The Economist - UK (2021-11-20)

The Economist November 20th 2021 67

Business

BusinessinChina

The Party capitalists

I

t mightjust be confused for one of the

world’s savviest tech investors. China In-

ternet Investment Fund’s (ciif) portfolio is

the envy of venture capitalists everywhere.

It owns part of a subsidiary of ByteDance,

the Beijing-based parent of social-media

group TikTok, and Weibo, a Twitter-like

platform. It has a stake in SenseTime, one

of China’s most advanced artificial-intelli-

gence (ai) groups, and Kuaishou, a popular

short-video service. The firm’s investment

list reads like a who’s who of the industry.

More stunning are the terms of these

investments. ciif’s 1% stake in a ByteDance

subsidiary gives it the power to appoint

one of three board members in a unit that

holds key licences for operating its domes-

tic short-video business. A similar bargain

has been struck with Weibo, which is listed

in New York, with ciifpicking up 1% for

just 10.7m yuan ($1.5m). The firms hardly

need more capital. Nor is ciif, with plans

for a 100bn yuan fund—enough to rival a

big Silicon Valley venture-capital firm—

overly concerned with the outsize returns

its investments will certainly deliver.

That is because the outfit, founded a

mere five years ago, is no typical investor.

ciifis itself mostly owned by the Cyber-

space Administration of China (cac), a po-

werful internet watchdog. The arrange-

ment is akin to America’s Federal Commu-

nications Commission taking discounted

stakes in tech groups such as Facebook and

Twitter, appointing board members, then

steering them in the direction it sees fit.

ciif’s investment spree is symptomatic

of a new form of state capitalism that is

taking shape in China. Under the aegis of

President Xi Jinping, regulators in recent

years have unleashed a sustained attack on

the technology sector, deeming it to have

gained too much influence and strayed too

far from the Communist Party’s core val-

ues. Tech magnates such as Jack Ma, the

co-founder of e-commerce giant Alibaba,

have been subdued. Entire business mod-

els have been rewritten from on high—and

the tenor of the Chinese economy altered

as a result.

Bringing the commanding heights of

the modern economy to heel might be ex-

pected from what is, after all, a communist

regime. Nor is state investment in private

companies anything new: “guidance

funds”, massive state vehicles that direct

money towards semiconductors and other

favoured areas, have become a fixture of

China’s investment landscape. But the ex-

tent of such activity over the past two de-

cades has risen sharply.

Private companies with state-connect-

ed investors increased from 14.1% of all

registered capital in China in 2000 to 33.5%

in 2019, according to a paper by Chong-En

Bai of Tsinghua University in Beijing,

Chang-Tai Hsieh of the Booth School of

Business in Chicago, and two other aca-

demics. While the number of state-con-

trolled investors has not changed much,

each has done vastly more business with

private firms (see chart 1 on next page). As a

result, today’s Chinese corporate land-

scape might best be described as a sprawl-

ing complex of state-private commerce.

More than 130,000 private companies had

H ONG KONG

China’s communist authorities are tightening their grip on the private sector,

placing its growth model at risk

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