Delivery workers wait in Beijing for the green light at a major intersection on July 30, 2021. Evelyn Cheng | CNBCBEIJING Investors invested in Chinese companies were caught unaware this summer by Beijing’s actions against homegrown tech titans. This included comments about shares listed overseas. Late July saw a directive that Chinese education companies should restructure and eliminate foreign investment. An additional order was issued last month that required app stores to take down Didi, a Chinese ride-hailing app. This came just days after the New York IPO. Didi shares have fallen more than 30% in the 30 days since its listing. Over the past 60 trading days, KraneShares CSI China Internet ETF has lost 29%. Its top holdings include JD.com and Alibaba (both U.S. listed stocks). Zhu Ning (professor of finance, deputy dean of the Shanghai Advanced Institute of Finance) said, "It's probably very important, especially for foreign investors to notice, there's a big, deep change of philosophical thinking about the economic policy, which is more important in China’s economy." Foreign investors must understand this and (brace for it).Although it may seem like the internet offers more possibilities, it can also lead to more financial hardships. restaurant owner in BeijingZhu referred to the Chinese Communist Party's pledge to deliver "common prosperity" moderate income for all in a "very large shift", in contrast to increasing income inequality. Zhu stated that this contrasts with the goal of ensuring at least some people "get rich first."Anger at big tech firmsIn the past 12 months, efforts to fulfill this promise have been intensified. For years, the Chinese government protected Alibaba from foreign competition. However, Alibaba grew so big under Jack Ma's leadership that authorities suspended Ant Group's huge IPO in November. They also fined Alibaba 18.23 Billion Yuan in April. China is seeing a rise in resentment towards tech companies, particularly small businesses who feel exploited by these giants. "It may seem like internet platforms offer us more opportunities, but they also put more financial burdens upon us," said a Beijing restaurant owner who requested anonymity to avoid being retaliated by online food delivery companies. CNBC translated her Mandarin-language comments.In early 2019, she listed her restaurant on Meituan China's dominant platform for food delivery. She paid an 18% commission. According to her, Meituan staff advised her that because it was the lowest price on the site, she couldn't list on other food delivery websites. She listed her restaurant on Alibaba's Ele.me food delivery service after the pandemic cut down revenue from in-store restaurants. Meituan staff made angry calls, threatening to charge her a 25% higher commission fee if she did not delist from Ele.me. She quit Meituan.Meituan declined comment to discuss the specific business case. Last year, the tech giant was accused of underpaying its 9.5 million delivery riders. These riders are reportedly at high risk of injury and death due to rushing for deliveries in an attempt to meet algorithmically calculated delivery times.Increasing criticismChina's antitrust regulator issued an order in July to food delivery companies to pay local minimum wages. The State Council China, China's top executive body, decided earlier that month to lift restrictions on local gig economy workers' access to health insurance and pension plans. These policy changes are coming as Chinese news media outlets, which are heavily influenced by government, have become more critical about Chinese tech companies' culture of excessive work. Two employees of Pinduoduo, an e-commerce company, died earlier this year from exhaustion. One death was confirmed by the company via an online statement. A representative could not be reached for comment regarding the second death at time of publication. Short-video companies Kuaishou, and then TikTok parent ByteDance, stopped asking employees to work weekends this summer.How can we bargain if all our daily needs (needs), are controlled by just one company? Yang Guang convenience store operatorChina's antimonopoly regulation is good, Yang Guang, a Beijing-based convenience store owner, stated. How can we bargain power if all our daily needs (needs), are controlled by a handful of companies? Yang asked the question in Mandarin according to a CNBC translation. He stated that he didn't want his store to be listed on delivery platforms like Ele.me or Meituan because they would charge 15% to 25% commission fees. Instead, he and his wife will deliver the purchases to their neighbors, communicating via the WeChat messaging app.Small businesses struggling to succeedAccording to an official count, China has a total of 139 million small businesses. At government meetings, small businesses are frequently discussed. These discussions include their difficulties in operation and Beijing's efforts for them to succeed. However, small businesses surveyed by the official Purchasing Managers Index for July showed worsening conditions for a second consecutive month while large businesses reported slight growth. This latest regulatory crackdown focuses on limiting monopolistic practice, increasing data protection, and encouraging more births.Pinpoint Asset Management's chief economist Zhiwei Zhiwei said that authorities are trying to address income inequality in a year where they have the rare opportunity to solve long-term problems without worrying about growth. The GDP growth target for this year was set at over 6%, which is a relatively low number compared to the 8.5% or 8% growth many economists for China. Zhang stated that "this window, sometime downthe road, probably won't always be open so the intensity of these policies came up surprising high." Zhang said that while it would be beneficial for authorities to communicate more support to foreign investment and private entrepreneurs in general, he noted that the latest crackdown targeted sectors like education "which was a subject of public protests in the past."Start-ups are moving in a new directionU.S.-listed Chinese education stocks fell by double digits in a single day after new policies made it impossible for after-school tutoring businesses to be non-profits and prohibited foreign capital investment. China-based partner of venture capital firm Antler Hongye Wang said that tutoring companies often took advantage Chinese parents' willingness and ability to pay for their children's education. Wang explained that for two years, this meant that investors like him could earn a 5-fold return on educational companies regardless of their economic environment.
