[The paper highlighted today is so well written it’s been hard to summarize. If you’re involved with or have a desire to invest in China’s new-economy I’d urge the full read which you can perform via this link The Great Rectification]
Roger Creemers from the Leiden Institute for Area Studies at the Leiden University of the Netherlands does two things in the paper summarized today.
First, he explains the lead up to China’s ‘crackdown’ on the platform and new-economy sector which many believe began shortly after Jack Ma’s intemperate remarks on October 24th 2020. Not so explains Mr. Creemers, reform was already brewing in a number of areas.
Second, he lays out the roadmap that’s been progressed in the last two years as China has attempted to wrangle this new economic variable and bring it into the orbit of the state command and control apparatus.
The overarching aim of this has been to: a) force the industry to internalize costs and negative externalities and b) normalize regulatory activity. He doesn’t say as much but I think he believes this has largely been achieved.
In tracing the arc of rectification from 2020 to 2022 he divides the approach into six different bins which reflect the various aims and concerns authorities have busied themselves with. Videlicet:
- The need to manage macro-economic risks these new actors have created. Such as in the area of lending and finance.
- A desire to extend the existing mechanism of media content control into new spaces such as gaming, influencer culture and etc.
- To address the emerging social concerns, such as with the growth of the for-profit education complex.
- To remedy ‘market imbalances’. Some companies have abused monopoly positions and hurt consumers (and staff) in the process.
- To mitigate foreign risks i.e. to make sure a walled-garden is effective in keeping China data within the control of China Inc.
- Help support the development of technology in new areas. The government are mustard-keen on the sector, but want it de-fanged.
Not only is the above important in understanding where China stands in the development of these new businesses but, it’s suggested, many of China’s responses to sector problems could become reference points for governments elsewhere grappling with similar problems. As Mr. Creemers observes “.. the Great Rectification [May become].. a distinctly local manifestation of a global trend.”
I’d like to add my own two pennyworth. Companies in the sector, until recently, have been uninvestable because they’ve been unanalyzable; the biggest unknown being the regulatory environment. With this stabilizing the industry drops in a couple of risk orbits to where I, and others, might become comfortable with some serious due-diligence.
It may therefore be possible to begin, in earnest, the sort of investible-wheat from long-term-hopeless chaff? Tally ho!
Happy Sunday