China’s Series of U-Turns to Save its Economy And Salvage Its Reputation As A Business-friendly Nation

Jack Ma's return to China and the release of Chen Datong, a semiconductor entrepreneur, indicate China's u-turn after its massive technology crackdown in 2021.

Several factors, including China's crackdown on its largest technology companies in 2021, a crisis in real estate, and draconian zero-covid measures, have caused a drastic economic slowdown.

Realising its folly, the government has made u-turns on several of its initial stances.

Didi Global, which had been asked to stop taking up more customers in 2021, was allowed to resume growing in January of 2023.

Earlier, the country had prevented its companies from complying with United States' listing and auditing rules, but to prevent the delisting of Chinese companies in the US, it allowed America's accounting regulator to review the internal documents of Chinese companies listed in the US.

Chinese companies listed in the US have a combined valuation of nearly $ 1 trillion.

The country's embattled property sector has been struggling due to the lack of financing after the government stopped funding overleveraged companies. However, the rules have been relaxed, with companies again being lent money.

China relaxed lending rules for its overseas arm to help real estate companies pay overseas dollar bonds since non-payment could cause reputational damage to Chinese companies. At the same time, the government has begun encouraging the formation of private real estate funds to help keep its real estate sector afloat. These funds have a relatively small initial capital requirement.

The ruling regime also did away with its zero-Covid policy quickly, after zero-Covid increased companies' resolve to begin diversifying their supply chains away from China.

China has released Chen Datong, an imprisoned semiconductor entrepreneur, in a bid to help its struggling semiconductor industry. Similarly, Jack Ma, who went missing for a while during the tech crackdown resurfaced back in China recently. These could indicate that the government is trying to clean up its act and signal that China is still business-friendly.

Recently, the Chinese government introduced a new guideline to prevent malicious information from being spread online against businesses and entrepreneurs. Possibly the rule could be targeted at pleasing the business community, but it could also be a means to control its population from speaking against Chinese real estate companies or banks, which are in a delicate spot currently.

Foreign direct investment into China has helped the country grow rapidly, but the tech crackdown caused fear among investors. Amid a global slowdown, China is trying to salvage its reputation and rehabilitate its image of being a business-friendly nation.

Nevertheless, the tech crackdown has seen increased state control over technology companies that had seen unbridled growth over the last two decades.

Alibaba, for instance, is reported to have become a government-controlled entity, despite Jack Ma's history of being vocal about bad policies affecting business.

State-linked investors have been buying stakes in technology companies like Weibo, Bytedance (owner of TikTok), and Alibaba. Even with a one per cent stake, the government gets veto rights and the right to appoint board members.

Despite the government's eased stance, Jack Ma and Chen Datong haven't yet returned to their respective companies. Several other businessmen are still 'missing' in China despite the country easing its stances on a variety of issues. Under these circumstances, the release of entrepreneurs and the return of Jack Ma might be more of a PR exercise.

Despite the government's sudden change of heart, investors are still sceptical of the country, with the Hang Seng Index down a third over the last five years. Major stocks like Alibaba are still down 50-60 per cent from their listing prices. They might not recover to their initial public offering levels if investors sense continual government meddling in company affairs.