China is cracking down on tech companies
And foreign investors are losing billions
Have investors learned their lesson?
Or do they still trust the CCP?
Welcome to China Uncensored.
I’m Chris Chappell.
Over the past few months, the Chinese Communist Party has been cracking down on tech companies.
They started out last November by blocking Jack Ma’s Ant Group initial public offering.
Then this spring, Chinese regulators started an antitrust crackdown on several big tech
companies—including internet conglomerate Tencent, Jack Ma’s e-commerce company Alibaba,
and food-delivery app Meituan.
That’s resulted in billions of dollars of fines for Alibaba.
And Meituan.
Then in July, the Chinese regime targeted rideshare app Didi, taking it off app stores
just two days after it made a huge IPO on Wall Street.
And just two weeks ago, Chinese authorities expanded their regulatory crackdown to private
education firms that provide online tutoring.
The Chinese Communist Party is definitely sending a message.
The problem is, no one is really clear what that message is.
Sure, there are individual explanations for each set of crackdowns.
Initially, people thought that the Party was targeting Ant Group in November because Jack
Ma made a speech challenging regulators.
The antitrust actions against Alibaba and Meituan happened after the Politburo announced
they would strengthen anti-monopoly efforts last year.
The Communist Party wants to make sure private companies don’t get bigger and more powerful
than the Party can handle.
Meanwhile, Didi’s troubles are related to the Chinese regime clamping down on data security.
Because the Chinese Communist Party doesn’t want private Chinese companies to take people’s
data and share it with foreign governments.
No, that data should go directly to the Communist Party.
And the Chinese regime’s moves against for-profit private tutoring may be related to their efforts
to make having kids less expensive for parents.
Since they’re now facing huge problems because people aren’t having enough kids.
Of course, parents are saying the Party’s actions are actually only helping the rich
and hurting the poor, but that’s another episode.
So theoretically there’s an explanation for each individual crackdown.
But they’re not the only possible explanations.
Some people think this tech crackdown is actually about Chinese regulatory bodies having turf
wars with each other.
Others think this is about the Chinese regime redirecting its tech industry to focus on
national priorities.
In other words, instead of letting tech companies just make apps based on what consumers want,
now they’ll need to align their business with the Communist Party’s interests: Like
semiconductors, military tech, and surveillance.
And there’s another overarching explanation for China’s tech crackdown: power.
I’ll tell you more after the break.
Welcome back.
China’s tech crackdown isn’t just about anti-monopoly laws or data security.
It’s also about political power.
The political power of the Chinese Communist Party.
Leland Miller, the CEO of China Beige Book, connects it to the upcoming Communist Party
Congress.
“I think the overarching theme is from now straight through the Party Congress next year,
happens every five years, it’s where the leadership will solidify Xi Jinping for another
five or ten or who knows how many years--they’re supposed to pick successors--very politically
sensitive time.
I think between now and then there’s going to be a lot of things done by the government,
sorry, by the Party, that show that the Party cares.”
But to add another twist to this, it’s not just about making people love the Party ahead
of the Party Congress.
It’s also about the Party’s internal turf war, the factional power struggle between
Chinese presitator Xi Jinping and former leader and Hypnotoad lookalike contest winner, Jiang
Zemin.
If you’ve been following everyone’s favorite communist soap opera, General Hostility , you
know that Xi Jinping being given another term as Party leader isn’t a 100 percent lock.
Next year’s Party Congress is key for Xi because it’s the one where he’s supposed
to step down and appoint a successor.
But he wants a third term in power instead.
Meanwhile, Jiang Zemin’s faction is trying to oust Xi completely.
What does this have to do with the tech crackdown?
Several of the companies targeted in the tech crackdown have ties to the Jiang faction.
Most notably Ant Group.
The Wall Street Journal reported that Ant’s IPO was stopped after it was clear that Ant’s
investors included “some with links to political families that represent a potential challenge
to President Xi and his inner circle.”
I did an entire episode with more details about that.
But even ridesharing app Didi had investors with ties to the Jiang faction.
So the Chinese Communist Party’s internal political war was likely a major reason for
the tech crackdown.
And so the Party’s power struggles also had a huge spillover effect in the West.
Due to the tech crackdown, Chinese stocks listed in the US cratered.
“The Nasdaq Golden Dragon China Index—which tracks 98 of China’s biggest firms listed
in the U.S.—plunged 22% in July, its biggest one-month drop since October 2008.”
“Stocks included in the index have seen $829 billion dollars in value erased.”
And those weren’t Chinese investors who lost more than $800 billion.
Those were American investors.
But guess what?
China doesn’t care how much money foreign investors lose.
Shocking, I know.
In fact, this is another sign that the Chinese Communist Party is actively decoupling from
the US--on its own terms.
It wants foreign investors to directly put their money in China’s stock market, instead
of Chinese stocks listed in the US.
Because the Party has more control over money in China.
“This is the new message: If you’re going to invest in China, you’ll have to do it
through the capital markets it’s developing.
That won’t only strengthen the domestic economy, it will also allow Beijing to make
sure the capital goes to industries it wants to develop and stays away from areas it deems
a threat to the common good.”
You see, for years, Chinese companies have been coming to Wall Street to list their stocks.
This is actually illegal in China, but they get away with it through some shenanigans
involving making shell companies in places like the Cayman Islands.
Fun fact: If you own a Chinese stock listed in the US, you don’t own shares of a Chinese
company.
You own shares of a shell company based somewhere like the Cayman Islands that has an agreement
with the original Chinese company.
This is called a Variable Interest Entity, or a VIE.
For example, TikTok is traded through a VIE.
That’s how TikTok tried to claim it was not a Chinese company, but a Cayman Islands
company.
Which doesn’t make anyone feel better.
If you’re thinking that this is an insanely risky way to invest, yeah it is.
But that didn’t stop investors from pumping hundreds of trillions of dollars into these
shell companies.
Now the Chinese regime is betting that they can limit Chinese companies from listing on
Wall Street, and have US investors go to China instead.
So, will it work?
Will these huge investment firms like Blackrock and Goldman Sachs that have put billions of
dollars into the China market follow the Party’s wishes?
I’ll tell you more after the break.
Welcome back.
So, how did Blackrock and Goldman Sachs feel about losing billions in China stocks?
Were they concerned?
Oh they were.
But they’re totally good with it now.
Because Chinese authorities held a secret meeting with these financial firms just to
restore calm.
Shhhhh.
Don’t worry, Blackrock, everything will be ok.
“Representatives from Goldman Sachs, JPMorgan, BlackRock, Fidelity, and UBS Group attended
the closed-door meeting in Beijing.”
Hey, the whole gang was there!
You see, there’s an entire ecosystem devoted to keeping foreign investors investing in
China.
I talked about it in this episode, China’s Giant Ponzi Scheme.
Sure, investors in US-listed Chinese stocks lost over 800 billion dollars because of decisions
made by a totally opaque authoritarian state.
And you know what that means…
Chinese tech stocks are on sale!
What a bargain!
You should definitely consider buying.
That’s like saying hey this house built on top of an Indian burial ground is now on
sale!
What a bargain!
You should definitely consider buying.
It has lots of atmosphere.
Look, maybe investing in these companies that have lost hundreds of billions of dollars
and could lose more at the whims of the Chinese Communist Party is actually a great opportunity.
Oh the optimism.
Forget looking at China through rose-colored glasses.
This is like looking at China through a rose-colored space telescope.
That beautiful rose color just makes the images of the concentration camps...disappear.
It’s like they were never there.
Just like the Uyghurs.
On a completely unrelated note, JPMorgan and Fidelity just got the Party’s approval to
operate the first fully foreign-owned brokerage and mutual funds in China!
Surely this has nothing to do with how enthusiastically they pitch China stocks to American investors.
Actually, that’s not the worst part of this whole situation.
The big institutional investors aren't pitching China stocks because they're stupid.
They're pitching China stocks because they've lost money after the value plummeted, and
now they need more investors to buy into these stocks and pump the value back up.
It’s part of China’s giant ponzi scheme, and they’re knowingly promoting it.
Here’s some advice.
This is not investment advice.
This is “being a decent human” advice.
Don’t actively invest in a country ruled by an authoritarian Communist Party that’s
currently committing genocide.
We are talking about a regime that is killing people and selling their organs.
Even without the huge moral issue here, would you trust your money to a regime that kills
its own people and sells their organs?
Remember, China doesn’t care how much money you lose.
Which is why when it comes to investing in China, you should listen to the calmest, most
rational voice on Wall Street: Jim Cramer.
“It’s Stalinist.
We tend not to see that.
I think these are very serious violations that make us realize that capitalism is not
alive in China.
We kidded ourselves that we thought the party was somehow going to want to join the rest
of the world in being capitalistic.
They’re not.
This is a dictatorship.
I question every one of those companies that’s on that list.
Any one of them could be vulnerable.
You’ve got to go.
You can’t own these stocks.
I mean, the party may decide tomorrow that Alibaba is charging people too much.
So I don’t know.
I think we’re discovering that they’re communists, but they were communist all along.”
Yes, Jim.
They were communist all along.
And now it’s time for me to answer a question from one of you, a China Uncensored 50-cent
army member who supports China Uncensored through the crowdfunding website Patreon.
Logan asks:
Well I hope the CCP Virus version 2.0 doesn’t stop you all from traveling again.
What are some places you may go?
Perhaps all of the quad nations?
Well, Logan, with what’s going on with the CCP virus, I don’t know if we’re going
to travel internationally anytime soon.
But it would be really cool to go to the quad countries.
We did go to Australia back in 2018.
But we haven’t been to Japan, or India.
And we definitely want to go to India.
Could you see me traveling to the Line of Actual Control, meeting the Dalai Lama, and
most important of all, starring in a Bollywood film?
We’ve also talked about going to some of the Pacific Islands that are being influenced
by the Chinese regime.
And we definitely need to go back to Taiwan.
Where would you like to see us to go?
Let me know in the comments below.
Thanks for your question, Logan.
And thank you to everyone who supports China Uncensored on Patreon.
We could not do this show without you.
So if you’re interested in joining our fight to expose the Chinese Communist Party, head
over to Patreon.com/ChinaUncensored.
You’ll also get a bunch of cool perks, including the chance to have me answer your question
on the show!
Once again I’m Chris Chappell, see you next time.