Does Beijing’s meddling signal ‘game over’ for China’s growth?

The new rules, set by the state’s National Press and Publication Administration (NPPA), will take effect tomorrow. They tighten existing limits that were already pretty harsh; under the old rules, players under 18 were allowed no more than 90 minutes of gaming on weekdays and three hours a day on weekends.

The NPPA, on its website, said it is narrowing the limits at the behest of parents, who “have reported that game addiction among some youths and children is seriously harming their normal study, life, and mental and physical health.” The People’s Daily, the official newspaper of the Communist Party, declared it “indisputable” that video games are “destroying” the nation’s youth, and that the government had no choice but to deal “ruthlessly” with the problem.

Young gamers, predictably, are up in arms. “This group of grandfathers and uncles who makes these rules and regulations, have you ever played games?” fumed one on Weibo, a social media platform, according to Reuters. News of the decree roiled shares of Chinese video game companies, including Tencent Holdings, NetEase, and Bilibili.

As the parent of a 15-year-old boy, I must confess a certain sympathy for this new edict. (My son will be relieved to learn that it is not being applied in Hong Kong where we live.) Nor do I fear for the future of China’s giant gaming companies. Tencent, for example, announced last week that under-18 users account for less than 3% of its gross gaming receipts in China, and most analysts think the new curbs on younger users won’t have much direct impact on the sector.

But as a business writer, I can’t help but marvel at the hubris of Beijing’s latest proclamation.

The new rules for video gamers follow two months of hyperactive meddling by regulators in nearly every nook and cranny of the Chinese economy. A raft of different government agencies has rolled out new rules for data security, consumer privacy, and anti-competitive behavior. In August, with little warning or apparent concern for investors, regulators banned online tutoring companies from earning a profit, wiping out a $100 billion industry. The state has badgered the nation’s richest companies and entrepreneurs into making billions in charitable contributions. Last week, President Xi Jinping, called for a new era of “common prosperity” and vowed new measures to redistribute income and private wealth. On Monday, the head of the China Securities Regulatory Commission promised to rein in private equity and venture capital funds in China.

Analysts and global investors are divided on how to interpret this frenzy of intervention. One camp argues there is nothing really new or surprising about the regulatory movements. Leaders of China’s ruling Communist Party have long signaled their concerns about widening social and economic inequality and the disruptive potential of technology and capital, and so investors shouldn’t overreact. Among the most prominent proponents of this view has been Bridgewater Associates founder Ray Dalio, who argued in a LinkedIn post earlier this month recent regulatory crackdowns shouldn’t be “misconstrued” as anti-capitalist.

“[T]he trend over the last 40 years has clearly been so strongly toward developing a market economy with capital markets, with entrepreneurs and capitalists becoming rich,” Dalio wrote, urging investors: “[D]on’t misinterpret these wiggles as changes in trends, and don’t expect this Chinese state-run capitalism to be exactly like Western capitalism.”

Fair enough. But at what point does the state’s grip on markets begin to choke off growth?

At the opposite end of the spectrum is another billionaire, George Soros, who has argued in a series of scathing recent commentaries that China, under the leadership of Xi, isn’t just wiggling: it’s making a fundamental break from the market-oriented reforms set in motion in the 1980s by Xi’s predecessor Deng Xiaoping.

“Xi does not understand how markets operate,” Soros declares in an essay in Tuesday’s Financial Times. “Xi regards all Chinese companies as instruments of the one-party state. Investors buying into the rally are facing a rude awakening. That includes not only those investors who are conscious of what they are doing, but also a much larger number of people who have exposure via pension funds and other retirement savings.”

Soros proposes a simple but radical remedy. He wants the U.S. Congress to pass legislation “explicitly requiring that asset managers invest only in companies where actual governance structures are both transparent and aligned with stakeholders”—a measure that would force U.S. managers to unload hundreds of billions of dollars of Chinese equities.

My old Time Inc. colleague Michael Schuman, in this essay for Bloomberg, sides with Soros. He argues that Xi and his allies have “forgotten what really made China great again—not the state, but its absence,” and that their arbitrary and escalating anti-business pronouncements put the future of China’s economy at risk.

“The scary part of Xi’s program,” Michael writes, “is the return of a cadres-know-best mentality….[H]is notion that he and his comrades can outthink both investors and the market is sending the wrong signals to the Chinese public, at the very moment in the country’s development when their entrepreneurial genius is most needed.”

In other words, the state’s relentless crackdowns could mean game over for the resurgence of China’s economy—not just for its teenagers.

More Eastworld news below.

Clay Chandler
clay.chandler@fortune.com

This edition of Eastworld was curated and produced by Yvonne Lau. Reach her at yvonne.lau@fortune.com  

Eastworld News

Singapore’s nouveau riche

Forrest Li, co-founder, chairman and CEO of Internet platform Sea, is now Singapore's richest person with a net worth $19.8 billion after his company's NYSE-listed stock surged 67% this year. Li's company, internet platform Sea, is also Southeast Asia’s most valuable company. Under Li, Sea has expanded beyond its bread-and-butter e-commerce and gaming offerings to fintech services—such as digital payments—which helped boost the firm’s revenue nearly 160% to $2.3 billion in the second-quarter. Fortune

Return to work

South Korea’s prime minister Kim Boo-kyum is advocating for Lee Jae-yong—the head of ‘chaebol’ Samsung Group—to return to his role managing the conglomerate weeks after Lee’s release from prison. Kim told the FT that it’s “not an appropriate option to ban his activities when he has already been released [from jail].” Lee served 19 months (out of a 30-month sentence) on bribery charges. Samsung Group is the world’s largest maker of computer chips, electronic displays and smartphones. FT

Disappearing act

China has scrubbed all traces of Zhao Wei—one of the country’s most popular actresses—from the internet. Last Thursday, complying with state orders, Chinese video streaming and social media cites removed all content and credit featuring Zhao and her name. Known for her roles in films like Shaolin Soccer and My Fair Princess, Chinese Internet users speculate that Zhao has been targeted for her controversial business deals and close connection to Alibaba—one of the government’s top targets in its tech takedown. Fortune

A crucial link in the chip chain

Malaysia's battle against a renewed surge of COVID-19 infections is threatening to further disrupt the global semiconductor supply chain, meaning more shortages and uncertainties for the industries that rely on such components. The Southeast Asian nation is a crucial link in the chip chain as one of the world's top locales for assembling, packaging and testing chips used in devices like smartphones and car engines. Malaysia is currently fighting its worst outbreak of cases since the pandemic began; it has recorded 1.6 million infections and 15,000 deaths to-date, and half of the deaths took place this summer. WSJ

Chinese vaccines vs. Delta 

While China's main vaccines from private maker Sinovac and state-owned firm Sinopharm are highly effective in preventing deaths and severe illnesses among the fully vaccinated, recent studies suggest they offer less protection against the Delta variant than their foreign counterparts. Still, as of July, Sinovac and Sinopharm rank number one and number three respectively in terms of the world's most-used vaccines. The Chinese makers have helped boost vaccination rates in foreign countries, delivering 693 million shots worldwide. Fortune

Markets and Movers

SenseTime – SenseTime, one of China’s four ‘A.I.’ dragons, has filed for a Hong Kong initial public offering, potentially paving a path for other Chinese A.I. ventures whose previous efforts to go public have been hindered by U.S. allegations of their ties to state security bureaus. The deal could see SenseTime raise up to $2 billion and its valuation balloon to as much as $12 billion. Megvii, another of the 'dragons,' dropped its HKEX IPO bid last year after it was added to Washington's trade blacklist and the Hong Kong bourse more closely scrutinized the startup's listing application.

Fortescue – Australia’s Fortescue Metals Group, the world’s fourth-biggest iron ore producer, is ramping up its efforts to become carbon neutral by 2030. The company posted its highest-ever annual profit of $10.3 billion—a 117% jump from the year prior. Strong steel demand from China aided its fortunes; the company shipped a record amount of iron ore last year at sky-high prices. Fortescue says it will now set aside 10% of its annual profit to invest in green industrial projects and renewable power. It will ramp up spending in this segment to between $400 million and $600 million in the year to June 2022. Last year, Fortescue spent $122 million on developing green transport from trucks and trains, to decarbonization technology.

ByteDance – ByteDance, the Beijing-based, A.I.-driven company behind viral video platform TikTok, has made its first move into virtual reality. ByteDance has now acquired Pico, a top Chinese manufacturer of VR hardware. While the company didn’t disclose the size of the deal, some media reports say Pico's price tag hovered around $772 million. The acquisition comes after ByteDance’s March purchase of Shanghai-headquartered mobile gaming studio Moonton for a reported $4 billion as it expands into gaming.

Zeekr – Electric vehicle maker Zeekr, backed by Chinese auto giant Geely, has raked in $500 million in its first external funding round. Its investors include California-based Intel Capital, Tesla battery supplier CATL and Chinese entertainment platform Bilibili. Post-fundraise, Zeekr's valuation surged to roughly $9 billion. Founded this year, Zeekr says it will start selling its '001' model later this year; its target demographics are younger consumers. The company looks to sell 650,000 vehicles annually by 2025.

Alibaba – Chinese e-commerce behemoth Alibaba has fired 10 staffers for publicizing a female colleague’s account of sexual assault which occurred during a company business trip. Alibaba said the employees disclosed screenshots online which identified the woman; three other staffers were reprimanded for their 'inappropriate comments.' Earlier this month, the deeply personal and chilling account of sexual assault penned by a female employee of Alibaba rocked China's tech sector and sparked public outrage.

Final Figure

$127 billion

In the last decade, South Korea’s state-linked institutions have funneled more than $127 billion to finance fossil fuel projects worldwide, says a new report by NGO Solutions for our Climate. During the same period, South Korean public financing for coal projects amounted to $10 billion. Following China, the South Korean state is the second-largest government financier of oil and gas projects globally. As outlined by its New Green Deal, South Korea is targeting carbon neutrality by 2050.