Market power of Chinese companies Beijing takes on tech companies

Status: 23.06.2021 12:18 p.m.

Numerous large and valuable tech companies have emerged in China in recent years. The government did its best to promote the rise. In the meantime, however, the feel-good phase is over.

By Steffen Wurzel, ARD-Studio Shanghai A small coffee shop in Shanghai’s Jing’an business district. The shop is popular, a take-away coffee costs the equivalent of two euros, a bargain for this location. The fact that shopkeeper Wu Jialing is still worth it is because he can sell a lot of coffee within a short period of time. Customers pay by smartphone. You simply scan the QR code that is hanging next to the coffee machine. “Paying by app is incredibly fast,” says the shop owner. Serving the cash register, looking for change, washing your hands after contacting the cash register and cash – all of this is eliminated. Correspondingly more sales are possible.

Revolutionized dealing with money

The payment apps Alipay and WeChat-Pay have revolutionized the way money is handled in China within a few years. Instead of struggling with the mostly old-fashioned, complicated and sluggish state banks, most Chinese people now fully rely on the smartphone apps of the domestic fintech companies Ant and Tencent to handle their everyday financial transactions.

It is no longer just about cashless payments. The Alipay app can now also be used to take care of investments, insurance and old-age provision. That too weakens the role of the state banks. “In the area of ​​finance, China has developed from a very backward place to a global pioneer in terms of fintech,” explains Martin Chorzempa of the Peterson Institute for International Economics in Washington. Not only in the financial technology sector have new, powerful large corporations emerged in the country in recent years. There was also a start-up boom in other tech areas, financed partly by state and partly private venture capital.

Government rethinking corporate relationships

Whether online shopping, social media or delivery services: For years, companies such as Alibaba, Bytedance and Meituan have been able to rely on political and sometimes financial support from the government. But in the past few months the climate has changed, says Duncan Clark, head of the management consultancy BDA in the Chinese capital Beijing. “It seems that the government in China is rethinking its relationship with the big tech companies.”

Obviously, some of the big tech companies have grown too big too quickly for the communist leadership – and above all too powerful. The fact that cartel and supervisory authorities are taking action against the market power of large corporations such as Google, Amazon or Facebook is also true in Europe and the USA. But: “What makes the matter special in China are the outstanding position of the Communist Party and the tensions that exist again and again in China: Tensions between the large state corporations supervised by the CP on the one hand and the private sector on the other.” explains Clark.

Ant IPO stopped

These tensions became apparent in China over the past year. In several cases, the state and party leadership slowed down the emerging private companies. Ant, the parent company of the payment and financial services app Alipay, wanted to go public last November, for example. It would have been the largest IPO in world economic history. With him, the Chinese fintech company Ant would have collected around 30 billion euros. But two days before the equity debut in Hong Kong and Shanghai, the government surprisingly stopped the IPO. Ant does not meet certain regulations, it was announced. Further details: none. But in the following weeks it became clear that the cancellation of the Ant IPO probably came from the very top. China’s state and party leadership was apparently bothered by statements by Ant boss Ma Yun, alias Jack Ma, who said in a speech in Shanghai shortly before the planned IPO: “As far as the financial sector is concerned, we are still beginners in China. We do have Big banks – they are like big rivers. But what we mainly need are small lakes, ponds, streams and smaller rivers. ”

Open criticism crosses a red line

China’s financial system, previously dominated by large state banks, harbors risks, Ma criticized. That is unhealthy. A statement that many experts would endorse, but from the point of view of the communist leadership, the previously ubiquitous model manager had crossed a red line with his open criticism of the state banks.

The IPO of his fintech company Ant burst. Ma himself had to withdraw to a large extent from the public.

Several company directors resigned

“At first it was thought that this was all about Jack Ma because he was so open about himself, and about his company Ant,” says management consultant Clark, who has also written a book about the rise of Jack Ma. “But since then we have seen much more extensive crackdown by the authorities against large tech companies in China.”

Other prominent startup founders and tech billionaires resigned. For example, Zhang Yiming, the head of the TikTok parent company Bytedance, and Huang Zheng, who ran the emerging Chinese online shopping group Pinduoduo. The reasons for the resignations are unclear, but most industry observers believe government pressure played a role. “The Communist Party is profiting enormously from the consumption boom that all these tech companies have triggered in China,” Clark analyzes. “But this is not a one-way street. We see a certain double dependency between the CP and the tech companies: Both somehow need each other, but in the end the party says: ‘You need us more.'” It is becoming increasingly clear that China’s leadership is no longer allowing private tech companies to get away with as much as it has before. They too must submit to the Communist Party’s claim to leadership. Criticism will not be tolerated, however subtle it may be.

Lost 25 billion euros in one post

This was recently also experienced at the delivery service group Meituan, against which the antitrust authorities are investigating. Meituan boss Wang Xing posted a historical satirical text that is more than 1000 years old in early May. This text is about criticism of a former Chinese emperor. Some understood the post of the company boss and multi-billionaire as a hidden criticism of today’s rulers. The Meituan boss deleted the posted text, but Meituan’s stock market price plummeted by almost 15 percent, and the company lost around 25 billion euros in value in one fell swoop. The fact that Xing then donated around ten percent of his personal fortune, around 1.8 billion euros, to a charity is understood as an attempt at penance. “Many company bosses in China are currently examining how they can get rid of outstanding titles or even parts of their assets,” reports management consultant Clark. “It’s about behaving as inconspicuously as possible, no longer being the tallest tree in the forest. Because it is the first to be felled.”

Fight against cryptocurrencies China closes data centers

As of: 06/22/2021 8:26 am

Virtual means of payment like Bitcoin are a thorn in the side of the Chinese government. That is why it is vehemently against it: Now data centers have been switched off in several parts of the country.

From Steffen Wurzel, ARD studio Shanghai

The Chinese government continues to vehemently oppose everything that has to do with Bitcoin. Banks and financial service providers were again asked not to offer any more services that have to do with crypto payment methods. One wants to preserve the stability and the security of the financial market and protect the assets and property of the population, said the state central bank of China.

China had banned trading in crypto-currency such as Bitcoin as early as 2017, as the first large country in the world. The so-called mining, however, i.e. the electronic generation of Bitcoins and Co with huge computer networks, was still tolerated by the Chinese authorities. The government has only been systematically taking action against decentralized and digital means of payment for around six weeks. Huge data centers were shut down in several parts of the country. Most recently, around two thirds of all new Bitcoins worldwide were generated with computers in China. This share will now decrease rapidly and significantly, say analysts.

Concept of bitcoin contradicts politics

Monetary and currency policy are centrally controlled in China. The central bank is directly under the communist leadership. The Chinese currency, renminbi or yuan, is not freely convertible. The decentralized and open concept of Bitcoin contradicts this policy and is therefore rejected by the Chinese government. At the same time, the government is working on its own digital currency, which, however, has almost nothing to do with Bitcoin.

The stricter action taken by the Chinese authorities against crypto-currency has helped Bitcoin to lose around half of its value in the past two months. The Bitcoin price is still a good three times as high as a year ago

Burden on world trade Freighters back up off southern China

As of: 21.06.2021 8:59 a.m.

The container ships are stowed in the fourth largest port in the world. The reason is a corona outbreak in Shenzhen-Yantian. The international movement of goods is impaired – possibly until the end of the year.

From Steffen Wurzel, ARD studio Shanghai

The congestion of the container ships off southern China is worse than that Blockade of the Suez Canal in March This is how Vincent Clerc, manager of the Danish shipping company Maersk, summed it up in a conversation with journalists in mid-June. At times, around 130 container ships from all over the world were anchored off the port of Shenzhen-Yantian, as reported by the Bloomberg news agency.

Weeks-long consequences for world trade

The reason for the traffic jam is a new – albeit small – corona outbreak in the southern Chinese part of Guangdong, where Shenzhen is located. Because the local authorities ordered the port of Shenzhen to be partially closed due to the corona, ships could not dock and cast off. Supply chains worldwide are out of step. German companies in the Guangdong region are also reporting that department stores are sometimes overcrowded. In the meantime, the situation in Guangdong has normalized, but weeks will pass before the backlog has completely cleared, estimates Nick Marro, an analyst for world trade at the Economist Intelligence Unit (EIU) in Hong Kong. The backlog will therefore continue for weeks through the global supply chains.

Traffic jam in the fourth largest port in the world

Shenzhen-Yantian is the fourth largest container port in the world; Last year more than 27 million standard containers (TEU) were handled there. For comparison: In Hamburg there were fewer than nine million containers in 2020, i.e. around a third of them.

The logistics delays are a problem especially for the tech and electronics industry: around 90 percent of all electronics exports from China go through the port of Shenzhen-Yantian. Analyst Nick Marro expects the situation to remain tense, given the global openings after the height of the Covid-19 pandemic.

Relaxation probably only towards the end of the year

“There is no sign of an end to global consumer demand for goods and products. In many western countries, stocks are usually replenished in the third quarter of the year, which continues to ensure high trading activity,” says Marro. “This suggests that the tensions in global logistics and at the ports will not ease until the fourth quarter of the year.” In China, almost no reports are made of the container ship congestion in front of the port of Shenzhen-Yantian

China’s passenger jet C919 is lagging behind schedule

Status: 19.06.2021 07:29 a.m.

China’s domestic C919 passenger aircraft is set to compete with Airbus and Boeing. But the approval is still missing – and there is still no date for the first delivery.

From Steffen Wurzel, ARD studio Shanghai

China’s government has invested billions in developing and building its own passenger aircraft in recent years. There are great hopes for the C919. This medium-haul aircraft from the state manufacturer Comac should be able to carry up to 190 passengers in the future. In terms of size and equipment, the C919 is comparable to the Airbus A320 and Boeing 737. “Technically, the C919 is actually an international aircraft,” says David Yu, aviation analyst and economics professor at Shanghai’s New York University. Many individual parts of the machine come from the USA and Europe. “It will be assembled in Shanghai. Yes, the C919 is a Chinese aircraft, but with a significant proportion of foreign components,” says Yu.

Approval in China possible this year

Their Maiden flight had the C919 four years ago. It is still unclear when the machine will be delivered. The project is several years behind schedule, which is normal for all manufacturers around the world when they develop new aircraft models.

So far, the C919 does not even have official approval from the Chinese Civil Aviation Authority (CAAC). If this approval is granted – and that could happen this year – the machine will probably only fly in China for the time being. It is still unclear whether the responsible aviation authorities in Europe (EASA) and the USA (FAA) will also approve the machine.

In 2017 the C919 took off on its maiden flight – the start of delivery is currently still open. Image: picture alliance / Andy Wong / AP / dpa

For the time being, probably only in Germany

Nevertheless: Even if the Chinese medium-haul jet is initially only allowed to fly on domestic routes in the People’s Republic, Airbus and Boeing will not be left without a trace, says aviation analyst Yu. “Asia and especially China are the largest growth markets for the aircraft industry. If you also look at who ordered the aircraft – especially Chinese airlines and leasing companies – it becomes clear that the C919 will take Airbus and Boeing’s market share in China reduce, “said Yu. In China, all airlines and even leasing companies belong to the state – or they are subject to the instructions of the communist leadership. Ultimately, this can decide which aircraft type is bought by whom. This is also a clear advantage for the state-owned Chinese manufacturer Comac

Criticism of China’s economic project Headwind on the “New Silk Road”

Status: 06/11/2021 12:58 p.m.

China is expanding its influence worldwide, and the “New Silk Road” is intended to further strengthen the country. But the criticism of the project is growing. At the G7 meeting, the Australian head of government wants to report on his experiences. From Steffen Wurzel, ARD studio Shanghai Ding Laisong from the customs authority of the Chinese port city of Ningbo was satisfied at the beginning of the week: Trade with the states of the so-called “New Silk Road” had increased by 30 percent, he said on the Chinese state television broadcaster CCTV. In the case of trade with the particularly committed Silk Road countries in Central and East Asia, the plus is even 50 percent.

Sri Lanka regrets cooperation

China’s state and party leadership continues to sell its controversial strategy and trade project “New Silk Road” within the People’s Republic as a great success. In numerous partner countries, however, the initial enthusiasm for the project has given way to sober insight. China’s state and party leadership has nothing to give away with the Silk Road. On the contrary: in many cases, the Silk Road partner countries have borrowed considerably – with Chinese state banks. This sometimes creates considerable dependencies. One example is the Hambantota port project in Sri Lanka. According to media reports, the expensive Silk Road port project has hardly brought the island state anything economically. Sri Lanka’s Foreign Minister Dinesh Gunawardena now openly speaks of a mistake in leasing the port on the southern tip of the country to China for 99 years.

One billion euros in debt for Montenegro

In Europe, too, it is now becoming clear what the Silk Road critics have been calling a debt trap for years: the Balkan state of Montenegro, for example, had borrowed around one billion euros in China for the construction of a nearly 180-kilometer-long motorway. The autobahn is far from finished. But now the repayment is due – and the EU accession candidate lacks the money. The mood has also changed in large industrialized countries: In Italy, Prime Minister Mario Draghi put the Silk Road cooperation with China on hold, and the government in Canberra has also completed two projects in Australia. Only smaller, more symbolic projects were affected, but China’s communist leadership reacted angrily. She described Australia’s decision as “unreasonable and provocative”.

Australia accuses China of “extortionate behavior”

It is becoming clear that the communist leadership sees itself increasingly on the defensive in the Silk Road project, officially known as “Yi Dai Yi Lu”. Australian Prime Minister Scott Morrison complained at an economic conference in Perth “blackmailing behavior” by states like China. “Where compulsive acts have no consequences, there is little incentive to restrain,” said Morrison. Australia’s prime minister called for the sanctioning mechanisms of the World Trade Organization to be strengthened. Because if blackmailing behavior has no consequences, there is no reason for the corresponding states to hold back.

The G7 summit in Cornwall The heads of state and government of the seven leading industrialized countries (G7) will meet from June 11th to 13th in Cornwall, southwest England. For the first time in two years, they will meet again in person in the afternoon. In addition to climate change, the conference will also focus on trade issues and investments as well as the fight against the corona pandemic. In addition, the meeting will focus on the positioning towards Russia and China.
The G7 group includes the USA, Germany, Great Britain, Canada, France, Italy and Japan. Like-minded democratic states such as South Korea, South Africa, Australia and India are invited to the summit as guests. After the government in Canberra demanded a complete clarification of the origin of the Covid 19 pandemic around a year ago, Australia was de facto covered with an economic war by China’s leadership. The Australian Prime Minister Scott Morrison wants to share this experience with the G7 countries. He will be a guest at the summit in England.