drop by 30 percent.
Also unforeseen was Beijing last month intervening to “alleviate Chinese students’ schoolwork burden.” This resulted in share-price collapses of Chinese private tuition companies registered in New York and Hong Kong, including brands such as New Oriental Education & Technology Group, Gaotu Techedu, 17zuoye and TAL Education Group. More than 90 percent has been wiped off the value of China’s private education sector.
Prior to Beijing’s announcement, New Oriental’s market value was the highest in the industry, reaching HK$270 billion (US$34.7 billion). Following an epic run on its stock price, the company’s value was reduced to HK$30 billion. The shock this delivered to the financial system might not have yet fully played out.
In terms of China’s international strategy, ride-hailing firm Didi Chuxing came under enormous pressure from Chinese regulators after it listed on the New York Stock Exchange. This has produced a chilling effect, causing Chinese companies with plans to list overseas to quickly retreat.
The crackdown by Beijing will not just affect the development of individual companies; a more alarming effect will be that foreign investors could lose confidence in the Chinese market.
Foreign investors not only provide seed capital for Chinese start-ups, but also bring in modern management techniques, international outlooks to business operations and a bridge to global markets — all vital for Chinese enterprises to grow into first-tier international businesses.
If foreign investors decline to provide support, growing Chinese companies could find it difficult to gain access to international capital and technology.
Honda Chen is an associate research fellow at the Taiwan Academy of Banking and Finance.
Translated by Edward Jones
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