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Students play volleyball during a summer programme in Huaying city, Sichuan province. Low fertility rates have made reducing the cost of raising children a priority for Beijing, in the interest of China’s long-term development. Photo: Xinhua
Opinion
The View
by Winston Mok
The View
by Winston Mok

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
While the Biden administration is launching antitrust initiatives to promote competition, China has been reining in corporate giants in some sectors. These checks on corporate dominance on both sides of the Pacific may appear similar on the surface but the underlying drivers are quite different. They reflect fundamentally distinct relationships between the state and the market.

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 certain sectors, such as health care, prices in the US can be astoundingly high. Worse than high prices, the landmark US$26 billion opioid settlement with major American pharmaceutical companies has underlined the extent of corporate misconduct. Many of US President Joe Biden’s antitrust initiatives target domestically oriented industries such as agriculture, pharmaceuticals and health care, which are less checked by international competition.
To protect consumers in China’s highly competitive markets, product safety and fraudulent products are often more pressing concerns. China’s latest clampdown on the tutorial industry, arguably aimed at protecting consumers, has been shaped by deeper motivations.

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.

How an obscure government office has struck fear into China’s Big Tech

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.

Many social conflicts in US society today have arisen from America’s failure to support the “losers” in globalisation through redistributive, welfare and retraining measures. Biden’s social programmes, not tariffs inherited from Donald Trump’s days, can begin to address the plight of some US workers.
China’s initial economic growth was achieved with limited protection for workers. It is ironic that, today, China’s highly paid knowledge workers now receive “protection” of the state. The Chinese government has discouraged the 996 work culture in large tech corporations, seen as a contributing factor behind’s China falling birth rate.

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.

Trade tariffs have increased consumer prices but failed to bring manufacturing jobs back. US manufacturers dependent on Chinese-made components have seen depressed demand, leading to lay-offs. US corporations are losing market share to their European counterparts.

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.

Alarmingly, they may have the unintended consequence of aggravating social inequality – thereby undermining Biden’s social welfare programmes. The multiple industrial, regulatory, economic and social policies proposed by the Biden administration may not work in harmony.
US President Joe Biden departs after delivering remarks on the July jobs report in the East Room of the White House in Washington on August 6. Biden has proposed a slew of initiatives to rebuild the foundations of the middle class. Photo: Abaca Press / TNS

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.

The Trojan horse threat behind China’s tutoring and tech crackdown

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.

07:30

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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.

To safeguard against such real or perceived vulnerabilities, China has taken tough action in relation to Chinese companies raising capital in the US, which may be partly shaped by anticipation of potential anti-China financial “regulations” by the US.

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

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