Another Wave of Business Regulation

We have it on good authority that after the lull in announcements from Beijing on business regulation several more are in the offing. And imminently!

Except this time the regulators are not in Beijing. They are in Brussels.

Why is this relevant?  As we have written before (China through the US looking glass Part V), although Beijing has effectively closed some business models since it started its campaign last summer (after school tutoring, for example) and has dished out some hefty fines against others (Alibaba, Tencent, Didi Chuxing, Baidu, JD.com, ByteDance, Meituan, and Suning) this is by no means the end of the Chinese capitalist revolution. It is rather the simple recognition that anti-trust legislation is required to avoid the abuse of monopolistic power.

Neither is this anti-trust zealotry a particularly Chinese phenomenon. Anti-trust legislation has been added to consistently over the last 130 years in the US and elsewhere around the world. The business regulation in our subject line is of course the Digital Markets Act and the Digital Services Act which could pass into law in the EU as imminently as this week. But such has been the speed of change caused by the internet that regulators have struggled to keep up. The two EU Acts have been described as “the first overhaul of the rules that govern competition on the internet in 20 years in the EU”.

So, what should the EM investor make of this? Well, getting EM right is about getting China right and China has been facing big headwinds since last summer, one of the strongest being business regulation. We have said (Chinese Shape Shifting) that now that Beijing has made its point, there have been indications that further intrusion would be on pause.

Further announcements earlier this week by Beijing’s top economic minister that he would be taking measures to support both the economy AND the financial markets were well received by investors. In the light of these, it seems unlikely that Beijing is going to be as active on the anti-trust front in the coming year.

A PDF version of this article is available here.

This article has been issued by Aubrey Capital Management Limited which is authorised and regulated in the UK by the Financial Conduct Authority and is registered as an Investment Adviser with the US Securities & Exchange Commission. You should be aware that the regulatory regime applicable in the UK may well be different in your home jurisdiction. This article has been prepared solely for the intended recipient for information purposes and is not a solicitation, or an offer to buy or sell any security. The information on which the document is based has been obtained from sources that we believe to be reliable, and in good faith, but we have not independently verified such information and no representation or warranty, express or implied, is made as to their accuracy. All expressions of opinion are subject to change without notice. Any comments expressed in this article should not be taken as a recommendation or advice. Please note that the prices of shares and the income from them can fall as well as rise and you may not get back the amount originally invested. This can be as a result of market movements and of variations in the exchange rates between currencies. Past performance is not a guide to future returns and may not be repeated. Aubrey Capital Management Limited accepts no liability or responsibility whatsoever for any consequential loss of any kind arising out of the use of this article or any part of its contents. This article does not in any way constitute investment advice or an offer or invitation to deal in securities. Recipients should always seek the advice of a qualified investment professional before making any investment decisions.


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