China’s crackdown on tech companies will hurt economic growth, the analyst says

[ad_1]

The Chinese government has gone “too far” in cracking down on big tech companies that will hurt innovation and slow economic growth, an analyst said Tuesday.

Regulators in China in recent months have stepped up scrutiny over the country’s tech giants like Alibaba and Tencent. Businesses now face fines and new rules aimed at curbing monopolistic business practices.

“There is certainly a logic to crack down on monopolies and some of the abuses of power we see from some companies. But they went too far and basically scared innovators from innovating,” said Scott Kennedy, senior consultant and president. of the board of directors in Chinese economics and commerce at the Center for Strategic and International Studies.

Kennedy told CNBC’s “Street Signs Asia” that the private sector is a major source of productivity gains that fuel much of China’s economic growth.

There is certainly a logic to repress … But they went too far and fundamentally scared innovators from innovating.

Scott Kennedy

Center for strategic and international studies

But the regulatory crackdown could hinder the formation of new companies, while particularly small existing companies may be afraid of making investments in the future, he added.

“That’s where all of China’s important, good, high productivity growth lies, and that we may never see as a result of the repression we’re seeing right now,” Kennedy said.

That potential impact on China’s growth prospects adds to the economic challenges facing the ruling Chinese Communist Party, which marks its 100th year since its founding this week. China, the second largest economy in the world, is also grappling with a growing pile of debt, an aging population and rising inequalities.

China’s economic growth prospects China

The World Bank raised its 2021 economic forecast for China on Tuesday, citing an “effective suppression” of Covid-19 as an aid to the country’s recovery. The bank expects the Chinese economy to grow 8.5% this year, a figure higher than the previous 8.1% expansion forecast.

Last year, China’s economy grew 2.3% from a year ago, making it the only major economy that experienced growth as the coronavirus spread globally.

Learn more about China from CNBC Pro

Kennedy said China is likely to “depend primarily” on state-led investment to spur growth over the next decade. This is because consumption, while growing, has not returned from the pandemic to the levels seen in investments, he added.

To increase consumption, China needs to liberalize parts of its service sector so that consumers have more ways to spend their money, Kennedy said.

“We’ve all seen it coming, but … it’s still a bridge too far at least in the short term,” the analyst said.

Chinese authorities want to reduce the economy’s dependence on debt-fueled investments for growth. But their multi-year effort to reduce debt took a hiatus last year due to the pandemic, taking China’s debt-to-GDP ratio to an all-time high of nearly 290% in the third quarter, according to data from the Bank of International. Settlements.

CNBC’s Evelyn Cheng contributed to this report.

[ad_2]