A private-equity investor in the health business says his firm is adjusting its portfolio to reflect new risks
Education, New Orient and Gaotu, are down by two-thirds, wiping out $18bn in shareholder value. The panic has engulfed other Chinese firms with American listings, which were collectively worth over $2trn not long ago . The Nasdaq Golden Dragon China Index, which tracks nearly 100 of the biggest such stocks, fell by a record 19% in three trading days. Fear spread to Hong Kong, where it has pulled the territory’s benchmark tech-stocks index down by 16%, and even to mainland China.
The squeeze reflects the government’s “overriding concern” that it has less control over the internet than it would wish, says Mark Hawtin of, an asset manager. Online education is a case in point. It has been one of China’s most innovative and fastest-growing industries in recent years. Firms have used clever software to offer individualised courses to millions of pupils, many of whom are poor. In 2019 and 2020, the industry saw 27s.
This ferment proved too much for the government, which prizes stability above all else. The authorities began to view the industry’s fees as an extra burden on parents, potentially discouraging them from having more children—an increasingly pressing problem as China’s population begins to decline. State media, channelling their inner Marx, talk of an end to “the era of barbaric growth”. The simplest way to curb this barbarism? Do away with the profit motive.
As Peter Milliken of Deutsche Bank puts it, in China “the profit pool [investors] chase exists within parameters set by the state.” Where will these shift next? One place may be video-gaming. Games firms collect lots of data on users, many of whom are minors, and gaming addiction is a Beijing bugbear, notes Chelsey Tam of Morningstar, a research firm. The industry titan, Tencent, has already been censured.
Other targets include internet-connected cars and online health care, which both suck in reams of sensitive data. . In a meeting with banks on July 28th the government tried to restore calm. But its message is clear: the Marxist pursuit of power trumps market logic.This article appeared in the Business section of the print edition under the headline "Marxism v markets"
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