On my first visit to China, more than two decades ago, I was struck by its sprawling megacities and towering metallic skyscrapers, but stung by the reach of the Chinese authorities when I tried to get access to global news via the internet.
The Communist Party has gradually shifted from autocracy to democracy, however, adapting to the demands of a modern Chinese society. It calls this "responsive authoritarianism". The media has also had to evolve from a purely government-funded ideological tool to self-financed business enterprises.
And as online media grew in China, the broader populace gained more of a voice and the usual methods of state control proved increasingly difficult, if not impossible.
In 2017, at Davos, in the face of then US president Donald Trump’s "America first" stance, President Xi Jinping of China condemned protectionism as "locking oneself in a dark room". Xi outlined a bold vision for his nation to become the global innovation leader by 2035.
But the country’s growing economic power has papered over many cracks. While mass industrialisation has been the most successful poverty alleviation programme in human history, inequality, corruption and environmental decay have plagued the growth miracle.
China is also trying to escape the middle-income trap, which tends to affect countries that have grown on the back of low wages. With the rapid growth in labour costs and an ageing population, it has become difficult for the country to remain the lowest-cost producer of manufactured goods globally. So, in a bid to improve productivity and foster innovation, it embraced the development of digital platforms. This meant that a company like Tencent, Naspers’s most successful investment, became instrumental in turning its mobile messaging app WeChat into a dominant lifestyle platform.
However, something changed radically in 2018. The constitution was amended to abolish the two-term limit on the presidency and there was a crackdown on online media. Within the Cyberspace Administration of China, the internet regulator, Zhuang Rongwen — who had worked for Xi as an economic planner in the province of Fujian — ascended to the top job in the same year. The agency started to aggressively clean up online political and religious content. It removed apps, and has launched a hotline for online comments against the party to be reported. This agency was also instrumental in censoring media outlets that tried to warn of the Covid outbreak in Wuhan.
China’s growing economic power has papered over many cracks
Long-term investors in Naspers will recall that in 2018, the Naspers share price declined by over 20% as the regulator started to scrutinise some of the practices of Tencent more closely.
The internet regulator has now turned its attention to Chinese companies with foreign listing ambitions. Perhaps spooked by former US National Security Agency contractor Edward Snowden’s leaked report that the US was monitoring Chinese businesses, Beijing has become more wary of companies moving outside their direct jurisdiction. Last year the regulator stopped the planned Hong Kong listing of the financial services arm of Alibaba, Jack Ma’s Ant Group, under the pretense of stopping antimonopolistic behaviour. More recently, the fintech giant, which has more than 1-billion customers, is reported to have agreed to share that data with state-owned companies. This will provide regulators prime access to customer information.
In the most recent move, and one that has shocked capital markets, the Chinese regulator took aim at DiDi, the world’s largest ride-hailing app, which was founded a decade ago by a former Alibaba executive and was listed on the New York stock exchange only last month. In what seemed retribution for not following instructions and choosing to list in the US instead of Hong Kong, the regulator restricted DiDi from accepting new users, and Chinese app stores were banned from offering the company’s app. The Didi share price, which rose by about 15% on listing, valuing the company at $80bn, is now Chintrading below its listing price.
The latest salvo has rattled investors in powerful Chinese tech firms, which find themselves increasingly in conflict with the state. For Naspers and Prosus shareholders, whose most valuable investment is in Tencent via a variable interest structure (where the shareholders don’t directly own the Chinese company), the large and growing discount between the share price and the underlying investments of the company can partly be traced to the regulatory noise coming out of Beijing.
While it is true that US President Joe Biden has also issued an order to curtail the monopolistic positions of US Big Tech, China’s rationale at this stage is not as explicit. One must hope that Beijing’s real motives are not more sinister for those living in the belly of the Chinese dragon.
Rassou is chief investment officer at Ashburton Investments
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