Is the sky really falling for private firms in China?
October 14, 2021
Tianlei Huang and Nicholas R. Lardy
Chinese authorities are carrying out a sweeping regulatory crackdown on private technology firms this past year, wiping off hundreds of billions of dollars from the market capitalization of some of the largest private companies in China. Some Chinese private entrepreneurs are reportedly avoiding long-term investments amid rising uncertainty in the regulatory environment, jeopardizing prospects for innovation and productivity essential to China's future growth. Many analysts see Beijing's regulatory campaign as aimed less at curbing monopoly power and more at exerting greater control of the private sector, making it subservient to the party. China's private sector is thus widely described as facing an existential threat. Whatever the motivation by China, the perception that China's private sector is imperiled is overblown. In fact, the Chinese internet companies subjected to this campaign are a small component of a large private sector that is still investing, growing, and outperforming the state sector.