"Preventing the uncontrolled expansion of capital": what does Xi Jinping's slogan say about the next 5 years of the Chinese economy?

Leonardo Sobreira, from Beijing (247) - "Preventing the uncontrolled expansion of capital." This slogan, frequently repeated by Xi Jinping over the past two years, has been troubling those who believe that Beijing is supposedly planning a widespread crackdown on large private companies in favor of state capital.

The term was coined in 2020 by Xi Jinping amidst the regulatory campaign against Ant Group, the financial arm of e-commerce giant Alibaba. Regulators blocked the financial company's initial public offering, preventing what would have been a record-breaking sale of shares, and set limits on online lending to individuals. At the time, the People's Bank of China cited the need to curb the monopolistic trend in the payments industry, as well as to control "excessive capital expansions" in the sector. 

The ban on Ant Group was just the beginning of a relentless crusade by the CCP against what Xi Jinping sees as excesses in the process of opening up the Chinese economy. In June 2021, the Cyberspace Administration of China prevented Didi Chuxing, a ride-hailing platform, from acquiring new users days after its debut on the New York Stock Exchange. The Beijing-based company was accused of threatening national security by improperly storing data from more than 57 million drivers and analyzing passenger data without their consent. In May of this year, a majority of the major shareholders voted to delist the company from the New York Stock Exchange. 

Regulatory campaigns against large companies are not limited to the technology sector. In August 2020, Beijing introduced a three-red-line policy that imposed limits on the amount of debt that construction companies can take on, helping to deleverage the real estate sector. As Xi Jinping says, in yet another of his favorite slogans, Chinese houses are “for living in, not for speculation.” Other industries, such as private education, video games, and entertainment, have also come under the CCP's scrutiny.

But are investors correct in assessing that the repression of recent years is the prelude to a return to Maoism? Could Xi Jinping, son of a leader of the revolution that brought the communists to power in 1949, take it a step further, turning his campaign to curb capitalist excesses into an effort to contain all private industry? 

According to Professor Michael Hudson of the University of Missouri, the 20th National Congress of the CCP will be the starting point for adopting an even harder line in the confrontation with the free market. 

“The Chinese people I’ve spoken to over the years didn’t expect the dollar to weaken. They aren’t crying about its rise, but they are worried about capital flight from China, as I think after the Party Congress there will be a crackdown on Shanghai’s defense of the free market. The pressure for the upcoming changes has been building for a long time. The spirit of reform to curb ‘free markets’ has been spreading among students for over a decade, and they are rising through the Party hierarchy,” Hudson wrote in a recent email exchange with the journalist. Pepe Escobar.

This interpretation is in line with past statements by the Chinese president. "Only socialism can save China," Xi proclaimed when he took over the leadership of the CCP in late 2012. Another favorite phrase of the leader, "common prosperity," shows his seriousness in leading China back to its Maoist roots, according to some observers in the West.

“Xi wants to address a very contemporary issue, the way neoliberal reforms have made China much less egalitarian, and bring back the sense of mission that shaped early Maoist China,” Rana Mitter, professor of Chinese history and politics at the University of Oxford, told Reuters last September. 

However, the picture is more complex. The collapse of some stock market listings and the real estate bubble that weakened construction companies like Evergrande happened at the same time that other companies prospered like never before. According to a Bloomberg survey, companies raised US$58 billion in IPOs in mainland China by August of this year, a record amount. Also according to the agency, the ten richest men in China have accumulated a net worth of US$167 billion since the beginning of 2020. 

The general trend in China is one of explosive growth in the private sector. The Peterson Institute for International Economics, an American think tank, points out that in 2020, private companies accounted for more than half of the market capitalization of the 100 largest listed companies in China, compared to less than one-tenth in the previous decade. Privately controlled companies employ four out of every five urban Chinese workers, and 32 of these are listed in the Fortune 500 ranking of the world's largest companies in terms of revenue, compared to none in 2005.

Xi Jinping's own recent statements dispel fears of a widespread crackdown on private capital. Speaking at a group study session of the Political Bureau of the CPC Central Committee in April of this year, the leader defended the "healthy development" of capital and called for regulatory measures only against what he called "disorderly expansion."

“Capital is an important force for promoting social productive forces,” Xi asserted at the time, urging efforts to guide large enterprises in accordance with the law. The goal is to achieve a “new economic model with higher-level opening,” he added. 

He also advocated for continued openness to the outside world, expressing hope of "attracting more foreign capital" to invest in China. Finally, he encouraged Chinese companies to become global.

Separately, the Chinese president recently urged the new generation to “dare to start a business.” The state directs broad incentives toward startups operating in strategic areas designated by the government, such as microchips, quantum and cloud computing, genetics, green energy, and high-end manufacturing. Internet and platform companies are no longer seen as genuinely innovative.

In addition to buying direct stakes in these startups, the central government and regional administrations foster innovation through initiatives such as the creation of industrial parks and talent banks, and state affiliation designations, which generate good public relations. It was these policies supporting innovation, coupled with research and development and economic openness, that made China home to more than 150 unicorns, world leaders in the fields of AI, robotics, and computer vision, according to [source needed]. World Economic Forum. 

The CCP's relationship with capitalism is not souring. The brakes applied to some large companies merely reflect an attempt to transform capital markets into a direct line of private financing for strategic objectives. In the Asian giant, continuity and change go hand in hand. 

The 20th National Congress of the Communist Party of China will begin next Sunday, the 16th, at the Great Hall of the People in Beijing. The unanimous expectation among observers of Chinese politics for this edition of the event is that the 2.296 elected delegates will renew Xi Jinping's presidential mandate for another 5 years.

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