For China’s richest billionaires, last year was the worst in decades. Covid-related restrictions and tighter scrutiny of private enterprises all but squeezed out growth in the world’s second-largest economy, which led to a record plunge in their collective wealth. Although China’s leaders are now reversing many of the country’s most stringent policies to boost its ailing economy, the relief may only be temporary.
That’s because analysts are predicting the government’s latest market-friendly policies could fade as soon as this year. “Once the economic conditions stabilize, I would expect a return to whatever was happening prior to November 2022,” says Chen Zhiwu, a professor of finance at the University of Hong Kong.
Chen is referring to last year’s crackdown that all but wiped out revenue growth at many of the country’s largest tech giants, and sparked a wave of defaults in the real estate sector by curbing developers’ access to credit.
Now, with the economy slowing sharply and the unemployment rate rising to new heights, the previous approach that was centered on ideology and control has been put aside. But authorities will by no means relinquish it altogether, as they recently demonstrated when government-related entities moved to take so-called golden shares in local units of web giants Alibaba and Tencent. Equity stakes owned under this mechanism are usually small (around 1%), but they carry special rights that allow officials to sway important business decisions.
Still, billionaires are finding some respite as Beijing seeks to better balance its objectives. Jack Ma, who was recently spotted socializing in Thailand, has seen his wealth increase by $2.3 billion to $25.6 billion since the beginning of this year, though he’s still down almost 50% from 2021. Authorities have finally approved Ant Group’s $1.5 billion fundraising plan, after abruptly calling off the fintech giant’s $35 billion initial public offering in late 2020 following Ma’s now infamous criticism of China’s banking system.
But the 58-year-old, who cofounded Ant and e-commerce giant Alibaba decades ago, has agreed to reduce his voting power in Ant to about 6.2% from more than 50%, after the company completes what it describes as a “further corporate governance optimization.” The change in Ant’s shareholding means it will have to wait even longer to refile for its IPO. China’s A-share market in Shanghai requires companies that undergo a change in ownership control to wait for three years before listing, and the period is two years for the Nasdaq-like STAR market (also in Shanghai) and just one year for Hong Kong’s stock exchange.
“For tech companies, the recent regulatory relaxation will be welcomed but they continue to engage in areas that were monopolized by the government, i.e., content creation and payment,” says Victor Shih, an associate professor of political economy at the University of California, San Diego. “Thus, another clash between tech and the party is inevitable.”
Analysts say relief will also be short-lived for the real estate sector, although authorities are said to be considering relaxing their “three red lines” policy, which first emerged in 2020 to place a cap on borrowing but later triggered a steep decline in housing sales and a wave of defaults across the industry. Doing so would add to a recent raft of support measures, including allowing extensions on loan repayments and pledging hundreds of billions of dollars in fresh credit. Shares of some real estate firms rallied, with Longfor’s billionaire cofounder Wu Yajun adding $282 million to her wealth and Country Garden’s billionaire co-chairman Yang Huiyan gaining $465 million since year start.
“For real estate, if the loosening worked, housing prices will go up again while debt will continue to pile up,” says Shih. “Eventually the central government will have to reverse course.”
Still, analysts say the pro-market pivot would nonetheless help China boost its economy. In December, Nomura economist Lu Ting revised his projection for the country’s GDP growth this year to 4.8% from 4%, saying in a research note that he is encouraged by the loosening of the country’s Covid-zero policies, support for the real estate sector as well as officials reiterating respect for private entrepreneurs.
Chinese entrepreneurs have also recently come out to voice their positive outlooks for the economy, with well-known business leaders including Alibaba Chief Executive Daniel Zhang, Wahaha Group’s billionaire Chairman Zong Qinghou and Zhejiang Chint Electrics’s billionaire founder Nan Cunhui telling state broadcaster CCTV last week that they are optimistic about the country’s prospects for returning to rapid growth.
But in a meeting with anti-corruption officials on Monday, President Xi warned against “any infiltration of capital into politics that undermines the political ecosystem or the environment for economic development,” underscoring his ongoing intent to rein in the nation’s largest private enterprises. Xia Ming, a professor of political science at the City University of New York, says the current leadership still relies more on state-owned enterprises in steering the economy, making the overall investment less attractive.
Business confidence, in the meantime, still has yet to be restored.
“The party and the central government have tamed, especially over the last two years, the private sector,” says HKU’s Chen. “Nobody would dare to say no to the government’s demands, and the private sector doesn’t trust the government anymore.”