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Foreign investors find Xi Jinping’s “profound revolution” profoundly disturbing

September 7, 2021, 11:27 AM UTC

On Monday, China’s vice premier Liu He used a video appearance before a digital economy forum in Hebei province to reassure global investors and Chinese business leaders that the nation’s communist rulers haven’t lost faith in private markets.

“The principles and policies for supporting the development of the private economy have not changed,” declared Liu, according to this report in China’s state-owned Xinhua News Agency. “They don’t change now and will not change in the future.”

Liu, who is also Xi Jinping’s top economic adviser, vowed that the state would protect private property rights and intellectual property rights. Per Xinhua, Liu stressed that China’s private economy is flourishing, contributing over 50% of the nation’s tax revenue, more than 60% of growth, and 80% of urban jobs.

Liu’s comments were widely interpreted as an effort to walk back state media’s endorsement last week of a diatribe penned by an obscure blogger pen-named Li Guangman. In a fiery jeremiad published on his personal website, “Li,” a columnist for a now defunct website and former editor of a little-known trade publication, hailed Beijing’s recent regulatory crusade against the nation’s tech, education, and entertainment sectors as a “profound revolution,” and prophesied that the new policy shift would “sweep away all the dust,” including upstart capitalists and “sissy pants” media and entertainment icons.

Li said the rolling crackdowns were part of a “transformation from a capital-centered to a people-centered” approach to governing China. His essay included an ominous flourish: “The red has returned.” (The China Digital Times has a full translation here.)

Such screeds are a jiao a dozen on Chinese social media. But Li’s essay spooked global investors—and sent shivers down the spines of many Chinese as well—because it was picked up by China’s leading state media, including Xinhua, the national broadcaster CCTV, the People’s Daily and nationalist tabloid Global Times, and widely recirculated online. The breadth of state promotion indicates the essay had the blessing of propaganda officials at the most senior level, sparking concerns that Chinese President Xi Jinping and his allies are reviving the anti-capitalist rhetoric of the Cultural Revolution, the decade of political violence and economic stagnation unleashed by former Chinese leader Mao Zedong before his death in 1976.

The essay has drawn extensive comment in the global financial press. “Chinese Essayist Revives Worries about a New Cultural Revolution,” fretted the headline of an analysis by Wenxin Fan in the Wall Street Journal. “Could China’s Crackdown Be a Second Cultural Revolution?” asked Bloomberg‘s Andy Browne. “Xi Jinping points China to Communist Revolution 2.0,” echoed the headline on this piece by Yuri Momoi, the China bureau chief of Japan’s Nikkei newspaper.

Tom Mitchell, in a lengthy assessment in Monday’s Financial Times, notes that the “sudden frenzy of political activity over the past two weeks has many people wondering if China is entering a new political era, one that embraces elements of Maoist political campaigns as the Communist party continues to take a more domineering role under President Xi Jinping.”

Liu wasn’t alone in trying to tamp down the revolutionary fervor. On Friday, Hu Xijin, the editor in chief of the Global Times, dashed off a rebuttal of Li’s essay (even though it had been prominently featured in his own newspaper) calling it a misinterpretation of the party’s policies. Notably, though, Hu’s commentary was published on his personal social media account and did not appear in the Global Times.

In the South China Morning Post, the English-language daily owned by e-commerce giant Alibaba Group Holding, columnist Wang Xiangwei laments that, in succumbing to “narrow-minded populism” to combat market excesses, China is reverting to the “vicious circle” of opening, followed by chaos, followed by government clampdowns that bedeviled the first three decades of its planned economy.

Former World Trade Organization director-general Pascal Lamy weighed into the debate in an interview today with Bloomberg arguing that Xi’s crackdown on China’s tech sector had created “a cloud that wasn’t there a few years ago on the future success of the Chinese economy.”

I won’t pretend that I can see through that cloud. The suggestion that Xi intends to gin up a second Cultural Revolution may make for a good headline, but Hu is correct to dismiss the comparison as hyperbole. Xi and his compatriots lived through the bloody chaos of that era and still bear its scars. But, Liu’s assurances notwithstanding, it’s also clear that Xi’s new emphasis on “common prosperity” and attacks on “disorderly capital” mark a significant policy shift for China—not just a minor course correction. I find it hard to imagine that shift won’t have “profound” consequences for China’s growth.

Mea culpa: In Thursday’s Eastworld, I wrote that while state-owned enterprises accounted for the majority of the 135 mainland Chinese companies on this year’s Fortune Global 500 list, none of the 122 U.S. companies on the list are state-owned. That’s incorrect. In fact, there are three U.S. SOEs: Fannie Mae (No. 62), Freddie Mac (No. 141), and the U.S. Postal Service (No. 123).

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

Beijing Stock Exchange  

China has ambitious plans to launch a new bourse called the Beijing Stock Exchange, announced by President Xi Jinping last Friday. The BSE—a reformed version of an existing stock exchange, the National Equities Exchange and Quotation Market (NEEQ)—will be designed to help innovative Chinese SMEs gain access to funding. Like the existing NEEQ, Beijing hasn’t made plans yet to open the BSE to retail investors. The Wall Street Journal

Social media savvy

The race to replace outgoing Japanese Prime Minister Yoshihide Suga is underway. One of the frontrunners is Taro Kono—the minister in charge of Japan's vaccine rollout—whose public persona and social media presence have won him support from the wider public. Regardless of who wins, Japan's investors are optimistic about the future: Suga's announced resignation helped boost Japan’s Topix index—which tracks all listed domestic companies—to 31-year highs. Fortune

Regulating algorithms

In late August, China’s Internet watchdog released new draft rules to regulate businesses’ use of algorithms—the first of its kind in the world. The 30-point law, if passed, will ban companies from utilizing algorithms to “encourage addiction or excessive consumption.” Such vague definitions provide broad cover for regulators to clamp down on firms as they like—and encourages companies to self-regulate, as they never know where the line is, writes Fortune’s Eamon Barrett. Fortune

Asia’s struggling airlines

Philippine Airlines, the country’s national air carrier, filed for Chapter 11 bankruptcy in the U.S. last Thursday. As part of its restructuring plan, the company will retain only 70 aircrafts; it will return 22 aircrafts, mostly Airbus and Boeing jets, to lessors. Meanwhile Garuda Airlines, Indonesia’s flagship carrier, is facing an existential financial crisis—it’s trying to restructure $4.9 billion of debt and could need a cash injection of up to $3 billion to survive. Reuters

Video game crackdown

The Chinese state is on a quest to regulate youth consumption of video games. Last Monday, an edict came from Beijing: children under the age of 18 will be limited to three hours of video gaming per week—between 8 pm and 9 pm on Fridays, Saturdays, Sundays, and public holidays. One analyst says that the gaming industry will take time to adapt to the restrictive new rules, and facial recognition tech may be introduced in the long-run to track and limit the game-playing time of minors. Fortune

Markets and Movers

Ola – Ola, India’s largest mobility platform which offers car rentals and cab hires, is now betting big on electric scooters. The company is building the world’s largest electric two-wheeler factory in southern city Krishnagiri—it aims to produce ten million electric scooters per year, or 15% of the world’s total production when the factory is fully operational.

Traveloka – Traveloka, Indonesia’s online travel unicorn, has put its SPAC listing plans on hold as investor enthusiasm for the SPAC market wanes. The startup would have merged with Bridgetown Holdings, a blank check firm backed by tech billionaire Peter Thiel and Hong Kong billionaire Richard Li. Traveloka is now shooting for a traditional IPO in the U.S., sources say.

Singapore Exchange – Last Friday, the Singapore Stock Exchange’s (SGX) new rules allowing special purpose acquisition companies to list on its mainboard came into effect. The SGX is the first Asian bourse to allow SPACs to list as it attempts to drum up more deals in the Lion City—Singapore hosted only three IPO’s this year, compared to the HKEX’s 46 debuts in the first six months of 2021.

Didi – The Beijing city government has denied reports which stated that it’s advising state-owned companies to invest in and take control of embattled ride-hailing giant Didi. The company issued its own denial on Saturday. Didi said it's currently working with regulators on its cybersecurity review; China’s Internet watchdog launched an investigation into Didi in early July, mere days after its blockbuster $4.4 million NYSE debut.

Binance – Binance, one of the world’s largest cryptocurrency exchanges, is under fire again. The four-year old company announced on Monday that its app will be removed from iOS and Google Play stores in Singapore; and that it would no longer offer Singapore dollar payment options. The Monetary Authority of Singapore had warned Binance that it could be violating the city-state’s laws by providing such services without an appropriate license.

Final Figure

$28 trillion

Southeast Asian nations could stand to lose $28 trillion in the next five decades if it doesn’t drastically reduce its carbon emissions, says a new Deloitte report. Businesses will be significantly disrupted by a climate change-driven increase of more severe natural disasters. The region’s services industry could lose $9 trillion; the manufacturing sector faces losses of $7 trillion; while retail and tourism could lose a combined $5 trillion. But there is one bright spot: if SEA rapidly cuts emissions, it could reach $12.5 trillion in economic gains in the next 50 years.

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