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China’s tech giants are generating billions of dollars, but they’re squeezing small businesses

The courier waits for the lights to turn green on July 30, 2021 at a major intersection in Beijing.

Evelyn Cheng | CNBC

Beijing — Investors in Chinese companies were surprised this summer by Beijing’s actions against its tech giant, including comments on foreign-listed stocks.

One of the surprises was that in late July it was mandated to rebuild China’s education business and eliminate foreign investment. Another order earlier last month asked the app store to remove the Chinese ride-haling app Didi a few days after a major IPO in New York.

Since its listing, Didi’s stock price has fallen by more than 30%. KraneShares CSI China Internet ETF (KWEB) holds the top US listed stocks Alibaba and JD.com, down 29% in the last 60 trading days.

Professor Zhu Ning and Vice Dean of Shanghai Jiao Tong University said: Of finance. “Foreign investors need to understand and (brace) it.”

Internet platforms may sound like they offer us more opportunities, but they also put more financial burden on us.

Beijing restaurant owner

In the “very big change,” Zhu pointed out the political commitment of the Chinese Communist Party to achieve “common prosperity.” This brings modest wealth to all, in contrast to widening national income inequality. This is in contrast to ensuring that at least some people “get rich first,” Zhu said.

Anger of big tech companies

Efforts to achieve this pledge have accelerated in the last 12 months.

The Chinese government said that Alibaba has grown significantly under its founder Jack Ma, authorities suddenly suspended a large IPO of affiliate Ant Group in November, and Alibaba to 18.23 billion yuan in April. For many years, Alibaba was protected from foreign competition before being fined.

In China, there is growing resentment towards tech companies, especially from small businesses that feel pressured by digital giants.

“The internet platform may sound like it offers us more opportunities, but it also puts more financial burden on us,” he demanded anonymity for fear of retaliation by online food delivery services. The Beijing restaurant owner said. CNBC has translated her Mandarin remarks.

She initially listed the restaurant on Meituan, China’s leading food delivery platform, in early 2019 and paid an 18% commission. She said Meituan staff told her she couldn’t list on other food delivery sites because it was the lowest price available on the site.

When the pandemic cut off revenue from the in-store diner, she posted her restaurant on Alibaba’s Ele.me food delivery platform. As a result, Meituan staff called me angry and said that if I didn’t exclude them from Ele.me, I would have to pay a 25% commission. She decided to quit Meituan.

Increasing criticism

In late July, China’s antitrust regulators ordered workers to pay local minimum wages to their food delivery platforms. Earlier that month, China’s highest executive branch, the State Council, decided to lift restrictions on the country’s ability of 200 million gig economy workers to access local health insurance and pension schemes.

Policy changes occur as Chinese news media organizations (which are themselves heavily influenced by the government) are becoming more critical of China’s tech companies and their overwork culture.

Earlier this year, two employees of e-commerce giant Pinduoduo were allegedly killed due to overwork. The company confirmed one death in an online statement, but at the time of publication, representatives could not immediately comment on the other death.

Short video company Kuaishou and later TikTok’s parent, ByteDance, reportedly stopped asking employees to work regularly on weekends this summer.

How can I gain bargaining power if all these daily lives (needs) are managed by one or two companies?

Yang Guang

Convenience store operator

China’s antitrust regulations are good, said Yang Guang, who runs a convenience store in a Beijing apartment complex with his wife.

“If all these daily lives (needs) are managed by one or two companies, how can we gain bargaining power?” According to CNBC’s translation, Yang asked in Mandarin. .. He said he didn’t want to list his store on distribution platforms such as Meituan and Ele.me. Because they want about 15% to 25% of the commission.

Instead, he and his wife communicate with customers through the WeChat messaging app and deliver their purchases to nearby customers.

The hardships of small businesses

According to one official tally, there are approximately 139 million SMEs in China. SMEs are often discussed at government meetings to discuss their operational difficulties and Beijing’s efforts to help them.

However, SMEs surveyed in the official Purchasing Managers Index in July revealed that the situation had deteriorated for the second straight month, saying that large companies saw slight growth.

The latest regulatory crackdowns focus on limiting monopoly practices, strengthening data protection, and even promoting births.

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“We’re trying to address income inequality,” said Jiwei Chan, chief economist at Pinpoint Asset Management, in a year when authorities rarely have the opportunity to tackle long-term issues without worrying too much about growth. Stated.

Authorities have set a GDP growth target of over 6% this year. This is relatively low compared to the 8% or 8.5% growth that many economists predict for China.

“This window won’t always be open someday … so the strength of these policies has become surprisingly high,” Zhang said.

He said it would be beneficial for authorities to convey more support to foreign investment and private entrepreneurs as a whole, but Mr. Zhang said recent crackdowns have been in areas such as education where the general public has “complained in the past.” He said he had targeted it.

New directions for start-ups

US-listed Chinese education stocks fell double digits on the first day of last month after a new policy turned an after-school tutoring company into a non-profit organization and banned foreign investment.

Hongye Wang, a China-based partner of venture capital firm Antler, said tutoring companies often take advantage of Chinese parents’ willingness to pay whatever they need to give their children a good education. Said.

That meant that for two years, investors like himself could bring education companies five times more profit, regardless of the economic environment, Wang said.

The purpose of the new government policy is to reduce education costs, especially for the poor in rural areas, the king said. He added that the state would also want to improve people’s access to health care.

Beijing’s oversight of China’s leading tech companies is underway as US investors and financial regulators are increasingly concerned about the regulatory risks of investing in China. In late July, US Securities and Exchange Commission Chairman Gary Gensler announced that Chinese companies needed to disclose whether Beijing refused to list on US exchanges.

Nick Xiao, vice president of Hong Kong-based asset management firm Hiwin, said Chinese start-ups could be limited in their ability to raise funds if they were aware of uncertainty about their ability to publish. Said there is. “In this context, Chinese start-ups will want to sharpen their pitch as to why their business models are elastically scalable and how they create real value, both commercially and socially. “

China’s tech giants are generating billions of dollars, but they’re squeezing small businesses

Source link China’s tech giants are generating billions of dollars, but they’re squeezing small businesses

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