What investors need to understand about Xi Jinping and markets George Soros is wrong. It’s not that Chinese president Xi Jinping fails to understand how markets operate – he just thinks they should be at the service of the Chinese state. Karen Maley Columnist Sep 1, 2021 https://www.afr.com/companies/finan...-xi-jinping-s-view-of-markets-20210831-p58nex Ever since the blockbuster $US37 billion ($50.5 billion) initial public offering of Ant Group was halted last November, it’s been clear that a profound shift has been underway in Beijing’s attitude towards its powerful digital giants. Instead of taking pride in the global success achieved by Chinese tech giants such as Alibaba and Tencent, the Chinese government has become increasingly concerned about their growing economic clout and the enormous fortunes that their owners have amassed. Beijing was also keen to remind the new breed of Chinese tech billionaires – such as Jack Ma, the founder of Chinese e-commerce giant Alibaba and its internet finance affiliate Ant Group, that it would tolerate no defiance of the state’s authority. George Soros: “Xi regards all Chinese companies as instruments of a one-party state. Investors buying into the rally are facing a rude awakening.” Bloomberg Private companies, no matter how successful, were still obliged to play by the political rules of the game, as decided by Xi Jinping, the Chinese president. And these rules are difficult for foreign investors to decode. Because it is not that Xi is staunchly opposed to capitalism. Rather, he sees capitalism as serving the interests of the Chinese state, which means that Beijing has every right to rein in activities that it considers to be anti-social. Foreign investors were caught off-guard in July when Beijing dealt a major blow to the multibillion private tuition industry, by imposing strict new limits which meant they could no longer schedule classes during weekends and holidays. Beijing’s goal was twofold. In the first place, it wanted to encourage people to have more children by reducing the cost of education. But Beijing was also conscious of the social harm that was being caused as parents felt obliged to outlay huge amounts of money in an attempt to get their children admitted into the limited number of top universities. And foreign investors were further unnerved this week when Beijing unveiled tough new rules that forbid players under the age of 18 from playing video games for more than three hours a week. Still, it’s not terribly surprising that Beijing has decided that broader social interests are more important than the profits generated by the country’s private tutoring or video gaming industries. Indeed, it’s more surprising that Beijing allowed these industries to become so large and pervasive before deciding to rein them in. Similarly, Beijing’s actions to limit anti-competitive practices by its internet giants mirror the concerns of US regulators about the potential for US tech giants, such as Amazon, Facebook and Google, to abuse their market power. A fortnight ago, Chinese regulators issued new draft guidelines that outlaw behaviours that they claim could harm internet users and reduce market competition, such as unfairly blocking rival platforms, and discriminatory pricing. Earlier this year, Ma’s Alibaba Group was hit with a record $US2.8 billion antitrust fine for abusing its dominant market position because it forced merchants to sell exclusively on its platform. Income equality But although foreign investors can reconcile themselves with anti-competitive rules, they’re more unnerved by Xi’s attack on the country’s yawning income inequality. A fortnight ago, Chinese state media reported that Xi had emphasised the need to “regulate excessively high incomes and encourage high-income groups and enterprises to return more to society” at a high-level economic planning meeting. Xi had also emphasised that after allowing some regions and people to get rich, China had reached the stage where it needed to prioritise “common prosperity for all”. Xi’s comments have sparked an outburst of generosity from China’s tech billionaires, who are keen to burnish their socialist credentials and appease the country’s leader by pledging billions of dollars in charitable donations. But Xi’s efforts to strong-arm Chinese billionaires to contribute more towards’ common prosperity” prompted an angry response from billionaire investor George Soros. “Xi does not understand how markets operate,” he wrote in an opinion piece. “As a consequence, the sell-off was allowed to go too far. It began to hurt China’s objectives in the world. Recognising this, Chinese financial authorities have gone out of their way to reassure foreign investors and markets have responded with a powerful rally.” But, Soros warned, “that is a deception. Xi regards all Chinese companies as instruments of a one-party state. Investors buying into the rally are facing a rude awakening.” Soros, however, misunderstands Xi’s objective. It’s clear the Chinese president does not intend to replace capitalism with a different economic system. But nor does he see free markets as a goal in themselves. Rather, Xi views capitalism as an instrument to serve the Chinese state. But Xi is now confronting a major dilemma in the case of the giant debt-laden Chinese property developer, China Evergrande. Because while he recognises that a market economy is a relatively efficient mechanism for allocating resources, he is anxious to avoid a major bankruptcy that would send major tremors through the Chinese financial system and real estate market. As Soros correctly pointed out in his opinion piece, the most vulnerable sector of the Chinese economy is real estate, particularly housing. “Evergrande, the largest real estate company, is over-indebted and in danger of default,” Soros argued. “This could cause a crash.” But although on Soros’ reckoning, Xi lacks an understanding of how markets operate, it’s clear that the Chinese president is acutely conscious that there are no easy solutions when it comes to Evergrande. On the one hand, Xi doesn’t want to be seen to be bailing out companies that are simply too big to fail. Particularly since it will likely involve writing cheques for hundreds of billions of dollars. What’s more, Xi has been keen to use market forces to punish excessive risk taking. In the first six months of this year, bond defaults by Chinese companies, including state-owned enterprises, hit a record high. But allowing Evergrande, which owes more than $US300 billion in debt, to fail would batter the economy, hurting contractors and suppliers, as well as home buyers who paid large deposits for unfinished apartments. And Xi is cognisant that Beijing can’t afford a global financial crisis-type disruption to the Chinese economy, not only because it would fuel social tensions, but also because it would undercut his claim to competent economic management. Meanwhile, investors are becoming increasingly skittish about Evergrande’s prospects, with the company’s share price dropping 70 per cent this year, and its bonds are trading at a steep discount to their face value.
Couldn't be more accurate. Of course to a trader like George Soros and to all of us, that's how the market works. LOL The market is supposed to reflect the economic reality and have its own autonomy. So he's not really wrong there. It's just that China doesn't give a s***. It's big enough to have its own market and economy now so it basically gets to define how the market operates. China cannot afford to have a global financial crisis type of economic meltdown that's true. Nobody can but with China, if and when that happens, China is going to blame and scapegoat the west for its own failures. It's going to brainwash the mass that it was the west who sabotaged its "great progress".
How China’s ‘Common Prosperity’ Drive Will Redistribute the Wealth Contributors: Alex Millson and Tom Hancock Updated on August 31 https://www.bloomberg.com/news/stor...ill-redistribute-the-wealth?srnd=premium-asia China’s Communist Party has decided it’s time to redistribute the wealth and build a fairer society. As the number of billionaires — and their bank accounts — ballooned in recent decades so did the inequality gap. Now, Xi Jinping wants things to change, and the socialist buzzword is “common prosperity.” Among the aims of common prosperity are raising the income of urban and rural residents, reducing the wealth gap and promoting equal access to services, officials have said. Entire sectors have been ordered to change the way they do business. The once hugely lucrative after-school education industry was decimated overnight by a regulatory decision to ban for-profit tutoring and big tech was hammered by a wide-ranging anti-monopoly crackdown. Then came celebrities who evade taxes, food delivery giants who hire workers without full contracts and video-gaming giants who let youngsters play on their platforms. It seems nowhere is safe from scrutiny. The question is, where will the ax fall next? By The Numbers 65 The number of times Xi Jinping mentioned "common prosperity" in speeches and high-level meetings in the first eight months of the year $5 billion How much just seven of China's top billionaires have given away to charities so far this year 996 Slang in China for the common practice of working 9 a.m. to 9 p.m., six days a week, which the government has warned against Why It Matters Xi Jinping’s rhetoric surrounding “common prosperity” has surged this year, with the phrase increasingly mentioned in major speeches and during top-level meetings, pointing to a deliberate shift in policy. That hints at changes that could ripple across the world’s second largest economy — even as details have remained scarce. Jittery investors have been dumping stocks in areas affected, and hunting for clues as to Beijing’s next targets, while the wealthiest individuals and biggest corporations have suddenly upped their philanthropic game and poured cash into good causes. Now there’s speculation that Beijing may introduce taxes on property, inheritance and capital gains as a means of redistributing the wealth accumulating in relatively few hands. Improved distribution of income could provide a boost for Chinese consumers who are already the world’s top spenders on automobiles, and whose spending on entertainment, clothing and cosmetics is second only to the U.S. But changes could also mean risks for the global economy. Reining in house prices, for example, could depress China’s demand for commodities, which is crucial for overseas economies from Australia to Peru. And if the bearish mood of investors doesn’t fade, it could limit the ability of Chinese companies to raise financing, depress innovation and entrepreneurship and ultimately undermine the economy. As China has been the largest contributor to global growth in recent decades, the effects could ripple far beyond its borders.
This is all a smokescreen for tightening control and clamping down on dissenting views to make sure that the grip on power by the ones in charge is not challenged in any way. China has been in existence for 5000 years. It knows a thing or two about some groups getting too big or too rich or too something. No matter how positive they are and how loyal they are to the powers to be, eventually they will become a threat in the eyes of the powers to be, aka beyond the power's control. And that cannot happen. This threat needs to be eliminated before it becomes one. Thus this "common prosperity" =>keeping everybody the same, same wealth, same awareness, same everything, so they are easier to be controlled by the powers. All those tech. companies, celebrities (they are always the first ones who get suppressed and get suppressed the hardest because they are the messengers), business moguls getting "cracked down", they are just collateral damage. Where will the ax fall next? Everywhere. Eventually this will be permeated to every single facet of the society down to the tiniest community in a little building. This is how the Cultural Revolution of 1966 started. Before the Cultural Revolution. Hopefully we won't get to observe it irl or relive it again for somebody.
Opinion China is grappling with a ‘devil’s bargain’ Stephen Bartholomeusz Senior business columnist September 1, 2021 https://www.smh.com.au/business/ban...g-with-a-devil-s-bargain-20210901-p58nt7.html The debt-riddled underbelly of some of China’s bigger companies perhaps provides another layer of insight into Xi Jinping’s abrupt imposition of a new and aggressive approach to “common prosperity” on the country’s biggest enterprises. For decades it was the entrepreneurs who helped turbocharge China’s growth rate, particularly during the ultra-high growth in the decade after the financial crisis where Chinese companies gorged on the torrents of liquidity, the access to cheap debt and the stimulus China poured into its domestic system and economy. Billionaire Hui Ka Yan is the chairman of one of China’s biggest property developers, Evergrande, which is faltering.Credit:Bloomberg For a variety of reasons, not the least of which was the flaunting of wealth and perceived power and independence from the state of tech entrepreneurs like Alibaba’s Jack Ma, China’s authorities launched an assault on the big tech companies this year and pressured their billionaire founders to “donate” towards its goal of common prosperity. That heralded a radical shift, the biggest in 40 years, from an emphasis on creating wealth towards redistributing it. Before COVID the authorities had been attempting to drain leverage from their financial system and corporate sector – particularly the property sector – an effort that was put on hold while they responded to the pandemic with fiscal and monetary stimulus. Until the Delta strain emerged this year they had been resuming that effort. This year it has become clearer why the authorities were so focused on deleveraging as the dire financial condition of some of China’s biggest enterprises has been revealed. HNA, the sprawling conglomerate that was once one of the world’s largest asset buyers (and a former shareholder in Virgin Australia) collapsed into bankruptcy with debts of more than $100 billion at the start of this year after several years of attempts to unwind its debt-fuelled global spending spree. It was placed in state hands last year. Huarong, set up by the state to manage bad debts within China’s banking system after the Asian financial crisis in the late 1990s, is in the process of being bailed out now by state-owned enterprises after losing about $22 billion last year. It has about $330 billion of liabilities and, along with the bad debts it was supposed to manage, a disparate collection of businesses and other assets it had acquired in a spending spree well beyond its original mandate. Its chairman, and the architect of its expansion, was found guilty of corruption and executed in January. There have also been a string of other defaults and threatened defaults among Chinese state-owned and private entities over the past year or so – yields of China’s offshore high-yield bonds have been trading at double-digit levels – but the other “whale” in trouble is one of China’s biggest property developers, China Evergrande. With most of China’s house wealth tied up in property and Evergrande one of the country’s largest developers its struggles are of national significance and concern. It has been engaged in a firesale of assets that has reduced its debt load from a peak of about $180 billion last year to about $120 billion but it has total liabilities – including trade creditors – of more than three times that amount. HNA, Huarong and Evergrande are almost certainly the tip of an iceberg, with the continuing attempts by Beijing to deleverage and restructure its largest enterprises an indication of the perceived/real fragility and vulnerability of the corporate sector. Its warning that it might default on its debt on Tuesday sent shudders through offshore bond markets – its bonds are trading at less than 40 cents in the dollar – where the company has been China’s biggest issuer of junk bonds. More than 40 per cent of its debts fall due within the next 12 months. The authorities wouldn’t have been taken by surprise. They directed property developers to reduce their leverage and stop issuing new debt last year and called in Evergrande last month to put pressure on the company to stabilised its finances without destabilising financial and property markets. There has been speculation of a state-led bailout of Evergrande – which underscores its significance within China. This year it has become clearer why the authorities were so focused on deleveraging as the dire financial condition of some of China’s biggest enterprises has been revealed.Credit:Bloomberg Despite the interventions in Huarong (where the majority shareholder, the Ministry of Finance, made it almost inevitable) and HNA – the authorities would, however, be reluctant to bail out yet another over-extended group and add to the moral hazard already pervasive in an economy so state-dominated. HNA, Huarong and Evergrande are almost certainly the tip of an iceberg, with the continuing attempts by Beijing to deleverage and restructure its largest enterprises an indication of the perceived/real fragility and vulnerability of the corporate sector. The examples of threatening corporate recklessness and ill-discipline, along with the hubris and conspicuous wealth and prospective power of the billionaire tech entrepreneurs – China has more billionaires than any other country – would almost certainly have unsettled the authorities and have contributed to the crackdown on the big tech companies and the shift in broad national strategy from creating wealth with an expectation that it would trickle down to redistributing it. In the West there is a phrase that encapsulates the dilemma confronting the Chinese authorities in dealing with the likes of HNA, Huarong and Evergrande and which fits neatly with the new emphasis on common prosperity. “Privatise the profits, socialise the losses” is essentially the devil’s bargain the most indebted of China’s big companies have presented Beijing. That’s a difficult enough proposition to swallow in a free market economy. It’s a near-impossible one within a communist one, even one with a model of “socialism with Chinese characteristics.” It would seem the authorities have redefined the model, adding a lot more socialism and reducing the “Chinese characteristics.”