Commentary
BEIJING – Some global investors have seemingly observed a “turn” in China’s economic governance recently.
In addition to multiple anti-trust probes and data security checks on the country’s biggest internet companies, regulators have imposed tough regulations on the off-campus tutoring sector and stepped up food safety checks on popular food brands.
The intensive regulations across sectors have made these investors wonder: Is there a change of course in China’s policy direction? How will the regulatory moves affect the capital market and China’s economic structure in the long run?
Analysts from global financial service firms have viewed the regulatory measures as part of China’s long-standing efforts to make growth more sustainable and inclusive, which will benefit the regulated sectors and the broader economy in the long run.
CONNECTING DOTS
Entering 2021, the start of China’s new five-year plan period, authorities have stepped up regulatory oversight in a number of sectors.
In April, the country’s top market regulator vowed to strengthen anti-trust law enforcement, imposing record fines on the country’s tech behemoth Alibaba and launching anti-monopoly investigations into internet giant Meituan.
The off-campus tutoring businesses were put on the brakes in July, when the central authorities published guidelines that restricted financing for the for-profit off-campus training companies, in a bid to ease students’ burden.
Market regulators have also stepped up crackdowns on food safety violations, carrying out on-the-spot checks on a number of chain stores of popular food brands and urging rectifications from the involved firms.
“The regulatory moves should be framed against the broader context of China’s economic transition,” said Robin Xing, chief China economist with Morgan Stanley.
For instance, the anti-monopoly regulations addressed issues such as the over-concentration of market power in a few tech giants, which could squeeze the profit margins of small and medium-sized enterprises (SMEs), he said.
“The recent policy indicated more emphasis on social equity, which will facilitate a healthier economic structure, more stable growth and happier lives for the people,” said Wang Peng, an analyst with Hangzhou-based Yongan Futures.
Shi Jialong, head of China internet and new media research with Nomura, said the regulatory actions on China’s internet sector were not aimed at curbing its growth, but a signal to let the big platforms channel their resources and energies away from excessive competition into research on advanced technologies.
“We believe the internet industry, known for its resilience, should be able to adapt to the environment and sustain healthy growth,” Shi said.
PREDICTABLE MOVES
The emphasis of quality rather than mere speed of development has long been going on. Since the idea of “high-quality development” was highlighted at the 19th Communist Party of China (CPC) National Congress in 2017, China has been restructuring its economy in an effort to make growth more sustainable and inclusive.
Battles have been waged to defuse financial risks, eliminate absolute poverty and tackle environmental pollutions. Meanwhile, the deepening of reforms on all fronts has been high on the government agenda to foster a new development paradigm.
The recent meeting of the Central Committee for Financial and Economic Affairs, attended by the country’s top policymakers, once again stressed high-quality growth, while emphasizing “common prosperity” in the pursuit of it.
“If you look back, you will find that all the policies can be traced back to the development philosophy outlined in public documents,” Wang said.
“Some people missed the signs or failed to fully understand it,” he said.
For instance, social equity has always been a policy priority, Wang said.
China is on track to meet its 2021 growth target of “above 6 percent”, with a GDP expansion of 12.7 percent in the first half of this year.
“This means the country has left enough room to push policies that are key to long-term development,” said Victoria Mio, director of Asian Equities at Fidelity International.
BULLISH PROSPECTS
The regulations are conducive to the long-term growth of the Chinese economy and the capital market, Mio said.
Bullish on the prospects of the Chinese market, Fidelity International has applied to set up a fund management company that it fully owns. The application was approved by the central government’s top securities regulator in August.
Other global asset management giants are increasingly becoming China bulls. In an interview with the Financial Times in August, an investment strategist with BlackRock’s research unit recommended investors lift allocations to China’s markets.
For Wang, investors have reasons to stay upbeat on Chinese assets.
From the financial market perspective, China’s bond yield is among the highest in major economies, while its stock market valuation is lower than most developed economies, Wang said, pointing to the long-term investment value of China’s assets.
“Staying confident in China and in its assets is out of question,” he said. – Xinhua
A shopper looks at the beverage section of a supermarket in Handan city, Hebei province, earlier this year. – Xinhua
