How US-China rivalry shapes the regulatory crackdown in both countries
- While both are driven by different domestic concerns, neither can ignore the geopolitical impact of their regulation of corporate giants
- Such international interactions can drive the rapid evolution and even sudden turns of regulations in the US and China, and investors must remain alert
Antitrust regulations in the US, since Woodrow Wilson’s time, have aimed to safeguard the interests of consumers and workers against excessive corporate power. More than regulations, however, globalisation has advanced consumer interests, albeit at the expense of some US workers.
In areas where monopolistic pricing power is exerted, state-owned enterprises in telecommunications, energy and banking figure highly. In these sectors, the state can engineer social objectives through administrative directives rather than arm’s-length regulations. The state has also been more enthusiastic in regulating private non-bank financial institutions than state-owned banks.
Technological changes have concentrated market power among dominant distribution platforms – resulting in key issues on privacy and potential abuse of personal data, and how such information may be employed to influence our purchasing decisions.
In China, mobile and online payments have revolutionised the financial industry and shifted power away from state banks. These home-grown tech giants, among the world’s largest fintech players, may have become too powerful for the comfort of China’s party state.
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Globalisation has benefited workers in developing countries at the expense of those in developed countries, leading to a dichotomised workforce in the US: high-paid jobs for knowledge workers and low-paid employment for unskilled service workers.
In response to the perceived threat from China, the US has imposed unprecedented measures – including technology sanctions and investment limits – in the name of national strategic interests. However, these measures have often hurt US consumers, workers and companies.
The US is making a nationalistic turn in its business regulation. Such schemes may not succeed in constraining China’s rise, but they are certainly having a debilitating effect on the US.
Meanwhile, China appears to be making a social turn in its regulations, but the ultimate objective remains national development, as social problems left unaddressed become key impediments to national development.
Low fertility rates have made reducing the cost of raising children a priority, in the interest of China’s long-term development. Importantly, behind the recent regulations, a key factor is perhaps to strengthen Communist Party rule.
Regulations on the “antisocial” tutoring industry are needed as its rampant growth has led to a serious misallocation of resources. But while the “shock therapy” imposed on the industry is supposed to swiftly end the misery of parents and students, the drastic changes have caused anxiety.
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And the sudden retrenchment of millions of highly educated workers has made the job market even more competitive, just when new graduates are entering the workforce.
However well meaning from a social perspective, the sudden changes imposed on the tutoring industry without due process may be seen as somewhat arbitrary. Investor confidence can be shaken by a regulatory environment perceived to be unpredictable and disrespecting of property rights – a fundamental institution behind China’s successful economic reforms.
If China is serious about modernising its governance under the rule of law, regulations should follow well-defined legislative processes and enforcement guidelines.
Regulations in the US are subject to broad institutional constraints – which can result in delays and frustration on much needed regulatory reforms. But such limitations by due process are also a strength.
In China, an all-powerful state can act with expedience, unconstrained by due process, as the means is justified by the end. The constraints – or lack thereof – in the two systems are their respective strengths and weaknesses at the same time.
While its regulations are subject to checks and balances domestically, the US often acts with impunity internationally. The US-dominated global financial system, for example, poses significant risks to China.
Such international interactions can drive the rapid evolution and even sudden turns of regulations in the US and China. Companies must deftly navigate them in this new era of complexity.
Winston Mok, a private investor, was previously a private equity investor