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SHANGHAI – The suspension of Ant Group’s long-awaited stock market debut, allegedly at the behest of President Xi Jinping, is just one sign of the Chinese government’s growing dominance over private sector companies.
The Chinese government, state-owned companies or state-backed funds have taken de facto control of 51 companies so far this year, from around 20 to 30 in 2018 and 2019, disclosures from companies showing they are publicly traded.
The surge comes as Xi advances a “dual circulation” strategy aimed at reducing the economy’s dependence on foreign demand and preparing for a long fight with Washington.
The Wall Street Journal reported Thursday that Xi himself made the decision to stop Ant’s initial public offering. He cited an October speech from controlling shareholder Jack Ma that criticized excessive government regulation of the financial sector as a direct trigger.
The company behind the Alipay mobile platform, which has more than 1 billion users, had been set to raise nearly $ 40 billion in what would have been a record initial public offering. Regulators have issued new rules intensifying scrutiny of fintech companies, putting pressure on the fast-growing field.
This is a method that Beijing uses to strengthen state control over the private sector. Another is equity participation.
Some of the de facto acquisition cases this year are bailouts of companies affected by the coronavirus pandemic, but others involve companies with strategic importance, in fields such as semiconductors, wind power and pharmaceuticals.
In September, an investment fund backed by the city of Luoyang in Henan province signed a contract with industrial robot maker Saimo Technology that would make it a majority shareholder. Luoyang Guohong Investment Group received more than 20% of Saimo’s outstanding shares, including some held by top leaders, along with nearly 10% of the additional voting rights.
Such agreements, which grant control over a company through voting rights without a majority stake, are common in China.
The trend comes as it seems increasingly unlikely that the country’s relations with the United States will recover. US President Donald Trump on Thursday banned Americans from investing in companies linked to the Chinese military. Although US President-elect Joe Biden will take office in January, the change will not remove deep-seated suspicion of Beijing in Washington.
Earlier this year, the state-backed funds acquired more than 60% of the shares of a subsidiary of Semiconductor Manufacturing International Co., China’s largest chipmaker. These transactions provided financial support amid the tightening of US sanctions on SMIC.
Beijing’s dual circulation, announced in September, is based on the assumption of increasing government influence over the private sector. The plan will move China away from the concept of improving efficiency through competition that sustains market economies.
Concerns have been expressed about the impact of state influence on the long-term management of companies. The return on equity in publicly traded Chinese companies has fallen from 13% in 2010 to just 7% in 2019, with a particularly steep decline after Xi took office as general secretary of the Communist Party in 2012.
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