There was a time when the founder and president of New Oriental Education and Technology Group, Yu Minhong, was in the business of educating young Chinese to take over the world. But now, Yu’s company sells potatoes and steak on a live streaming service. And, unlike what his critics thought would be another disastrous business venture, the company is getting better at convincing people to buy more steak. There are signs that Xi Jinping’s crackdown on internet giants is slowing down.
The 2021 regulatory action that ranged from supervising personal data owned by internet companies to ending overly expansive tutoring shops that sold people a life of success in Chinese society is finally easing up.
Before the crackdown, New Oriental had employed 1,05,200 staff members, including 54,200 teachers, but the company let go of 60,000 employees and saw its revenue plunge by 80 per cent. The company’s whopping loss of $876 million sent a message to the entire tutoring industry that the old days of double-digit growth were over.
But Yu’s New Oriental has rolled on and is making gains. Koolearn, a live streaming educational division of New Oriental, saw its shares jump up to 40 per cent backed by the new business model of English teachers live-streaming lessons while selling agricultural products. At the very least, Koolearn has erased all losses the company has faced since July 2021. However, stock prices are still 70 per cent lower than what they had been before the drop in 2020 following Covid restrictions.
China’s ‘business-friendly’ signals
Koolearn’s account on Douyin, the Chinese version of Tiktok, added 14 million fans in 30 days, and the daily product sale has reached a new record of 68 million yuan, up from 1 million per day in early June.
Yu’s return has many in China intrigued by how he has managed to escape the crackdown personally unscathed. On Monday, the hashtag “New Oriental can live on royalties even if it’s gone” was the fifth top trend on Baidu. The trend started after Yu said during an interview with Liu Run of Rumni Consulting that he could live off his royalties. He said that his company had maintained a large cash reserve, allowing him to reinvest in new ideas.
Industry experts say Beijing is sending signals of a business-friendly environment to calm the nerves of glittery investors who have lost billions since 2021. The easing up comes with reports of senior Chinese Communist Party leaders looking to broker deals at the secretive Beidaihe meeting in August, and later when Xi’s campaign for a third term goes through the final review in November.
According to an estimate by The Economist, the regulatory crackdown cost companies a total of $1 trillion in market capitalization. The main aim of the regulatory action was to tackle monopolies, which in Beijing’s view, was an impending action against internet companies to curb their growing clout.
But it’s not just New Oriental that’s rising from the ashes, even Jack Ma is trying to make a comeback.
Jack Ma’s revival
Jack Ma’s Ant Financials will soon apply for a license to become a financial holding company. The People’s Bank of China is likely to accept the application after a review, which could last for months, sources told Bloomberg.
The move makes way for Ant Financials to eventually revive its bid for an initial public offering, which was quashed by regulatory action against Ma’s company. Ant had planned a $37 billion IPO in Hong Kong and Shanghai which was scrapped after Beijing’s intervention.
But for now, Ma is enjoying a game of golf in the Spanish town of Mallorca and making more public appearances, which is a sign the restrictions on his liberty may have eased.
Ma’s Tencent will deliver a single-digit growth in 2022, a stark dip from years of double-digit growth many Chinese internet giants have reported. Alibaba’s stock has recovered roughly 60 per cent on the Hang Seng but it still trades lower than the 2020 valuation.
There’s good news even for Didi Chuxing, the legendary ride-hailing company, which faced an investigation by multiple national security agencies over its data management. The investigation into Didi’s data protection regime will end soon. Didi announced earlier in June that the ban on the registration of new users may be lifted once the investigation formally ends in the coming weeks.
The crackdown last year may have dampened the spirits of some investors, but another metric suggests it hasn’t stopped companies from announcing mega IPOs. China leads in new funds raised from IPOs in 2022 as companies raised $35 billion compared to $16 billion raised by companies in the United States. And the semiconductor industry in China seems to be emerging as the winner.
Semiconductor-related companies raised more than $6.6 billion in funding in 2022. The growth in the industry is driven mainly by Xi’s strategic push to reduce reliance on the US and other countries for its supply.
Sign of better things to come
Rather than giving up, some companies are closely reading Xi’s guidelines on the future of technology and pivoting their business according to the party’s long-term strategic goals.
Despite growing signs that China’s gargantuan policy “correction” has slowed, some Chinese entrepreneurs know that the good old days are now over. “A return to the past days of ‘riding the horse without holding the reins’ is not very likely,” said Xin Lijun, retail chief of e-commerce giant JD.com Inc, in an interview.
After cleaning up the giants of the Chinese tech sector, Xi’s national security apparatus is turning to other targets with a sight on information control.
China National Knowledge Infrastructure (CNKI), an academic database of research publications, is being investigated to protect national security. According to the China Cyberspace Administration, it’s being done for “preempting security risks of national data, protecting national security and safeguarding public interest.”
In recent weeks, the tensions between premier Li Keqiang and President Xi Jinping over the management of the economy have intrigued experts. The easing of the tech crackdown signifies that Xi is trying to make space for other political ideas, including the revival pro-market approach.
Technology companies can breathe a sigh of relief. But to survive in Xi’s China, one must watch out for new campaigns and get better at reading the party’s signals.
The author is a columnist and a freelance journalist, currently pursuing an MSc in international politics with focus on China from School of Oriental and African Studies (SOAS), University of London. He was previously a China media journalist at the BBC World Service. He tweets @aadilbrar. Views are personal.
(Edited by Srinjoy Dey)