The Costs of China’s Regulatory Crackdown

The turmoil in Chinese stocks this week has cast into sharp relief the costs of Beijing’s tech crackdown. Yet these costs go beyond the dramatic swings in tech valuations: new data on employment and business formation suggests that the crackdown is having a more serious effect on the fundamentals of China’s most dynamic industries.

Our key findings: 

  • Industries targeted by the tech crackdown have seen a decline in hiring and business formation, indicating deeper strains on business performance.
  • Despite Beijing’s efforts to divert resources to ‘hard-tech’ industries, hiring and business formation in these sectors are showing a mixed record.
  • There are few signs that pressure will ease. The annual government work report made clear that China will maintain its focus on anti-monopoly, data security, financial stability, and common prosperity—the core drivers of the crackdown.
  • A continuation of the regulatory crackdown could be a further drag on growth at a time when confidence in China’s economy is already strained and the benefits of promoting hard-tech sectors are slow to materialize.
Posted July 22, 2022
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