China’s pledge to give green lights to more technology deals points to an easing of restrictions on Big Tech, analysts say

  • A Politburo meeting chaired by President Xi Jinping concluded that the government should give ‘green lights’ to a batch of tech investment deals
  • Analysts said ‘green lights’ may likely be given to investment deals that help boost development of the real economy

Beijing’s pledge to give “green lights” to technology deals will likely lead to more targeted measures to regulate Big Tech’s investment activities, as China‘s top leadership seeks to have internet platforms play bigger roles in helping prop up a slowing economy, according to analysts.

During the Politburo meeting chaired by President Xi Jinping on Thursday, the Chinese leadership concluded that the government should give “green lights” to a batch of investment deals in the tech sector, sending a signal that Beijing will be less restrictive on the activities of the country’s Big Tech firms after imposing many “red lights” on deals in the sector since late 2020.

The meeting’s suggestions around “green lights” means that Beijing could “set the boundary” for investment and merger and acquisition (M&A) activities by internet and platform companies, said Bruce Pang, JLL’s Greater China head of research and chief economist.

Beijing had earlier proposed the “red light” and “green light” mechanism for the country’s Big Tech firms as part of a campaign to curb “disorderly expansion of capital”. Pang said that the Chinese authorities had focused on “red lights” by setting up rules and drawing up bottom lines, but it has now shifted its stance amid rising unemployment and weak demand.

“Green lighting” investment cases by the country’s Big Tech firms will be a wise choice to help address economic problems and enable platforms to create jobs and boost consumption, he said.

Regulators could potentially put out several examples of successful M&A cases, and give approval for some internet companies to become licensed financial holding companies based on rules released in 2020, Pang said.

The “green light” statement also suggests that authorities may promulgate an “investment list” for platform companies, and give them clearer guidance on areas they can invest in, Fu Tianzi, an analyst at Everbright Securities, wrote in a research note.

“Green lighted” investment cases may likely occur in areas that help boost the development of the real economy, Fu wrote. That could include courier services and food delivery, which help create jobs, and those that help ensure the supply of goods or support disadvantaged groups.

Internet platform deals that help the digital transformation of companies and push for technological breakthroughs, and those that promote Chinese culture overseas, could also be among areas that receive green lights, Fu added.

In April, Beijing indicated that it wanted China’s internet firms to play a more important role in helping to bolster the faltering national economy, which has been battered by massive lockdowns and other stringent Covid-19-related measures.

Earlier this week, the Chinese government also established an interministerial meeting mechanism focused on the country’s digital economy, a small step towards aligning different regulators in supervising Chinese Big Tech companies.

The statement on green lights is also a response to growing calls for clearer guidelines from industry observers.

Wang Yiming, a former deputy at the Development Research Center of the State Council, suggested at an economic summit earlier this month that there should be plans for how the red and green light mechanism works so that the market has clear expectations.

Zhang Jianhua, director of the Research Center for Financial Development and Regtech at Tsinghua University, also made comments at a forum in April that there should soon be clear standards for capital green lights.

Author: Xinmei Shen, SCMP

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