Chinese regulators are cracking down on domestic companies, including technology, after-school learning, and real estate businesses. The crackdown is part of the Chinese Communist Party’s continued push to concentrate power and is consonant with President Xi Jinping’s efforts to deter domestic political opponents and business elites from challenging his authority.
Perhaps nothing highlights the conflict between Xi and his opponents better than China’s decision to scrap Jack Ma’s Ant Group IPO and fine his company, Alibaba, $2.8 billion this past fall after the business mogul criticized Chinese regulators for suppressing financial innovation and economic progress. An investigation by Beijing revealed that some of Xi’s potential political opponents had invested heavily in Ant Group, which further incentivized the Chinese president to clamp down on the company.
According to a July 29 roundup by Goldman Sachs, China has administered over 50 actions against domestic companies spanning cybersecurity, antitrust, financial regulations, and inequality since November.
The increased regulatory scrutiny comes amid ongoing geopolitical tensions between the United States and China, who are engaged in what some have described as a new tech cold war. These developments are occurring in tandem: as leaders in Beijing seek to establish China as the dominant superpower on the world stage, the CCP is consolidating power at home.
Last month, Didi, a Chinese ride-sharing app similar to Uber, successfully debuted on the New York Stock Exchange. With an initial public offering of $14 per share, the company raised $4.4 billion. Chinese regulators alleged that Didi was providing its customers’ data to the United States government, a claim the company vehemently denies.
With Didi’s debut in American financial markets came increased scrutiny from the Chinese government. In the days before Didi went public, Chinese regulators expressed concerns to company officials, but did not explicitly forbid them from launching the IPO.
Didi did not alert the New York Stock Exchange to the ongoing tensions with Chinese officials. Fearful of inciting a harsh reaction from Beijing, Didi declined to even host a virtual celebration for its successful IPO, and the company instructed employees not to post about the occasion on social media.
However, Didi’s small concessions and reassurances were not enough for officials in Beijing — they expected total and unwavering loyalty to the Chinese Communist Party. Chinese regulators attacked the company: they launched a cybersecurity review, removed it from app stores, and banned it from accepting new customers on its platform.
These developments impact not just consumers and businesses in China, but also millions of Americans and Europeans whose pension funds invest in Chinese companies, often without their knowledge or consent.
Last year, the Trump administration directed $4.5 billion of U.S. federal retirement funds to be pulled from Chinese stocks. In a letter written by Larry Kudlow, then director of the National Economic Council, the Trump administration warned that Chinese authorities had prevented the Securities and Exchange Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB) from overseeing and inspecting the Chinese companies’ financial records.
“The Chinese government’s intentional thwarting of U.S. investor protections should raise serious concerns about the reliability of financial information from Chinese companies and demonstrate the significant risks to investors,” the letter stated.
Kudlow also highlighted the national security concerns of investing in Chinese companies: “In addition to the uncertainties surrounding the reporting of these companies, some of the Chinese companies themselves present significant national security and humanitarian concerns for the United States, which increases the risk they can be subject to sanctions, public protests, trade restrictions, boycotts, and other punitive measures that jeopardize their business and profitability.”
Gen. Robert Spalding, a senior fellow at the Hudson Institute and former senior director for strategic planning at the Trump administration’s National Security Council, told The American Spectator that Americans should be “very concerned” about the crackdown. “Documentaries like the China Hustle demonstrate this has been going on for a long time,” he added.
“The bottom line,” Spalding said, “is that the CCP is changing its economy to exert more control over companies and are not concerned about destroying value. Their primary concern is control.”