Every Chinese leader stamps their mark on the country they rule for five, 10, (or 15) years. Xi Jinping’s brand is indelible, but the technology companies which have powered China’s economic rise over the past decade will be searching for clues on how to navigate his third term.
When Xi took power in March 2013, Tencent Holdings Ltd. stood at a lonely 11th spot as the only technology company among China’s 20 largest by market value. Today, the games and social media behemoth stands at the top, accompanied by six others including Alibaba Group Holding Ltd. in fourth, ahead of bookings and deliveries provider Meituan at number 11.
Executives and shareholders at these new giants have good reason to feel hard done by over the past few years. The Covid outbreak was a great opportunity for China’s technology leaders to prove their worth to the nation, offering a plethora of products to help citizens and companies survive rigid lockdowns and economic upheaval. Yet Tencent and Alibaba now trade lower than they did three years ago, before the virus crept out of Wuhan.
A good portion of the blame can be attributed to “common prosperity,” a term first coined by Mao Zedong, but which became a battle cry under Xi last year to “increase the size of middle-income groups.” Companies were quick to jump aboard, telling investors — and Beijing — that they were ready to play their part.
“We have actively worked on shouldering more social responsibility and creating greater value while promoting common prosperity for the larger society including our delivery riders, merchants, consumers, and other business partners,” Meituan Chief Executive Officer Wang Xing said in August 2021. Tencent “invested actively in key strategic areas as well as in frontier technologies, along with making new commitments in common prosperity initiatives,” Chairman Pony Ma said in an earnings call a year ago.
But, as my colleague Shuli Ren noted this month, common prosperity has morphed into common poverty as everyone got poorer and China failed to broaden its middle class. It seems the buzzword even fell out of favor this year, although it has been revived in recent weeks and has popped up in state media with increasing frequency.
Beijing’s “plan to reduce inequalities throughout the country,” as common prosperity is now described, doesn’t completely explain the troubles facing China’s technology companies, though. In fact, the challenges preceded it. Jack Ma’s ill-advised speech at the October 2020 Bund Forum in Shanghai — wherein he criticized banks and regulators — resulted in the nixed public offering of his fintech Ant Group Co. Ma, founder of Alibaba and once China’s richest man, flew too close to the sun and got burnt.
While that one incident, and its fallout, was a shock to the sector, it doesn’t entirely explain the diminished fortunes of China tech. A series of regulatory actions over the past few years — collectively labeled a crackdown — help to describe multiple examples of Beijing’s heavy hand at work. Education companies had their business models pulled from under them, games firms went through repeated bouts of censorship and content renovation, while e-commerce players were hit with punishing antitrust fines.
The end result is a growing list of Chinese technology companies who’ve run afoul of regulators. Yet still lacking is clarity as to what executives need to do in order to stay on Beijing’s good side.
The communique from last week’s Seventh Plenary Session of the 19th Central Committee of the Communist Party of China, a prelude to this week’s 20th Party Congress, does offer some clues. The term “common prosperity” didn’t appear once, yet “Socialism with Chinese Characteristics” was featured eight times — on five occasions coupled with the suffix “for a New Era.” But the term was used more as a platitude, without much elaboration or concrete policy. Such details are expected to be fleshed out during this week’s congress and offered up during and after the event.
Even then, there’s no guarantee that regulators will be willing, or even able, to offer clear guidance on how companies should operate during Xi’s third term. Criticizing the government and ripping off consumers are obvious landmines, but how to run an education company or offer delivery services are the nuts-and-bolts executives will need to navigate their multibillion-dollar companies.
It’s become accepted wisdom that much of Beijing’s policy action in the lead-up to this Party Congress has been in the service of securing Xi’s reappointment — including harsh Covid-Zero lockdowns, increased militance toward Taiwan, and greater control over the education and games sectors. It follows then that once safely entrenched in his third term, Xi will ease off and business can go back to normal. There’s no evidence this will be the case, and “Xi Jinping Thought” remains a key component of government messaging.
While China’s tech sector enjoyed massive growth by pushing the regulatory boundaries, business leaders have largely shown a willingness to fall into line once they know where that line is. Now all they need from Beijing is clarity.