Economics: China - Xi Jinping`s 2 Big Mistakes

(Drivebycuriosity) - It seemed for a while that China`s leader Xi Jinping was doing a good job. China´s economy was growing fast, at least faster than the economy of most other countries, and living standards for the Chinese population were climbing rapidly. China`s growth was driven by a cautious opening of the economy which permitted more private enterprise ( driveby). In the recent year´s the country benefited a lot from the rise of Alibaba, Tencent, Baidu and other Big Tech companies which became the engines of China`s growth and modernization. Big Tech were  driving e-commerce, AI, digital communication, finance-technologies and much more. The steep rise of China´s  Big Tech reduced costs and made China`s economy more efficient & productive.

But about a year ago Xi began an ideological crusade against China´s Big Tech companies. The government claimed that Alibaba, Tencent, Baidu and other companies behave "antisocial" and abuse their huge power at the expense of their competitors and the society. These accusations led to a general crackdown starting November 2020 when Beijing called off the IPO  of the online payment platform Ant Group, an affiliate of Alibaba, which should have been the biggest IPO in history. Then China’s market regulator released anti-monopoly guidelines that target internet platforms, tightening already existing restrictions faced by the country’s tech giants ( cnbc.). April 2021 the authorities hit Alibaba, China`s Amazon, with a $2.8 billion fine, claiming the company behaves as a monopoly (what ever that means in Communist China). Beijing also forced Tencent, operator of the  hyper-popular messaging platform WeChat, to suspend all new user registrations temporary. Later the government restricted businesses of online food deliverer Meituan and ride-hailing firm Didi. They also turned Gotu and other booming online education firms into nonprofits and castrated their business models. Recently China´s antitrust body signaled even tighter enforcement for 2022 ( scmp).

Apparently Xi Jinping, omnipotent leader of the Communist party and life time president of China, dislikes that Alibaba & Co. got so big and so powerful. The Communist government wants to defend their monopoly power - and stone age Communists, led by President Xi, are gaining ground again (twitter ).

The ideological Internet crackdown is slowing China`s progress. New regulations and restrictions reduce the productivity & efficiency of Big Tech companies; they shrink their abilities to further innovate, making business more complicated and costly. Many services will not be available any more or for much higher prices. Xi`s regulatory overkill creates more bureaucracy which " is the death of any achievement” according to Einstein. 

The forced slowdown of the once booming e-commerce, online education, finance-tech and other private online industries will spill over to other industries - for instance semiconductor development & production and finally scientific research. The crackdown is endangering China´s technological progress and might hamper the development of cloud services, artificial intelligence and other growth engines. And the ongoing punishment of successful investors & entrepreneurs - like Alibaba`s founder Jack Ma - will discourage private investments and entrepreneurship which have driven China´s growth story in the recent decade.

The economic headwinds caused by the crackdown are happening in a time when China is already struggling with another problem: The Covid-19 pandemic. Unfortunately Xi Jinping makes another big mistake. He prohibits the import & use of Moderna & other Western vaccines against Covid-19. Beijing forces the population to use only CoronaVac and Sinopharm, China`s own vaccines. Unfortunately both appear to be not as potent as the Western vaccines and it looks like that they don`t protect much against the Omicron variant which is now spreading all over the world. Therefore China´s authorities relay on strict lockdowns & quarantines, which are curbing industrial production & mixing up logistic & transport networks.

China`s economic growth is already slowing. Xi`s two big mistakes are worsening the deceleration and are questioning China´s fundamental growth story.