China announced that it would strengthen antitrust measures aimed at e-commerce businesses and other information technology companies at its Central Economic Work Conference, which lays out the country's economic policies for the next year. This change bears careful scrutiny, as it will significantly impact the massive internet companies that have supported China's consumption-based economy.
The conference listed "antitrust and the prevention of disorderly expansion of capital" as important issues. China enacted its antitrust law in 2008, but the explicit statement about preventing the disorderly expansion of capital is unusual.
Government officials have in mind companies like Alibaba Group Holding, the world's largest online retailer. Online sales have grown rapidly in China, where the new coronavirus pandemic has led to strict restrictions on outings and social interaction. Many small and midsize street vendors, meanwhile, have lost their customers and been driven into bankruptcy, pushing up unemployment.
Companies like Ant Group, a financial subsidiary of Alibaba, have also leveraged their advanced IT to jump into the financial sector, raking in huge profits. It is understandable that authorities want to prevent monopolies and curb internet companies' cross-sector operations.
However, most of the targets of these efforts are private companies, which have been the source of China's economic dynamism. The Central Economic Work Conference addressed the "three-year plan" for reforming state-owned enterprises by redirecting state-owned assets to priority areas, but questions about the plan linger. There are currently many instances of state-owned enterprises taking over unprofitable private companies. Authorities have their priorities backward in this. Fair treatment for both the state-owned and private sectors is extremely important.
China also announced at the conference that it would build supply chains that it could control, and that it would seriously consider joining the Trans-Pacific Partnership trade agreement. These steps are to prepare for prolonged friction with the U.S., and to check the Joe Biden administration that is set to take office in January.
As for macroeconomic policy, the conference stated that sustainable fiscal spending and accommodative monetary policy will be used to balance economic recovery and risk prevention. However, the conference did not announce China's economic growth target for 2021.
President Xi Jinping and other leaders expect a V-shaped recovery from the low growth rate of about 2% in 2020.
The Chinese Academy of Social Sciences, a government-affiliated think tank, predicts growth of 7.8% in 2021.
Such an optimistic forecast is based on expectations that exports will stay robust while private investment remains solid. But the premise is that the global economy will largely escape the impact of the pandemic and that subsequent infections can be contained within China. That is easier said than done.