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China's Animal Spirits Deficit

The Chinese government has taken dead aim at its dynamic technology sector, the engine of consumption-led economic rebalancing. The authorities' recent actions are symptomatic of a deeper problem: the state’s battle to control the energy of animal spirits could sap the confidence of households and businesses.

NEW HAVEN – When it comes to the Chinese economy, I have been a congenital optimist for over 25 years. But now I have serious doubts. The Chinese government has taken dead aim at its dynamic technology sector, the engine of China’s New Economy. Its recent actions are symptomatic of a deeper problem: the state’s efforts to control the energy of animal spirits. The Chinese Dream, President Xi Jinping’s aspirational vision of a “great modern socialist country” by 2049, could now be at risk.

At first, it seemed as if the authorities were concerned about a one-off personnel problem when they sent a stern message to the irreverent Jack Ma, founder of Alibaba, the world’s largest e-commerce platform. Ma’s ill-timed comments at a Shanghai financial forum in late October 2020 about the “pawnshop” mentality of the bank-centric Chinese financial system crossed the line for China’s leaders. Early the following month, a record $34 billion initial public offering for Ant Group, the behemoth fintech spinoff of Alibaba, was canceled less than 48 hours before the scheduled listing. Five months later, Alibaba itself was fined a record $2.8 billion for alleged anti-monopoly violations.

And now it’s Didi Chuxing’s turn. Didi, the Uber-like Chinese ridesharing service, apparently had the audacity to raise $4.4 billion in US capital markets, despite rumored objections from Chinese officials. After forcing the removal of more than 25 of Didi’s apps from Chinese Internet platforms, talk of a fine that might exceed the earlier penalty imposed on Alibaba, or even a possible delisting, is rampant.

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