China’s Regulatory Announcements Part III

From your perspective, how are you viewing China’s recent regulatory announcements?

Many of these changes can be seen through an ESG (environment, governance, social) lens. In fact, these regulations can be viewed as almost playing catch up to global best practices. What China’s government really wants is not only for companies to comply with the law, but that they also maintain and assert mainstream values. In addition, they want these companies to undertake corporate social responsibility activities.

Take, for example, the avoidance of monopolies in key sectors, and supporting small and medium-sized businesses. Another goal is ensuring social cohesion, which is considered vital. What is often underappreciated, but has been key for the long-term development of China, is the concept of common prosperity. And it's not just about the economy. China’s government has tried to ensure equality mainly through eliminating poverty, and they've been very successful at this. But at the same time, there has been a rise in inequality, which the government really wants to focus on and is a key driver of its recent regulatory push. As China has evolved (last year China hit a significant milestone of GDP per capita of US$10,000), we can see that while the country has moved to another stage of economic development, ensuring common prosperity and social cohesion remains a fundamental goal.

When we think about common prosperity and social cohesion, which sectors are important for that stability?

Sectors considered as especially key to stability include education, housing and health care. The cost of education has caused a lot of anxiety among parents, and has been a barrier to parents having more children, for example. And this is important because the most recent census showed that in 2020, Chinese birth rates were the lowest they've been in history. Due to China’s aging population, the declining birth rate is considered a very important demographic challenge that the government seeks to address.

Within the housing sector, the government has discouraged housing purchases as investments rather than for personal use, stating outright that "Housing should not be used for speculation because housing is for living." In terms of health care, the main concern is really about just ensuring affordable health care and making sure it's accessible to the masses. But I think what's very important is this focus on corporate responsibility—especially, for example, very large technology companies—because they're so important in terms of everyday life in China.

It seems the Chinese government wants companies to strike a balance between profit and social responsibility.

Yes. The government has said that companies should really focus on the treatment of all stakeholders, including the protection of workers. And so aspects of corporate culture such as “996”—a reference to making employees work from 9:00 AM to 9:00 PM, six days a week—is something they’re looking to strongly discourage. The government has come down hard on corporate misconduct as well. And so this is crucial not only for social cohesion, but also for a company's long-term success. What's made some of these companies so successful has really been their people and overall corporate culture. So I think it's only normal that the government has looked at specific ways to reign in the power that certain companies have on everyday life in China.