- China’s incomplete transition to a market economy means regulations often lag behind the demands of the market.
- This bias for heavy industrial development is reaffirmed by Xi’s party congress report, which emphasizes that the key focus of economic development should be the “real” economy, that is, only the industrial and agricultural sectors.
- As demonstrated by the recent prosecution of former China Merchant Bank (SHA: 600036) president Tian Huiyu, a major part of the investigation will concern problematic loans, especially those to private firms. This will make it even harder for private firms to obtain loans than before, unless such applications are backed up by business plans in line with China’s industrial policy.This is where China’s regulatory crackdown will kill two birds with one stone. It will both ensure the further dominance of SOEs, and force private firms to align their businesses with Xi’s vision of Chinese-style modernization: a Soviet-style industrialization plan focusing on heavy industrial development.
Source: Beijing’s Regulatory Crackdown Is Unlikely to End Any Time Soon (CIGI)
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