Xi's new Great Wall of China
SoftBank billionaire Masayoshi Son is as confused as anyone about what's going on in Xi Jinping's China. In recent years, Son's US$100 billion Vision Fund has gone big on Asia's biggest economy. As of the end of July, 23% of that war chest was invested in Chinese companies.
But Son has been skittish about President Xi's intensifying crackdown on mainland tech giants, from Ant Group to Didi Global to Tencent Holdings. He has now pivoted to a defensive posture on China. "It's because we would like to wait and see a while," he says.
SoftBank, he admits, is "facing tough challenges when it comes to investments in China." He adds: "That's something we'd like to be careful about, and be cautious." Son is not alone.
Other global investors are turning equally cautious - or more so. Cathie Wood's Ark Investment Management, Wall Street's mostwatched stock picker of the moment, is pulling out of China altogether.
Others point out that Xi's erratic policymaking is damaging the perception that China, the world's second-biggest economy, is ready for the global prime time.
"These are the very issues why people don't invest in emerging markets in the first place: lack of transparency and political risk," says Perth Tolle, founder of Life + Liberty Indexes.
Son is the first to admit he hopes this is more a question of "when" than "if," as Xi shifts from an open-for-business stance to a "Fortress China" defensive crouch.
Son's confusion matters for two reasons. One, SoftBank's initial Vision Fund - and a second one now making the rounds - is the globe's most important venture capital outfit. Two, Son arguably discovered a superstar of e-commerce that Xi's government has spent the last nine months appearing to undermine.
The superstar in question, of course, is Jack Ma.
In 2000, Ma was an obscure English teacher in Hangzhou. The $20 million Son handed Ma to create Alibaba Group was worth $50 billion by 2014 when the e-commerce colossus listed on the New
York Stock Exchange. At the time, it was history's biggest initial public offering.
It was also a coming-out party of sorts for Chinese tech, heralding the emergence of a future-facing capitalist China.
Xi has spent the last nine months undoing much of that progress. First, regulators canceled a November IPO by Ma's Ant Group. It would have topped Saudi Aramco's ginormous 2019 IPO, giving China "biggest-listing-ever" bragging rights again.
Even better was Ant's $37 billion IPO set to take place in Shanghai and Hong Kong, highlighting China's arrival as a financial mecca. Since then, Xi has expanded his disorienting clampdown on private enterprise.
In early July, regulators went after ride-sharing giant Didi only days after a buzzy IPO in New York. Next, it was the $100 billion private education sector. And now, Tencent, whose gaming businesses face "spiritual opium" swipes from state media.
What explains Xi's thinking? A common theory is that Ma's October 24 speech in Shanghai, where he chided Beijing regulators as clueless and state banks as having a "pawnshop mentality," enraged Xi's Chinese Communist Party. The political empire struck back, the thinking goes, to remind
Ma and his ilk who's boss.
Another theory is that Beijing is determined to rein in tech companies before they become too powerful. That means emplacing prudent financial and other frameworks upon firms that, under the "tech" guise, may have been underregulated.
The Great Wall gambit
China expert Louis Gave of Gavekal Research offers one of the more intriguing theories behind Xi's Fortress China gambit: US trade warriors are pushing Beijing into a corner.
First came former President Donald Trump's tariffs, currency exchange-rate shenanigans and corporate enemies list and aggressive Federal Reserve easing. Then, President Joe Biden arrived in January and, rather than revering his predecessor's policies, he tightened the screws even further.
This suggests that it is the United States, rather than a single maverick president, that sees China as the new enemy.
As such, the tech crackdown may have been "driven by a geopolitical assessment of China's situation," Gave says.