China’s leaders have good intentions, but their recent execution of regulatory changes has been, to put it mildly, less than ideal. As if the debacle over the New York listing of ride-hailing giant Didi Chuxing was not enough, the latest abrupt unveiling of draconian new restrictions on the private tutoring market has further spooked markets. Investors now fear the broad crackdowns on the country’s technology and private tutoring industries may expand to other sectors. Unsurprisingly, key Chinese stock indexes including the Hang Seng Tech index have been rattled. That has put officials in an uncomfortable position.

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While the top leaders may reassure some, those who have been burned recently may be less than convinced. But the nation’s leaders have no reason to undermine the private sector, including the tutoring schools. What they are concerned about is the inflow of hot money, financial irregularities and social inequities. One reason behind the crackdown by Beijing on the US$100 billion tutoring industry has to do with what it considers the abusive use of a financial structure known as the variable interest entity (VIE) for such companies to list overseas, usually in the US. Often based in tax havens, such Chinese VIEs are holding companies designed to get around strict rules that forbid foreign investors from any domestic Chinese ownership. But the rights of US shareholders are murky and their control of the underlying business is limited, if not non-existent. The latest regulatory reforms could even offer better protection for such foreign investors. The new curbs on the property, technology and education sectors aim to reduce their costs to make them fairer and more affordable to better serve ordinary people. Fairness will be prioritised over efficiency and unbridled capital expansion.