China’s Push for “Common Prosperity” Leads to Divergence in Regulatory Approach | Investment news

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By Eduardo Baptista and Clare Jim

BEIJING / HONG KONG (Reuters) – China’s so-called push for “common prosperity” in the short term will not only aim to bridge the growing wealth gap, but is also set to shape the country’s regulatory approach, with sectors considered crucial for the economy get more state support.

As part of this move, analysts expect the struggling real estate sector, which accounts for a quarter of the economy, to get more regulatory support, while internet companies will remain a target of crackdown due to what Beijing says is a ‘ disorderly expansion of capital.

Global investors who have been seared by numerous crackdowns over the past year will be looking for signs of clear regulatory divergence at the annual Chinese parliament meeting starting Saturday, when politicians are expected to unveil further stimulus to ease the slowdown in economic growth.

Thousands of delegates from all over China will gather in the capital, Beijing, for the meeting that will discuss economic and social policies.

Last month, China’s tech sector was hit by fears of a new wave of regulatory tightening measures after unprecedented changes over the past two years stemming from antitrust breaches and data security issues, among other issues.

The mammoth real estate sector, on the other hand, has seen some loosening of some rules since the beginning of this year, paving the way for debt-laden developers to get back on their feet after being on the brink of collapse.

The move underscores Beijing’s focus on halting the slowdown as the war in Ukraine adds new uncertainty in a year when President Xi Jinping is almost certain to secure a third term as leader.

“If you were to look only at regulatory developments … you would surely be of the opinion that the Chinese government is really holding back technology and has eased its approach to the real estate sector,” said Alfredo Montufar-Helu, Director of Economist Corporate Intelligence. Network.

“The real estate sector is seen as a key driver for economic growth, because it leads to investment, home buying, real estate development, but it also brings a lot of demand for other sectors such as commodities,” he said.

Last year, China launched an unprecedented, multi-pronged regulatory crackdown across a wide range of industries, leaving both startups and decades-old companies to operate in a new and uncertain environment as part of the drive for “prosperity.” municipality “of Xi.

Both the tech and real estate sectors have seen a slump in their revenues and a massive sale of stocks and bonds, as new rules have been formulated that restrict their activities, heavy penalties have been imposed for violations, and new recovery plans have been thwarted. raising of capital.

Since late last year, however, Beijing has taken a number of initiatives to help revive the property cooling industry, including making it easier for large state-owned developers to raise funds by easing escrow accounts for developers. presale funds and allowing some local governments to lower mortgage rates and down payment ratios.

According to Montufar-Helu, the regulatory respite granted to the real estate sector was likely driven by concerns from regulators about the knock-on effects of common prosperity measures on the economy at large.

By comparison, the tech sector has been hit by a number of stricter regulations, affecting everything from overseas listings to direct bans on sectors like private after-school tutoring, along with a steady stream of fines.

Companies most often eventually included tech giants like Tencent Holdings and Alibaba Group.

“Technology and education are under the umbrella of ‘common prosperity’, but real estate is a different matter because it carries systemic risk,” said Rosealea Yao, Chinese investment analyst at Gavekal Dragonomics.

The central government’s goal for real estate is clear, Yao said, which is to ensure it gets out of a deep liquidity crisis, so more loosening measures will need to be taken.

The Hang Seng Mainland Properties Index was down 0.2% this year versus a 6% drop in the Hang Seng Index as some investors bought real estate stocks based on low valuations and stimulus expectations.

By comparison, China’s leading tech equity index, the Hang Seng Tech Index, was down 12.1% this year.

Louis Lau, a. The US-based fund manager at Brandes Investment Partners LP said he was surprised that regulators were still tightening the screws on the tech sector, letting hopes down for a period of recovery.

“People don’t know when it will end, it took longer than expected,” Lau said, adding that he expected the crackdown to last until the second half of this year.

(Reporting by Eduardo Baptista in Beijing and Clare Jim in Hong Kong; Editing by Sumeet Chatterjee and Kim Coghill)

Copyright 2022 Thomson Reuters.

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