The Economist - USA (2021-07-10)

The Economist July 10th 2021 Leaders 15

O

ne intriguingquestionaboutChinaiswhetherit cancom­

bine thuggish, autocratic politics with the predictablerules

and property rights that entrepreneurs and capitalmarketsneed

to thrive. The government’s recent attack on DidiGlobal,a Chi­

nese ride­hailing firm that has just listed its sharesinNewYork,

suggests not. It is a warning to investors around theworld—and

to anyone hoping to make their fortune by settingupinChina.

Didi is one of China’s superstar firms, with 493musers(more

than Uber), 15m drivers and a presence in BrazilandMexico.It

listed its shares on June 30th, raising cash from globalinvestors

and valuing the firm at $68bn. Its prospectus contained 60 pages

of “risk factors”, including a regulatory crackdown,thatmostin­

vestors  snoozed  over.  But  almost  immediately

one of them turned up. 

It  seems  that  Didi  had  pursued  the  listing

against the wishes of the Cyberspace Adminis­

tration  of  China.  On  July  4th  the  regulator

struck back, saying that Didi had violated rules

on collecting personal data, and banned it from

mobile  app  stores  in  China.  That  sent  Didi’s

share  price  tumbling  by  over  20%.  Marco  Ru­

bio, a hawkish American senator, said that it was “reckless” to al­

low Didi to float in New York.

China’s tech industry has been one of the most dynamic areas

of  the  global  economy  in  the  past  decade.  Hundreds  of  large

startups have yet to follow giants such as Alibaba, Tencent and

Didi  by  listing  their  shares.  The  intersection  of  e­commerce,

payments and “super­apps” means that most daily transactions

in China can take place on a smartphone. Global capital and tal­

ent have been critical to the industry’s rise. Didi has big foreign

shareholders, including SoftBank and Uber, and owns a stake in

Grab, a South­East Asian rival. Many of its top brass were educat­

ed at Western universities and have worked at American firms.

AlmostallthelargestChinesetechfirmsarelistedinAmericaor

HongKongratherthanthemainland.Theyhavecosmopolitan

executivesandbenefitfroma flowofideasacrossborders.

ThecrackdownbeganlastyearwhenChineseregulatorscan­

celledthe$300bnflotation ofAntGroup inHongKongand

Shanghaiatthelastminute.Thegovernmentwentontothreat­

enothertechfirmsandtohumbletycoons,notleastJackMa,the

co­founderofAlibabaandfounderofAnt.

Allgovernmentsworryaboutdataprivacyandmonopolies,

butChina’sinterventionssignala systematicattackontechby

theparty.OnJuly7thBloombergreportedthatChinamightre­

examinetheuseof“variable­interestentities”,a legalstructure

thatunderpinsalmostallforeigninvestmentin

Chinesetech.Themessageisclear:powerful

techfirmsmustdefertotheCommunistParty,

their bosses should keep quiet and foreign

owners’propertyrightscanbeviolated.

Anoptimisticviewisthatthecrackdownis

politicaltheatre.Globalfirmshaveoftenbeen

burnedinChinaonlytorecover.SouthKorean

and  Japanese  companies  have  faced  boycotts

and  protests  that  later  faded  away.  China’s  government  shuns

foreign banks for a while, to punish them for perceived errors,

but eventually welcomes them back.

This time may be different. Foreign investors have lost hun­

dreds  of  billions  of  dollars,  which  may  permanently  alter  the

supply of global capital to China. To fill that hole, Chinese firms

will depend on less sophisticated mainland markets. Once again

entrepreneurs  and  investors  must  weigh  and  reweigh  the  vast

rewards of China’s markets against the risks of its opaque laws,

bullying officials and paranoid rulers. If you were risk­hungry,

unorthodox and keen to start a businessthatbreaks the mould,

would you still choose to do so in China?n

The attack on Didi showshowhigha pricetheCommunistPartyputsoncontrol

Didi Global’s share price

July 2021, $

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st 2nd 6th 7th

Hit and run

Chinese capitalism

T

o be mayorof New York City is no easy task. Bill de Blasio,

the  departing  incumbent,  was  once  a  progressive  darling.

However,  his  unique  political  talents—a  penchant  for  self­

aggrandisement  and  a  smug  disdain  for  dealing  with  the  city’s

problems—along  with  constant  bickering  with  the  governor,

rendered  Mr  de  Blasio  ineffectual  and  widely  loathed.  He  will

soon  be  limping  out  of  Gracie  Mansion,  leaving  behind  some

daunting  problems  for  his  successor.  Economic  growth  is

choked  by  regulation  and  insufficient  house­building.  There

has been a dramatic increase in shootings and homicides. Were

it not for a timely federal bail­out, the city would be facing se­

vere cuts to its budget.

The man New Yorkers will choose to pick up these pieces is

Eric Adams, a black, vegan, ex­police captain from Brooklyn. In a

crowded field, Mr Adams narrowly won the Democratic primary

with support from a broad coalition of non­white, non­Manhat­

tanites.  As  with  President  Joe  Biden,  his  supporters  were  the

working  class,  the  elderly  and  minorities.  He  promises  to  be

mayor for the Bronx and Brooklyn, not the Upper West Side. 

His  victory  in  the  primary  election,  and  almost  guaranteed

triumph in the general one to come, is a rebuke to the progres­

sive zeal that has overtaken America’s largest cities since racial­

justice  protests  began  more  than  a  year  ago.  This  is  a  growing

movement  that  is  almost  contemptuous  of  the  industries  that

generate urban prosperity. It sees specialised schooling for gift­

ed pupils as oppressive; it interprets pathological housing mar­

Eric Adams brings sanity to the effort to turn New York City around

New cop on the beat

The mayor of New York