China’s ‘Community Prosperity’ Push Leads to Divergence in Regulatory Approach By Reuters

© . A Chinese national flag is seen near a construction site in Shanghai’s financial district, June 1, 2012. REUTERS/Carlos Barria/Files (Corrects the juxtaposition of words in the network forum name in section 8) By Eduardo Baptista and Clare Jim BEIJING/HONG KONG () – China’s so-called “common prosperity” push in the near term will not only focus on bridging the growing wealth gap, but will also shape the country’s regulatory approach, with sectors seen as crucial for the economy that receives more state aid. As part of that move, analysts expect the troubled real estate sector, which accounts for a quarter of the economy, to receive increased regulatory support, while internet companies will continue to be a heavy-handed target for what Beijing says is a disorderly capital expansion. Global investors, who faced numerous crackdowns last year, will look for signs of clear regulatory divergence during China’s annual parliament meeting starting on Saturday, when policymakers are expected to unveil more incentives to mitigate slowing economic growth. . Thousands of delegates from all over China will gather in the capital Beijing for the meeting that will discuss economic and social policy. Last month, China’s tech sector was hit by fears of a new wave of regulatory action following unprecedented changes in recent years caused by, among other things, antitrust violations and data security concerns. The giant real estate sector, on the other hand, has eased some rules since early this year, paving the way for debt-laden developers to find their way after getting close to the brink of collapse. The move underscores Beijing’s focus on halting the slowdown as the war in Ukraine adds new uncertainty in a year when President Xi Jinping is almost certain of a precedent-breaking third term as leader. “If you just look at the regulatory developments… you would certainly think that the Chinese government is really keeping technology in check and that they have relaxed their approach to the real estate sector,” said Alfredo Montufar-Helu , director of the Economist Intelligence Corporate Network. “The real estate sector is seen as an important driver of economic growth because it leads to investment, it leads to home purchases, it leads to real estate development, but other sectors such as commodities are also in high demand,” he said. † China last year launched a multi-regulatory and unprecedented crackdown on a wide range of industries, leaving startups and decades-old companies both operating in a new, precarious environment as part of Xi’s pursuit of “common prosperity”. Both the technology and real estate sectors saw a dip in their earnings and a massive sell-off of their stocks and bonds, as new regulations were enacted that curtailed their businesses, severe penalties imposed for violations and new plans to raise capital thwarted. SYSTEMIC RISK Since late last year, however, Beijing has taken a number of initiatives to revitalize the refrigerated real estate sector, including making it easier for major and state developers to raise funds, facilitating presale escrow accounts and allowing some local governments to lower mortgage interest rates and repayment ratios. According to Montufar-Helu, the regulatory calm given to the real estate sector was likely caused by regulators’ concerns about the knock-on effects of the common welfare measures on the broader economy. By comparison, the tech sector was hit by a wave of tougher regulations, affecting everything from foreign listings to outright bans on sectors like after-school private tuition, along with a steady stream of fines. Companies most often on the receiving end include tech giants such as Tencent Holdings (OTC:) and Alibaba (NYSE:) Group. “Technology and education fall under the umbrella of ‘common prosperity’, but real estate is a different matter as it poses systemic risk,” said Rosealea Yao, investment analyst in China at Gavekal Dragonomics. The central government’s goal for the real estate sector is clear, Yao said, which is to make sure it manages to get out of a deep liquidity crisis, so more easing measures will have to be taken. The Hang Seng Mainland Properties Index is down 0.2% this year from a 6% decline in the , as some investors bought property stocks amid low valuations and stimulus expectations. By comparison, China’s leading technology stock index, the Hang Seng Tech Index, is down 12.1% so far this year. Louis Lau, one. The US-based fund manager at Brandes Investment Partners LP said he was surprised that regulators were still tightening the screws on the technology sector, shattering hopes for a period of recovery. “People don’t know when it’s going to end, it’s taking longer than expected,” Lau said, adding that he expected the crackdown to last until the second half of this year. (Corrects word juxtaposition in network forum name in section 8)

Leave a comment