- Softbank CEO Masayoshi Son — an investor known for his large risk appetite — announced he’ll pause investment in China’s tech sector.
- Consider this a sign that China’s tech “antitrust” push is not like efforts to rein in tech in the US or EU.
- Don’t expect it be done anytime soon either.
- This is an opinion column. The thoughts expressed are those of the author.
Last week, SoftBank reported miserable quarterly results — highlighted by its first profit decline in five quarters — and Son announced that his fund would pause investments in China due to recent government regulatory moves that have clobbered tech companies in the country.
The latest of those moves — and a sign that the crackdown isn’t ending anytime soon — came on Tuesday when China’s State Administration for Market Regulation (SAMR) announced new measures to tighten the government’s control over tech companies. The agency is demanding that companies submit to “self-rectification.”
SoftBank has huge investments in Chinese companies including retail behemoth Alibaba and ride hailing company Didi. SoftBank invested $11 billion in Didi before its disastrous IPO on the New York Stock Exchange in July. In April the SAMR fined Alibaba $2.8 billion for monopolistic practices.
About a quarter of Son’s portfolio is invested in China, and he said that he’s optimistic about the country’s tech sector once the dust settles in a year or two, but until then the risk of getting run over by Beijing is too great. New investments in China only totaled 11% of the fund’s portfolio in the second quarter.
“I strongly believe that China’s AI technology and business model will continue to innovate,” Son said in a news conference according to Nikkei Asia. “However, in investment activities, various new regulations have begun, so I want to wait and see what kind of regulations are implemented and what kind of impact they have on the stock market.”
For better or for worse, Son is known the world over for his appetite for risk. But not even he is willing to venture finding himself in the cross hairs of Beijing’s new push for market power. The longer this drive goes on — and there are no signs that it will stop soon — the more investors will make the same calculation.
Stock Market On a horse with no name
Since the end of last year, the Chinese government has been tightening its control over the largest companies in its economy and the people who run them. The moves it has made — governing everything from ride share apps to trucking companies — have roiled stocks all over the world.
In part to calm the markets and worried foreign investors, Beijing has been using the language of “antitrust,” trying to draw comparisons to tech scrutiny in the US and Europe. But antitrust moves in the US and EU haven’t scared Son, or really any other investors. What’s happening to tech in China is different, and it is happening because the Chinese government’s priorities have changed.
Instead of opening its economy to the world, China is closing. Instead of putting wealth generation above all else, it is placing a greater emphasis on the entrenchment of Communist Party rule. That means making sure tech companies stay close to home, incentivizing companies to list on stock markets on the mainland or in Hong Kong instead of the US. It means making sure billionaires know they are subordinate to Beijing. It means leveling industries that — in the CCP’s view — disrupt social harmony.
The West does not have a word for all of these changes, but we do have a word for part of it — antitrust — so that’s what we’re repeating. It is, however, woefully insufficient. Beijing is using this to its advantage.
“The antitrust stuff is there but there’s just also a lot more going on in China,” Lee Miller, founder of surveyor China Beige Book, told Insider. “There’s a ton of other stuff that’s being layered on — big data protection, mistreatment of workers…. The only reason anyone sees it as antitrust is because they see big companies being attacked and losing value and potentially market share.”
In the future we’ll come to see what happened when billionaire Jack Ma’s Ant Financial was forced to abort its Shanghai IPO last November as a turning point. It was supposed to be the most valuable IPO in the world, but Ma made some disparaging comments about China’s financial regulations shortly before. The government responded by shutting it down. A month later Beijing opened an antitrust investigation into Ma’s other behemoth company, Alibaba.
Similarly, Didi decided to go public in the US instead of China. Beijing responded to that by initiating an investigation into Didi’s use of customer data, and pausing downloads of the app in China’s app stores. ByteDance, the parent company of popular app TikTok, took a different approach. It changed its plans to IPO outside of China and decided to list in Hong Kong instead, where Beijing’s influence has grown. The company’s founder, Zhang Yiming, stepped down from the company, quaintly explaining that he’s not very social or a particularly good manager.
At the end of July Beijing suddenly passed a law that prohibits any company that teaches subjects on China’s school curriculum from listing abroad, having foreign investors, or making a profit. The governments reasoning was that tutoring companies give wealthy kids too much of a leg up. The new law immediately tanked three tutoring firms listed in the US and dragged down other US-listed Chinese firms with them.
Officials in Beijing have tried to reassure investors that this volatility will be limited, but obviously not even Son is willing to believe that.
Stock Market This isn’t about US
There are a bunch of reasons to believe that Son is right, and that the CCP’s crackdown isn’t going to end anytime soon. For one thing, this week Beijing released a document discussing reforms to the rule of law, emphasizing that President Xi Jinping has his own approach to governance that will touch everything from national security to public health. A lawmaking effort of this scope will take time, and leave few industries unscathed.
Another huge reason is that there’s a Chinese Communist Party Congress coming up in the fall of 2022. It’s an event held every five years to lay out a path for the subsequent five. Having spent the last near-decade destroying all of his opposition, Xi will want to project stability and point to all the reasons why he should remain in power.
“Through the Party Congress its going to be one long political drive to show that the party represents the people above all,” Miller explained.
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This “antitrust” push is part of that drive, an attempt by Xi and the Chinese Communist Party to give a blueprint to the people and maintain power even though China won’t be experiencing the same breakneck economic growth of decades past. This is existential to the CCP.
Or as Miller put it: “Do they (Beijing) worry about investors? No, they don’t care. This is all focused inward. It doesn’t matter if a bunch of rich guys lose a lot of money.”
And obviously, one of those rich guys is Masayoshi Son.
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