Chronic. Global stock markets have their eyes on Chinese real estate developer Evergrande, on the verge of defaulting on part of its $ 300 billion (€ 257 billion) debt, as the Chinese real estate market experiences a clear cooling. Investors are right to be alarmed, because the Chinese real estate sector represents nearly 30% of GDP and that there is a link between real estate crises and deep recessions.
But the problems of the real estate sector are not the only economic danger facing China today. The growing crackdown by the Chinese government on the burgeoning tech sector could pose an even greater threat. Yet these companies have the capacity to drive growth at a time when the digital revolution, coupled with green transformation, requires a strong private sector and robust investment flows.
But President Xi Jinping, fearing that companies such as Alibaba, Tencent, and Didi Chuxing have amassed too much wealth and strategic data, stepped up his attacks on the private sector in 2021. Big Tech’s Challenge to Monopoly of the power of the Chinese Communist Party has become too serious to ignore. Regulatory pressure has increased. In July, for example, the Chinese authorities took of Didi – the country’s leading carpooling app, with 377 million annual active users – app stores, just after the company’s successful IPO in the United States, causing the company’s share price to fall by around 20%.
The bet on severity
China’s move towards increased state control over major tech companies, including the integration of Chinese Communist Party cells into them, threatens to dampen the remarkable dynamism of these companies. By moving away from supporting the private sector, the Chinese authorities risk killing the goose that lays the golden eggs of rapid economic growth and China’s best hope for securing the “Common prosperity” wanted by President Xi.
According to a recent study by McKinsey & Company, the share of Chinese urban employment supported by private companies more than quadrupled between 1995 and 2018, from 18% to 87%. The share of exports generated by the private sector also increased from 34% to 88% over the same period. Under these conditions, restraining the private sector and threatening innovators is not the best way to ensure rapid and sustained growth.
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