The End of a ‘Gilded Age’: China Is Bringing Business to Heel

Chinese tech companies are reeling from regulation. Nervous creditors are hoping for a bailout for China’s largest developer. Growing numbers of executives are going to jail. An entire industry is shutting down.

For China’s leader, Xi Jinping, it’s all part of the plan.

Under Mr. Xi, China is reshaping how business works and limiting executives’ power. Long in coming, but rapid in execution, the policies are driven by a desire for state control and self-reliance as well as concerns about debt, inequality and influence by foreign countries, including the United States.

Emboldened by swelling nationalism and his success with Covid-19, Mr. Xi is remaking China’s business world in his own image. Above all else, that means control. Where once executives had a green light to grow at any cost, officials now want to dictate which industries boom, which ones bust and how it happens. And the changes offer a glimpse of Mr. Xi’s vision for managing the economy, ahead of a political meeting expected to solidify his plans for an unprecedented third term in charge.

The goal is to fix structural problems, like excess debt and inequality, and generate more balanced growth. Taken together, the measures mark the end of a Gilded Age for private business that made China into a manufacturing powerhouse and a nexus of innovation. Economists warn that authoritarian governments have a shaky record with this type of transformation, though they acknowledge that few have brought such resources and planning to the effort.

“It is clear by now that Mr. Xi wants to end the Gilded Age and move toward a Chinese version of the Progressive Era, with growth that is more equitable and less corrupt,” she added.

Shockwaves have been felt across China’s economy, the world’s second largest. Analysts argue that some measures, such as reducing debt and curbing anticompetitive behavior among internet platforms, have long been needed. But they worry that the new policies could hurt competitiveness and favor the inefficient, monopoly-dominated state sector, which Beijing has long avoided reforming.

Natasha Kassam, a director at the Lowy Institute, an Australian think tank, said private-sector dynamism could suffer. She likened the shifts to Mr. Xi’s anticorruption campaign at the start of his tenure nine years ago, which curbed rampant graft but also consolidated power.

“During the anticorruption drive, no one knew who might be targeted next,” Ms. Kassam said. “What it led to was inertia. Officials were too terrified to make decisions in case they were the wrong ones; you’ll see a similar chilling effect on the private sector.”

For many businesses, the guidelines were once clear: Pay lip service to the government, make money and go global if possible, with foreign listings and acquisitions. While China’s billionaires always felt vulnerable — the country’s list of richest individuals is often joked about as a catalog of targets — they also had a cozy relationship with officials that allowed for flouting the rules and influencing policy.

Success is no longer a guarantee of safety. The big-name casualties are piling up, and there is little sign that Mr. Xi and the regulators he has empowered are daunted by the carnage. Since February, investors have erased more than $1 trillion from the market value of China’s largest listed tech firms.

The knock-on effects are also hitting regular Chinese people, with the potential to stir social unrest. Officials have issued directives urging local governments and companies to look out for budding protests related to the troubled property sector. Evergrande’s crisis has triggered anger among unpaid suppliers, home buyers who purchased apartments years in advance and employees, some of whom have demonstrated at its offices.

Beijing is trying to send a warning that no firm is too big to fail. Mr. Xi’s corruption campaign and an ensuing push to curb excess borrowing have already made a big difference, said Dinny McMahon, an analyst for Trivium, an advisory focused on China.

“These days, the behavior of financial sector executives is more conservative,” he said. “It’s not about looking to what you can get away with anymore, but trying to adhere with the spirit of what Beijing wants.”

Mr. Xi appears to be imposing the same discipline on the tech sector. Last year, regulators scuppered the blockbuster listing of Alibaba’s sister company Ant Financial. When Didi Chuxing — the ride-hailing company that bought Uber in China — went ahead with an initial public offering in the United States despite reservations from Chinese regulators, its software was pulled from app stores in China.

Tech firms are also learning to relinquish control. Most companies now have Communist Party cells, which can dictate decision making. Investment firms run by China’s cyberspace regulator have taken small stakes in TikTok’s parent company, ByteDance, and the social-media firm Weibo in the past two years.

New signals that companies should focus on “common prosperity” — a government initiative to lessen the wealth gap — have led to a parade of giving from tech giants and their leaders. Tencent and Alibaba, China’s two most dominant internet firms, both have made multibillion-dollar pledges to help train small businesses and revitalize villages.

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