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China's tech crackdown has disrupted its financial markets


Chinese tech stocks are having a rough year. The e-commerce giant, for example, is down 25%. Its competitor, Alibaba, is down 60. There are several reasons why, but one reason is firmly in the Chinese government's control. Darian Woods and Adrian Ma with our daily economics podcast The Indicator explain.

DARIAN WOODS, BYLINE: Rui Ma is a tech investor in China, and she has her own podcast called "Tech Buzz China."

RUI MA: If you were investing in listed companies, then you probably had a pretty crappy year, actually (laughter). And there's still a lot of uncertainty going forward.

WOODS: And we wanted to know, why are these tech stocks in China having such a bad year? Rui told us about a phrase that was first used in China in the 1950s when China was led by Chairman Mao, but it has gained traction as this new buzzword in political circles in China over the past year. It's called common prosperity.

R MA: Common prosperity contains with it a lot of ideas. The main goal is actually to double GDP per capita by 2035 and become what's called a middle-developed country.

ADRIAN MA, BYLINE: Even though China is the world's second-largest economy overall, when you divide that by its 1 1/2 billion people, the average Chinese person is still pretty poor by American standards.

WOODS: And that said, China has grown production enormously over the last four decades. It's done that by investing heavily in manufacturing and infrastructure. But China's growth formula has been associated with massive income inequality.

R MA: China is focused on trying to make sure that the next stage of development is more equal across the board.

WOODS: The banner common prosperity is a sprawling, multifaceted set of aims, and, yes, reducing inequality is part of it. But even here, it's also about reasserting the role of state power. It's this big shift back towards a more state-dominated economy after decades of China opening up its markets. And one of the ways that the state has been reasserting its power is by cutting certain big Chinese companies down to size through regulation.

Now, it is worth mentioning that China is not clamping down on all tech companies, just the tech which isn't aligned with its strategic goals. But this crackdown has really decimated a lot of publicly traded Chinese companies. And there's always the risk that this downturn could spread into the wider Chinese economy, which would have ripple effects all around the world. And that leads us to a turning point. The government may have hinted that it thinks that it's gone too far in the taming of tech platforms.

A MA: Yeah. You can get a sense of how it's changing its messaging based on a comment from China's vice premier, Liu He, just last month. And he said the government will, quote, "actively release policies favorable to markets," unquote. He also said that the government would better coordinate regulations that might affect capital markets.

WOODS: One person who is especially looking for stability is President Xi Jinping. He's widely expected to be making a case for a third term as leader later in the year. That's something that hasn't happened in a half century. And it'd be a lot easier of a sell if the financial markets in China were not in chaos.

A MA: Adrian Ma.

WOODS: Darian Woods, NPR News. Transcript provided by NPR, Copyright NPR.

Darian Woods is a reporter and producer for The Indicator from Planet Money. He blends economics, journalism, and an ear for audio to tell stories that explain the global economy. He's reported on the time the world got together and solved a climate crisis, vaccine intellectual property explained through cake baking, and how Kit Kat bars reveal hidden economic forces.
Adrian Ma
Adrian Ma covers work, money and other "business-ish" for NPR's daily economics podcast The Indicator from Planet Money.