Thread by @freefader

The Chinese government is rethinking the role of private capital in the economy.

One of the big questions for 2022 (and beyond): how the state should adjust the way it guides private investment.

A quick thread on how the Chinese gov't *might* influence the way you invest

One key theme of the “tech crackdown” last year was the state’s resolution that capital needs to be better controlled – no more “disorderly expansion.”

This goal of more control was made more explicit at the December Central Economic Work Conference (CEWC).

To this end, at a speech at the CEWC, Xi Jinping talked up the idea of a "traffic light" system to guide investment. Red means stop (investing in perceived unhealthy businesses), green means go (on state priorities, like hard tech).

news.cn/politics/leade…

Part of the perceived need for a new mechanism is the recognition that the government "cannot act arbitrarily", (presumably: suddenly blowing up a whole sector)

The reason why? Because "excessive intervention" creates "unstable expectations for capital"

finance.sina.com.cn/tech/2022-01-1…

A "traffic light" system is supposed to be the answer... but, how to actually implement it? What does it even mean? ... Hence some emerging debate and attempts to hash it out

- Will it be an official system, or informal?
- How to avoid abuse, esp by local govts?
etc.

Designing this system is a brass tacks question of how to actually affect a “socialist market economy.” How can capital be made to serve the needs of the state, without, of course, dictating where it should invest?

Or rephrased: how does the Party control the impulses of capital, without robbing it of dynamism and creativity (that Deng-era energy that built the country)?

What the state seems to be after, ideally, is a reshaping of the fundamental values of capital.

From one piece:

"In addition to the pursuit of greater profits and faster returns, capital itself must also have deeper and higher-dimensional thinking: Has its own business behavior created real value, practiced social responsibility, and is conducive to common prosperity?"

Before we jump to any conclusions here, some vital context: Beijing has *always* guided capital, formally (that's what a negative investment list is, or a subsidy), and informally. Wrt the latter, its China biz consulting boilerplate that one should "align with govt priorities"

But its crystal clear - from XJP himself - that the current way of doing does not afford the state sufficient control of capital.

There is no timeline for a new system (indeed, it's unclear if "traffic lights" will be a formal system) - but *crucial* to follow this discourse

My crystal ball: I doubt a formal system is coming. But I do think Beijing will be a lot more proactive and vocal about practices they do not like - less like hand on the wheel, and more like a backseat driver... one who is willing to jump over the seat and stomp on the brakes