00:00Regulatory ceasefire is over. It reminds a lot of people about the regulatory storm, I think it was five years
00:07ago.
00:07So my question is, should it remind us of that, or is this time different?
00:12I think this time is pretty much different, because if you think of five years ago, the targets are pretty
00:18specific.
00:19They want to target on the Internet platform companies.
00:21But if you look at the targets for under scrutiny this time, it's actually quite abrupt,
00:26because even if the high-profile Internet platform companies are getting most attention,
00:32but if you check the specific targets, there are also other state-owned enterprises,
00:37and also even some local governments fall under scrutiny because they did something wrong,
00:42or against the central political campaign, such as anti-evolution or the unified national market.
00:48So I think it's quite different than last time, although it's both a government-driven campaign against the communists.
00:54But this time, it's more about the strengthening of law enforcement instead of a target-specific crackdown.
01:03Right. And you mentioned at the time there was the ceasefire, right,
01:09where at a time when the economy wasn't doing as well,
01:12maybe they were not going to put that much emphasis on the enforcement side of things.
01:17But now that they're more publicly naming and shaming these companies,
01:21tell us about the timing and why they're doing this now.
01:24Well, this timing is quite interesting, because after the Internet cracked down,
01:28it apparently ruined much of the market confidence.
01:32And because the economy was down, so there was a ceasefire period of the regulators decide that,
01:38OK, we are not going too hard on this calmness or, like, enforcing the rules we want to set.
01:43But now, like, one reason is because this year China's economy has been slightly better,
01:48and the market confidence has been generally restored.
01:51And another side is that they have a lot of new rules that want to be taken seriously.
01:55They have this, like, anti-evolution campaign there for several months,
01:59but never really, like, getting fully implemented.
02:02And they have, like, other new rules that they want to kind of fix in the market environment infrastructure.
02:09So, from their perspective, it means, like, more of an orderly development of the market.
02:15So, like, in order to set those new rules, they have more written documents.
02:19And they also want these written documents to be taken seriously.
02:23So, the ceasefire period is kind of over,
02:26because now is the time to implement the new rules and, like, advertise about them,
02:31so make them to be taken more, like, seriously.
02:36And I think you're right.
02:38When we talk about the semantics matter, they matter a lot,
02:41because, you know, people will take what they interpret things based on what we call it.
02:48Should we call this a crackdown, or is this simply just enforcing the rules that already exist?
02:53Well, I probably won't call it a crackdown,
02:56because, like, if you check their behaviors and the punishment they've received,
03:00they are quite well measured.
03:02They are not really exaggerating the punishment on companies.
03:06But instead, like, they are considering, like,
03:08to make this less look like a target-specific crackdown campaign,
03:12but more of, like, to install the overall market rule.
03:16I think that's the purpose.
03:17But, of course, from the market perspective,
03:19it might, like, interpret things differently
03:22and ruin the market confidence because of their activities.
03:27But from the regulator perspective,
03:28they are kind of careful about this,
03:31because you can see a lot of the warnings are not really giving penalties.
03:35So I think this is, like, still going on,
03:38and they have to consider both of the market confidence
03:41and the things they want to do.
03:44And Tilly, it's great to get you to decipher
03:46the language around some of these statements, right?
03:48And I think the one thing it brings back to is maybe during 2022
03:53is when they talked about how the regulatory policy
03:56should remain consistent with macro policy.
04:00Can you explain a little bit more the meaning of consistency,
04:03and does that sort of meaning change now,
04:06or is it basically the same?
04:08Well, the consistency of policy is a political language.
04:11It basically means, like, to make policies,
04:16like, adjust your policy based on market reality.
04:19In the past, it probably means, like, when the economy is down,
04:24don't make your policy too harsh on companies
04:28to ruin the market confidence or what.
04:30But, like, now, when the market confidence is getting restored
04:33and the economy gets slightly better,
04:35you probably want to, like, build more future policies
04:41to improve the future market environment.
04:44So, like, I think from the regulator's perspective,
04:47make a consistent policy.
04:48It's, like, it's being adjusted over time.
04:51So, make appropriate policies consistent
04:54with your economy environment.
04:58Tilly, you mentioned something earlier that,
05:01and I hope you could talk a little bit more about that,
05:03because I think the messaging that foreign investors will take
05:06from that could be important and material.
05:08You mentioned that state-owned companies
05:11are also the subject of scrutiny that's happening right now.
05:16If you could elaborate more on that.
05:19Well, there are some examples, such as, you know,
05:22the anti-monopoly campaign is sort of a big thing.
05:25Like, they want to take down the monopoly behaviors.
05:29So, like, some state-owned companies,
05:31such as China Telecom, has been advertised
05:33on the State Administration of Market Regulation website
05:36as well as an example of violating the anti-monopoly routes.
05:42So, it's not only targeting of private firms,
05:44but also state-owned enterprise can also fall under scrutiny.
05:49Tilly, what does this mean for these companies?
05:51Now, I'm just wondering, we saw sort of a negative reaction
05:54to all this news leading up to it.
05:58Do these, you know, the scolding, even without punishment,
06:03do you think that helps or at least changes
06:05the operations of these companies?
06:07Do you think, how effective do you think it really is
06:09in terms of ending some of these, you know,
06:12price wars and the competition in these industries now?
06:16Well, it's actually quite hard
06:18because if you think of the anti-involution campaign
06:21starts from last year,
06:23it's like the government has been using
06:25less of the hard-made rules,
06:27but instead more of the softer-made rules,
06:29such as, like, summon them into a meeting
06:31and talk them out of the price wall.
06:34But it has worked on some specific sectors,
06:37like on Polysilicon,
06:40they had more specific rules.
06:41But unlike some other sectors,
06:43like food delivery,
06:45you can see companies are still engaging
06:47in price wars and over-competing with each other
06:49because they are market share compensation considerations.
06:55So, like, from the regulator perspective,
06:58the anti-involution campaign
07:00and the end of this price war
07:02is more of the sector-to-sector-tailored merit.
07:05So, because, like, unlike previously
07:08on the overcapacity on state-owned sectors,
07:12now these overcapacity issues
07:14are happening in more private sectors
07:16and also on more, like,
07:18the emerging technology sector,
07:19such as EV and solar panel.
07:22So, they don't want to get too hard
07:23on this calmness,
07:24but more of, like, finding out
07:26what are the proper marils
07:28through, like, tailored solutions
07:31for each industry specifically.
07:35Do you think it's these things,
07:37and it's a very broad question,
07:38but do you think the direction of travel
07:41is encouraging,
07:42that these will work,
07:43and if it doesn't work,
07:43do you think the hammer comes out?
07:50It's very hard to say.
07:51It really depends on, like,
07:52how this calmness responds
07:54and whether the government sees a necessity
07:57of enforcing harder rules on them.
07:59We'll see you next time.
Comments