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China’s “common prosperity boost” leads to divergent regulatory approaches

A Chinese national flag is seen near a construction site in Shanghai's financial district
A Chinese national flag is seen near a construction site in Shanghai’s financial district June 1, 2012. REUTERS/Carlos Barria/Files

March 4, 2022

(Corrects word juxtaposition in network forum name in paragraph 8)

By Eduardo Baptista and Clare Jim

BEIJING/HONG KONG (Reuters) – China’s so-called ‘joint prosperity push’ in the near future will not only aim to close the growing prosperity gap, but will also shape the country’s regulatory approach, with sectors considered critical to the economy getting more government support.

As part of the move, analysts expect the struggling real estate sector, which accounts for a quarter of the economy, to receive more regulatory support, while internet firms will remain a crackdown on what Beijing calls disorderly capital expansion.

Global investors, burned by numerous raids last year, will be on the lookout for signs of clear regulatory divergence at the annual session of China’s parliament, which begins on Saturday, when policymakers are expected to unveil more stimulus to ease slowing economic growth.

Thousands of delegates from across China will gather in the capital, Beijing, for the meeting, which will discuss economic and social policies.

Fears of a fresh wave of regulatory crackdowns swept the Chinese tech sector last month after unprecedented changes over the past few years amid antitrust violations and data security concerns, among others.

In the mammoth real estate sector, on the other hand, some rules have been relaxed since earlier this year, paving the way for indebted developers to get back on their feet after teetering on the brink of collapse.

The move underscores Beijing’s focus on halting the slowdown in growth as the war in Ukraine adds new uncertainties in a year when President Xi Jinping is almost certain he will secure a precedent-breaking third term as head of state.

“If you just looked at the regulatory developments… you would certainly think that the Chinese government is really restricting technology and has relaxed its approach to the real estate sector,” said Alfredo Montufar-Helu, director of the Economist Intelligence corporate network.

“The real estate sector is seen as a key driver of economic growth because it leads to investment, leads to home buying, leads to property development, but it also brings great demand for other sectors such as commodities,” he said.

China launched a multifaceted regulatory and unprecedented crackdown on a broad spectrum of industries over the past year, leaving startups and decades-old companies alike operating in a new, uncertain environment as part of Xi’s “shared prosperity” efforts.

Both the tech and real estate sectors saw their earnings collapse and their stocks and bonds sell off massively as new rules were enacted restricting their operations, heavy penalties were imposed for violators, and new fundraising plans were thwarted.

SYSTEMIC RISK

Since late last year, however, Beijing has taken a number of initiatives to revitalize the refrigerated real estate sector, including making it easier for large and state-owned developers to raise capital, facilitating escrow accounts for pre-sale funds and allowing some local governments to lower mortgage rates and down payment ratios.

According to Montufar-Helu, the regulatory pause granted to the real estate sector was likely due to regulators’ concerns about the knock-on effects of the joint prosperity measures on the economy at large.

By comparison, the tech sector has been hit with a barrage of tougher regulations affecting everything from overseas listings to outright bans on industries like after-school tutoring, along with a steady stream of fines.

Among the companies most commonly found on the receiving end are tech giants like Tencent Holdings and Alibaba Group.

“Technology and education fall under the notion of ‘shared prosperity’, but real estate is a different topic as it involves systemic risk,” said Rosealea Yao, China investment analyst at Gavekal Dragonomics.

The central government’s goal for the real estate sector is clear, Yao said, to ensure it manages to emerge from a deep liquidity crisis, so further easing measures need to be taken.

The Hang Seng Mainland Properties Index is down 0.2% this year versus a 6% drop in the Hang Seng Index as some investors bought property stocks on depressed valuations and economic expectations.

In comparison, China’s main tech stock index, the Hang Seng Tech Index, is down 12.1% so far this year.

Louis Lau, a. The US-based fund manager at Brandes Investment Partners LP said he was surprised that regulators are still tightening the screws in the tech sector, dashed hopes of a period of recovery.

“People don’t know when it’s going to end, it’s been taking longer than expected,” Lau said, adding that he expects the crackdown to continue into the second half of this year.

(Corrects word juxtaposition in network forum name in paragraph 8)

(Reporting by Eduardo Baptista in Beijing and Clare Jim in Hong Kong; Editing by Sumeet Chatterjee and Kim Coghill)

https://www.oann.com/chinas-common-prosperity-push-leads-to-divergence-in-regulatory-approach/?utm_source=rss&utm_medium=rss&utm_campaign=chinas-common-prosperity-push-leads-to-divergence-in-regulatory-approach China’s “common prosperity boost” leads to divergent regulatory approaches

Caroline Bleakley

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