China’s recent blitz of education, technology, property and gaming regulations has triggered a cascade of knock-on effects in global markets. Chinese assets in targeted sectors have experienced volatility since the government announced new regulations. Now, tighter policy restrictions have put highly levered Chinese property developer Evergrande in a liquidity crunch. Contagion fears have spilled into global markets. For many investors in the emerging market universe, China’s policy moves have raised concerns. Some might be wondering—what’s China’s endgame? Have the government’s shifting policies made China uninvestible?
I don’t think so. To make sense of China policy, I look at the big picture. At the highest level, the Chinese government wants to align the private sector behind the Communist Party's political, social, and economic objectives, which it believes are crucial for supporting China’s growth over the next 10 years. I believe the government’s recent regulatory actions are consistent with three broad factors driving China policy:
- President Xi Jinping's populist agenda,
- United States-China competition and
- Efforts to rebalance long-term growth
Below, I explore how these factors apply to two key questions about China’s regulatory blitz.
Why is Beijing acting so aggressively now?
First is Xi's desire to burnish his socialist credentials ahead of the Communist Party’s 2022 National Congress. China removed the presidency’s constitutional two-term limit in 2018, paving the way for Xi to rule beyond 2023. In my view, Xi is trying to bolster the case for his extended rule with a populist "common prosperity" agenda aimed at reducing inequality and poverty.