Does Beijing’s meddling signal ‘game over’ for China’s growth?
On Monday the Chinese government announced that it will restrict the number of hours children under the age of 18 are permitted to play video games to one per day on weekends and holidays. The hour of play has been fixed at 8 p.m to 9 p.m.
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.
This edition of Eastworld was curated and produced by Yvonne Lau. Reach her at firstname.lastname@example.org
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Markets and Movers
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