The Chinese government has been cutting down the international competition rate of its business companies. Being the world’s second-largest economy, it is affecting the business sector of the company badly. They want to keep the companies performing only if they comply with the government’s terms.

The problem has become dire for the tech companies in China right now, as they are not able to expand their business overseas. This is due to the border issues as well as rivalry with the US. A major problem that arose with the crackdown was sweeping off of Chinese stocks from the international market, bringing the tech companies a huge haul.

Many tech giants like TikTok, social e-commerce platform Xiaohongshu, fitness app Keep and medical data company LinkDoc Technology have been caved away from listing their plans in New York. The researchers are suggesting that a pause on these listings in the IPO could seriously affect US-China relations.

The US door for listing has been closed for now. This will impact the capital and investment of these tech giants because the US is the biggest market in the world. It has a greater turnover in stocks and tends to place a higher value on company earnings, as compared to any other country.

The Cyberspace Administration of China banned the international IPO listing company Didi Global from app stores in Chinese markets. Their explanation of the act resonates with the concerns of national security and data breach.

Not only this, the Chinese authorities degraded the companies, bringing them to a haul by raising fines against them, banning apps from stores, and completely overhauling some companies. Researchers have opinionated that this plan of Beijing is about establishing control over the private enterprise. They may want to control the behavior in these companies that could give rise to non-conformist activities & independence in the international market. The reason is that such independence may hinder the “state-centric model” of China.

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Corporate reshuffling:

The Government’s intention was just limited to the techie companies in the beginning when it started restructuring in China in November 2020. But later on, it continued to other groups of companies like for-profit education business & food delivery sector.

• Ant group- its IPO listings were suddenly pulled out and it was ordered to reorganize itself as a financial holding company.

• Alibaba- fined $2.8 billion for the accusation of behaving like a monopoly.

• Tencent and Pinduoduo- accused of uncompetitive behavior.

• Didi Global- banned from Chinese app stores after its listings went public

• Other US-listed Chinese companies- being rolled out for data security issues.

• Education and Private tutoring companies- banned from raising funds over stock markets.

The companies have no idea of the duration, intensity, and scope of these announcements hindering their growth.

Advantages of the crackdown:

Many analysts as well as Chinese authorities believe that the crackdown of the companies has implied merit to it.

For example, the IPO listing company Didi was banned on Chinese platforms because they alleged that the company mishandled the sensitive data of the Chinese users because there was a public outrage about the data breach and abuse of personal information.

Similarly, the private tutoring sector of the nation is being stopped from making a profit because education in China is highly competitive and exam-focused. But these education agencies made it all in all a private activity. They provide the same competitive approach to exams but inclusively at a very high rate.

Analysts of the Chinese economy believe that the government is keen on delivering necessity as a public good instead of glorying it internationally. The methods to combat the ‘inequality’ on the surface is a nice step.

The government is also concerned about the unemployment situation in the country which could hinder its economic goals ahead. The youth is bashing all the societal pressures and the overwork culture, initiated by the tech startup, through “tangping- lying flat” movement. Thus, the Communist government is worried about inequality.

Risks of the Suppression:

Although the efforts have been made for a good cause it could also lead to aggressively riskier situations.

Already around $1 trillion dollars of shares-contributing Chinese companies have been wiped off or banned. This could undermine and suppress the most important factor in the country’s economic liberalization- entrepreneurial spirit.

Although the regulation of private-sector education and progressive tax system could be beneficial in combating the inequality issue, the sudden restrictions only on the specific companies could lead to imbalance.

Thus, the government has to think of a more lenient way to deal with the issues concerning inequality because the entrepreneurial spirit, which is filled in the veins of the Chinese, could not thrive on stringent regulations.

The reforms are definitely needed but they are also capable of causing disruptions in the party’s legitimacy if they remain unchecked. Thus, the government’s sole motto should be to enhance regulations over the private sector instead of imposing a crackdown.

The policy should be to ‘serve all the people' equally and undeniably.