Investment Institute
Industry & Regulation

Decoding China’s regulatory paradigm shift

  • 03 September 2021 (7 min read)

Key points

  • A powerful regulatory storm sweeping through many parts of the Chinese economy has left investors baffled at Beijing’s intentions behind the far-reaching actions
  • We view this as a progressive shift in China’s long-term development strategy from ‘allowing some to get rich first’ – started in the Deng Xiaoping era – to a pursuit of ‘common prosperity for all’
  • Recent crackdowns – on the property market, big tech monopolies and the after-school tutoring sector – appear rooted in the hope of building a more egalitarian society
  • Attempts to reshape China’s income structure into an ‘olive shape’ will require multi-faceted reforms to redistribute income and wealth, bolster social safety nets and create equal opportunities for all
  • Beijing’s ability to balance ‘income creation’ with ‘income redistribution’ will be critical to this success. Managing side effects and containing risks from regulatory changes are also key to achieving long-term sustainability without compromising short-term stability
  • This is a delicate manoeuvre and China’s successful navigation is by no means guaranteed. Rising financial market volatility lately reflects growing caution among investors, particularly those from offshore

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