From tuition to takeaways, why China’s regulatory crackdown is proving unappetising for investors
China’s government has just provided investors with another reminder of why they should tread carefully when putting money into the country.
At the end of last month, the Chinese ride-hailing app Didi made history when it floated on the New York Stock Exchange with a valuation of $70bn, making it the biggest IPO of a Chinese company in seven years.
Just days later, the Chinese government told Didi to stop registering new drivers and users for its app, which it followed by demanding that Didi be removed from Chinese app stores.
Didi was targeted days after floating in New York
The shares plunged and are now 42% lower than the price at which they listed.
Now Beijing has done it again with a fresh salvo aimed at tech and education companies.
Firstly, the Chinese government announced on Friday night that it was banning private tutoring and test preparation for core school subjects, arguing the move would ease financial pressure on hard-up Chinese families.
Private tutoring in China is a $120billion-a-year business and around three-quarters of Chinese children are reckoned to have some form of private tuition outside school.
Beijing, which is concerned about the country’s rapidly-ageing population, suspects the financial pressure of educating children privately may be a reason why couples are still not having more children despite the abolition in 2015 of the “one child” policy.
The measure, which is believed to have come from President Xi Jinping himself, was accompanied by restrictions on foreign investment in private tutoring companies and is also expected to see advertising bans imposed – as well as restrictions on when tutoring can be made available.
The clampdown on tutoring is believed to have come from President Xi Jinping himself. Pic: AP
The move sent shares of private tuition companies, many of which are listed in Hong Kong, tumbling.
New Oriental Education & Technology finished the session down 47%, while Scholar Education fell by 45% and Koolearn Technology by 33%.
Next came an attack on Tencent, one of China’s biggest tech companies, which on Saturday was ordered to give up the exclusive music licensing agreements it has signed with record companies – including Universal Music and Warner Music – around the world.
Tencent, which owns China’s most popular messaging service WeChat, is estimated to have an 80% share of the exclusive music streaming market in the country.
Shares of Tencent fell by almost 8% on the news.
Then, Beijing unveiled measures aimed at cooling what it sees as an overheated property market.
The People’s Bank of China (PBoC) is reported to have ordered lenders to raise mortgage rates for first time buyers from 4.65% to 5%.
At the same time, the PBoC is said to have ordered an increase in the interest rate for people buying second homes from 5.25% to 5.7%. That sent shares in property development companies lower.
Private tuition is big business for companies such as Koolearn Pic: AP
Separately, China also today announced new rules aimed at better protecting delivery riders, following complaints that some are not being paid the minimum wage or are being sent on routes where it is impossible to complete the order in the time allowed.
That news sent shares of Meituan, one of China’s biggest food delivery companies, down by 14%.
Its shares have now halved in value since February.
Shares of the e-commerce giant Alibaba, which also operates a popular delivery service called Ele.me, fell by more than 6%.
Taken together, the various measures add up to an unappetising cocktail for investors, who reacted accordingly.
In Hong Kong, the Hang Seng slid by 4.13%, taking it to a level not seen since December last year.
In Shanghai, the blue-chip CSI300 index fell by 3.22%, again wiping out all gains for the year to date.
The broader Shanghai Composite, meanwhile, fell by 2.34% to a two-month low.
Didi’s shares are now lower than the price at which they listed
There are two schools of thought as to what Beijing is doing here.
One is that this is just part of a wider campaign by the Chinese Communist Party to reassert its influence over life in China and strengthen its hand – with businesses and investors merely being caught up in this.
The other argues that this is a specific set of measures aimed at clipping the wings of businesses amid concerns that too many of them are not always operating within the law.
Aside from complaints about the treatment of workers in delivery firms, there is also a sense that the accounting practices of some property companies many not stand up to scrutiny, that the banks are being too lax with their lending standards and that the wealth being created by some of these companies, particularly those in the tech sector, are being too concentrated among a handful of plutocrats.
That theory is given credence by, for example, the way Beijing scuppered last year’s proposed stock market flotation of the payments company Ant Financial, which would have further added to the wealth of Jack Ma, the billionaire entrepreneur that created Ant and its former parent company, Alibaba.
Concerns about the quality of accounting at some companies have been rumbling ever since a former stock market darling, the coffee shop operator Luckin Coffee, collapsed last year after falsifying its accounts.
Either way, investors have been spooked, although some will have only themselves to blame given the way regulatory risk in China has been overlooked in recent years.
But it has certainly prompted investors in China to look more closely at their portfolios as they try to assess what other companies are at risk of seeing their business models reduced to rubble overnight by regulators.
Rightly so.
This Chinese government is very different from its immediate predecessors and is clearly far more relaxed about alienating foreign investors if it considers more important principles are at stake.
Ministers are to kick off a search for the inaugural chair of the new football watchdog, even as it faces growing hints of opposition to its establishment from the Premier League.
Sky News has learnt that the Department for Culture, Media and Sport (DCMS) will launch the appointment process for the role at the Independent Football Regulator (IFR) as soon as this week.
The chair, who is expected to be paid a six-figure salary, will be responsible for overseeing a landmark period in the English game.
The regulator will have three primary objectives, including promoting clubs’ financial sustainability and the financial resilience of English football as a whole.
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It will also be charged with safeguarding the heritage of clubs, including their badges and traditional playing colours.
The IFR will have the power to prevent clubs from joining breakaway competitions, inspired by the putative efforts of English football’s big six clubs to join a European Super League.
Its establishment through primary legislation comes amid an ongoing impasse between the Premier League and English Football League about future financial distributions.
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Gordon Brown, the former prime minister, is among the names who have been touted as potential chairs of the IFR.
Last week, Richard Masters, chief executive of the Premier League, warned in an article for The Times that more intrusive regulation could “undermine the Premier League’s global success, thereby wounding the goose that provides English football’s golden egg”.
A DCMS spokesman declined to comment on Thursday morning.
Crisis-hit Boeing has rushed to defend itself from fresh whistleblower allegations of poor practice, as the airline continues to grapple its latest safety crisis.
A Congressional investigation heard evidence on Wednesday on the safety culture and manufacturing standards at the company – rocked in January by a mid-air scare that saw an Alaska Airlines 737 MAX 9 flight suffer a panel blowout.
One Boeing quality engineer, Sam Salehpour, told members of a Senate subcommittee that Boeing was taking shortcuts to bolster production levels that could lead to jetliners breaking apart.
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He said of Boeing’s 787 Dreamliner, that has more than 1,000 in use across airlines globally including at British Airways, that excessive force was used to jam together sections of fuselage.
He claimed the extra force could compromise the carbon-composite material used for the plane’s frame.
“They are putting out defective airplanes,” he concluded, while adding that he was threatened when he raised concerns about the issue.
Boeing quality engineer Sam Salehpour testifies during the Senate homeland security subcommittee hearing. Pic: AP
The engineer said he studied Boeing’s own data and concluded “that the company is taking manufacturing shortcuts on the 787 programme that could significantly reduce the airplane’s safety and the life cycle”.
Boeing denied his claims surrounding both the Dreamliner’s structural integrity and that factory workers jumped on sections of fuselage to force them to align.
Two Boeing engineering executives said this week that its testing and inspections regimes have found no signs of fatigue or cracking in the composite panels, saying they were almost impervious to fatigue.
The company’s track record is facing fresh scrutiny amid criticism from regulators and safety officials alike in the wake of the incident aboard the Alaska Airlines plane.
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What’s going on at Boeing?
It has become a trust issue again after the worst period in Boeing’s history when two fatal crashes, both involving MAX 8 aircraft, left 346 people dead in 2018 and 2019.
All 737 MAX 8 planes were grounded for almost two years while a fix to flawed flight control software was implemented.
A separate Senate commerce committee heard on Wednesday from members of an expert panel that found serious flaws in Boeing’s safety culture.
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Boeing CEO: ‘We fly safe planes’
One of the panel members, MIT aeronautics lecturer Javier de Luis, said employees hear Boeing leadership talk about safety, but workers feel pressure to push planes through the factory as fast as they can.
In talking to Boeing workers, he said he heard “there was a very real fear of payback and retribution if you held your ground”.
Pressure on Boeing to focus on safety has included restrictions placed on production, limiting its manufacturing output.
At the same time, it is still facing three separate investigations by the Federal Aviation Administration, the Justice Department and the National Transportation Safety Board relating to the panel blowout.
A management shake-up announced amid the inquiries will see the chief executive depart the company by the year’s end.
Sky News has approached British Airways for comment.
It’s not quite a Mission Accomplished moment – the equivalent of that day in 2003 when George W Bush stood on an aircraft carrier and prematurely declared the Iraq war was over.
But Jeremy Hunt’s declaration in our interview in Washington DC that he had achieved a “soft landing” in the economy certainly has a whiff of wishful thinking about it.
Economists spend much of their time dreaming that, following a crisis, or a set of crises, they will be able to engineer a slow glidepath, ensuring there is no painful economic catastrophe. Yet it rarely actually happens.
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In the UK’s case, most economists would hesitate before describing Britain’s situation as a “soft landing”.
The economy is, after all, still formally in recession. At best, gross domestic product is flatlining.
Factor in population growth, and it’s shrinking quarter after quarter.
Yet the chancellor was at pains to insist today that, in fact, the outlook is strikingly positive.
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‘Economy has turned a corner’
Of course, that confidence comes as he gears up for an election in which the economy is likely to be centre stage.
The polling suggests the Conservatives are heading for a decisive loss, and the absence of an economic “feel good factor” isn’t helping.
So one can understand why he wants to paint the picture of a strong economy.
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Yet peer at the data and it’s hard to share his confidence.
With interest rates still at 5.25% and inflation still above target, the squeeze families have been facing in recent years has barely abated.
The UK is expected to grow at a slower rate than nearly every other G7 economy this year, according to the latest International Monetary Fund forecasts.
Yet the chancellor is not alone in clinging to optimism.
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Here in Washington, most central bankers and finance ministers are quietly hoping that all the economic and military challenges facing them – from war in Ukraine and the Middle East to China’s tensions with America – do not crystallise into something more horrifying and all-encompassing.
They, like Jeremy Hunt, would much rather keep on talking about soft landings.
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