JIt was a time when the founder and chairman of the New Oriental Education and Technology Group, Yu Minhong, was busy educating young Chinese people to conquer the world. But now Yu’s company is selling potatoes and steak on a live streaming service. And, contrary to what its detractors thought was another disastrous business venture, the company is getting better at convincing people to buy more steak. There are signs that Xi Jinping’s crackdown on internet giants is slowing down.
Regulatory action in 2021, which ranged from overseeing personal data held by internet companies to ending overly large tutorial shops that sold people a life of success in Chinese society, is finally easing.
Before the crackdown, New Oriental employed 1,05,200 people, including 54,200 teachers, but the company laid off 60,000 employees and saw its turnover drop by 80%. The company’s whopping $876 million loss sent a message to the entire tutoring industry that the old days of double-digit growth were over.
But Yu’s New Oriental continued and made gains. Koolearn, a live-streaming educational division of New Oriental, saw its shares soar 40% thanks to the new business model of English teachers who broadcast live lessons while selling agricultural products. At the very least, Koolearn has wiped out all losses the company has suffered since July 2021. However, share prices are still 70% lower than they were before the fall of 2020 following Covid restrictions.
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China’s “business-friendly” signals
Koolearn’s account on Douyin, China’s version of Tiktok, added 14 million fans in 30 days, and daily product sales hit a new high of 68 million yuan, up from 1 million a day in early June.
Yu’s return intrigued many in China by how he managed to escape the crackdown personally unscathed. On Monday, the hashtag “New Oriental can live on royalties even if it’s gone” was the fifth leading trend on Baidu. The trend started after Yu said in an interview with Liu Run of Rumni Consulting that he could live off his royalties. He said his company has retained a large cash reserve, allowing him to reinvest in new ideas.
Industry experts say Beijing is sending signals of a business-friendly environment to calm the nerves of brilliant investors who have lost billions since 2021. The easing is accompanied by reports from top Chinese Communist Party leaders seeking to negotiate agreements at the secret Beidaihe meeting in August. , and later when Xi’s campaign for a third term goes through final scrutiny in November.
According to an estimate by The Economist, the regulatory crackdown has cost companies a total of $1 trillion in market capitalization. The main goal of the regulatory action was to fight monopolies, which Beijing said was imminent action against internet companies to curb their growing influence.
But it’s not just New Oriental rising from the ashes, even Jack Ma is trying to make a comeback.
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The Revival of Jack Ma
Jack Ma’s Ant Financials will soon apply for a license to become a financial holding company. The People’s Bank of China will likely accept the request after a review that could last for months, sources said. Bloomberg.
The move allows Ant Financials to possibly relaunch its bid for an initial public offering, which was overturned by regulatory action against Ma’s company. Ant had planned a $37 billion IPO in Hong Kong and Shanghai, which was abandoned after Beijing’s intervention.
But for now, Ma is playing golf in the Spanish city of Mallorca and making more public appearances, a sign that restrictions on his freedom may have eased.
Ma’s Tencent will post single-digit growth in 2022, a steep decline from the years of double-digit growth reported by many Chinese internet giants. Alibaba’s stock has recovered around 60% on the Hang Seng, but is still trading below the 2020 valuation.
There is good news even for Didi Chuxing, the legendary ride-sharing company, which has been investigated by multiple national security agencies over its handling of data. The investigation into Didi’s data protection regime will end soon. Didi announced earlier in June that the ban on registering new users could be lifted once the investigation officially concludes in the coming weeks.
Last year’s crackdown may have dampened the morale of some investors, but another measure suggests it hasn’t stopped companies from announcing mega IPOs. China leads in new funds raised in IPOs in 2022, with companies raising $35 billion compared to $16 billion raised by companies in the United States. And the semiconductor industry in China seems to be winning.
Semiconductor-related companies raised more than $6.6 billion in funding in 2022. Industry growth is mainly driven by Xi’s strategic push to reduce dependence on the United States and other countries for its supply.
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Sign of better things to come
Rather than giving up, some companies are carefully reading Xi’s guidance on the future of technology and orienting their activities according to the party’s long-term strategic goals.
Despite growing signs that China’s gargantuan “correction” policy is slowing down, some Chinese entrepreneurs know that the good old days are now over. “A return to the days of ‘riding a horse without holding the reins’ is not very likely,” Xin Lijun, head of retail at e-commerce giant JD.com Inc, said in an interview.
After cleaning up China’s tech giants, Xi’s national security apparatus is turning to other targets for information control.
China National Knowledge Infrastructure (CNKI), an academic database of research publications, is under investigation to protect national security. According to the China Cyberspace Administration, this is done to “prevent national data security risks, protect national security and safeguard the public interest”.
In recent weeks, tensions between Premier Li Keqiang and President Xi Jinping over the management of the economy have puzzled experts. The easing of the tech crackdown means Xi is trying to make room for other policy ideas, including the pro-market stimulus approach.
Tech companies can breathe a sigh of relief. But to survive in Xi’s China, you have to be wary of new campaigns and better read party signals.
The author is a freelance columnist and journalist. He is currently pursuing a master’s degree in international politics with a focus on China at the School of Oriental and African Studies (SOAS), University of London. He was previously a reporter for Chinese media at the BBC World Service. He tweets @aadilbrar. Views are personal.
(Edited by Srinjoy Dey)