Why Xi Jinping waited years to launch his crackdown on tycoons

As China investors search for clues about which industries might be next in President Xi Jinpi­ng’s crackdown, they’re also pondering another question: Why now?

Over the decades Chinese leaders have regul­arly extolled the virtues of Marxism, socialism and the working class — all while overseeing super-charged economic growth that helped spawn some of the world’s most valuable companies. When Xi began his second term back in 2017, he identified China’s key problem as “unbalanced and inadequate” development and called for devoting “great energy” to fix it.

Yet still many were surprised by Xi’s sweeping moves to rein in the private sector over the past 12 months. Anti-monopoly probes against Big Tech, cybersecurity reviews for foreign listings and a ban on profits in the $100-billion education sector have roiled China’s markets. Investors are now dumping shares in any sector that receives criticism in state media, from digital gaming and e-cigarettes to property and baby formula.

Leading China watchers canvassed by Bloomberg point to a range of factors driving the crackdown. But two in particular stand out in explaining why this is happening now rather than five or 10 years ago: The push for self-reliance as ideological divisions with the US become more entrenched, and Xi’s own cons­olidation of power ahead of a once-in-five-year leadership reshuffle in 2022 at which he’s set to extend his indefinite rule over the country.

“In Xi’s mind, the West is falling and the East is rising,” said Chen Daoyin, a former professor at the Shanghai University of Political Science and Law who co-authored a book on challenges for China’s model of governance and the middle class. “As Xi faces little opposition to get a third term at next year’s party congress, there’s nothing that can stop him. And there’s no better time for him to launch the crackdown.”

In many ways, external events have tied Xi’s hands over the past five years. Shortly after his 2017 speech, China became embroi­led in a trade war with the Trump adminis­tration that led to years of negotiations inv­olving large swathes of the economy. And weeks after those wrapped up with a landm­ark trade deal in January 2020, the pandemic prompted China to shut down its borders while relations with the US sunk into a tailspin.

Over that time the US took more steps to isolate China on the world stage, with the Trump administration blocking companies like Huawei from accessing advanced chips and seeking to prevent TikTok from accessing reams of data from teenagers. President Joe Biden retained most of Donald Tru­mp’s policies, showing Beijing’s leaders that relations wouldn’t normalise anytime soon.

At the same time, Xi’s government began to rein in its tech giants, seen most dramat­ically with a last-minute move to scuttle an IPO from Jack Ma’s Ant Group. The decision, which came shortly after Ma criticised regulators, marked the beginning of the Communist Party’s efforts to assert control over a tech sector that had become vital to Xi’s domestic and foreign policy goals. A month later the Politburo vowed to rein in “disorderly capital expansion.”

In March, China unveiled plans to boost spending and research on cutting-edge chips and artificial intelligence in a bid to achieve “major breakthroughs in core technologies.” At the same time Xi sought to convince the big tech firms to hand over mass amounts of data — China is set to hold a third of the world’s total by 2025 — in a bid to spread it around the economy to boost the incomes of the masses rather than just a coterie of billionaires. “Being seen to crack down on corruption and vested interests has been a powerful tool for Xi to define his term in office and to make the case for his continued rule,” said Rana Mitter, professor of Chinese politics at the University of Oxford.

The firms under scrutiny are among the biggest in their fields, from food delivery giant Meituan and ride-hailing leader Didi to tech behemoths Tencent and Alibaba. And even though these compa­nies provide well-paying jobs to thousands of citizens, the party has been careful to portray the policy as “anti-monopoly, not anti-employee,” Mitter said.

“The crackdown is just the beginning -- it’s the prelude,” said Feng Chucheng, a partner at research firm Plenum in Beijing. The party “wants to first halt the source that is creating inequality.”