Mon, Jul 12, 2021 page6

• EDITORIAL: China is stifling needed innovation

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  Since Chinese President Xi Jinping (習近平) took office in late 2012, the nature of China’s political and economic system, in which the one-party state monopolizes the country’s resources, has not only continued, but intensified. While the centralized power of the Chinese Communist Party (CCP) and the state’s control over the private sector bolster the system, they stifle the vigor and economic vitality of China’s business community.

  Over the past few decades, the CCP’s authoritarian control has helped the country to tide over many difficulties and achieve economic success, but at the core of its political model are state-owned enterprises that allow the party to manage strategic industries, such as energy, raw materials, transportation, finance and telecommunications. By keeping a tight grip on pricing, resource allocation, information and logistics, the CCP controls the country’s entire economy.

  While the CCP has encouraged innovation in China’s private sector, sometimes even encouraging companies to develop and experiment without restriction, the party has retaken control and withdrawn the freedom to innovate in markets where companies have grown to a size that could threaten its authority. This has happened in the financial technology and e-commerce sectors — to Ant Group last year, and Alibaba Group Holding and Didi Global this year.

  The CCP’s campaign to impose tougher controls on the country’s tech firms started in November last year when it suspended Ant’s US$35 billion dual listing on the Hong Kong and Shanghai exchanges.

  In March, Chinese regulators fined companies — including Tencent Holdings, ByteDance and Baidu — for not seeking prior government approval for acquisitions and investments. In April, they hit Alibaba with a record 18.2 billion yuan (US$2.81 billion) fine over what they claimed was abuse due to the e-commerce firm’s dominant market position.

  Early this month, just days after Didi’s US$4.4 billion initial public offering in New York, Chinese Internet regulators told the ride-hailing company that it was being investigated for posing cybersecurity risks.

  Such moves have shown that Chinese authorities have not only cracked down on the country’s tech giants over anti-trust concerns — especially those that dominate their markets and control big data — but also continued its agenda of expanding the government’s influence over the private sector. The CCP’s aim is to maintain power in politics, the economy and society, while facilitating a rapid resurgence of the state sector at the cost of weakening the private sector.

  Since the late 1970s, when China launched its “reform and opening up” policy, the export industry in Guangdong Province has grown, and, since the 1980s, small businesses have flourished in Zhejiang Province. More recently, the Internet and artificial intelligence sectors have rapidly expanded. However, a series of innovations in the private sector, not the CCP, was behind most of China’s new and vital industries.

  Unfortunately, at a time when China needs to stimulate innovation to upgrade its economy, its model of authoritarian capitalism might be the greatest obstacle.

  Centralized power is a double-edged sword. While Xi and his CCP elites might believe that a top-down, authoritarian model — rather than a bottom-up, liberalized approach — is needed to purge the party of corruption and conflicts of interest, which have the country’s economy and society increasingly spinning out of control, the model is likely to smother innovation and the vitality of the private sector.

  While no one knows how long this situation might last, it is clear that change is unlikely to happen as long as Xi remains in power.
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