China’s $1.1 Trillion Tech Crackdown Reveals an Existential Threat

A man walks past the New York Stock Exchange on Wall Street in New York City on May 10, 2021. (Angela Weiss/AFP via Getty Images)

Commentary

Six Chinese technology stocks lost $1.1 trillion worth of market value since they peaked in February, more than a 40 percent drop, according to The Wall Street Journal. U.S. institutional investors, with more than $2.3 trillion in the country, are rightly concerned.

Many are slowly trying to unwind their positions, without causing the market to drop too quickly by selling in a precipitous fashion. They are watching for any sign of regulatory troubles in China, such as a critical article in a state-run journal, or the initiation of an investigation, which can wipe out billions more of their dollars overnight.

Xi Jinping’s aggressive policies are the cause of the market rout in China. Investors unwisely ignored his threats of war against the United States and Australia, and actual territorial incursions, including in air and maritime space, against Taiwan, Japan, India, Bhutan, and the Philippines over the past decade. Now that Xi’s actions are against corporations and are wiping out more than a trillion dollars of market value virtually overnight, investors are finally, and rightly, taking notice.

Stock prices of Alibaba Group Holding Ltd. (BABA-SW) (top C) drop on the Hong Kong Stock Exchange after its financial wing Ant Group’s record-breaking IPO was suspended the night before, on Nov. 4, 2020. (Anthony Wallace/AFP via Getty Images)

This expensive lesson for investors is helping them realize that their Econ 101 class, and its knee-jerk free trade liberalism, ill-prepared them for political risks at the extreme end of competition, including hot wars, trade wars, tech wars, and influence wars. The perfect information, rational preferences, and independence assumptions of simple economic modeling that is naive to politics, are simultaneously violated in this brave new world of economic predation that Xi is ushering.

After allowing America to be half-digested by the anaconda that China has become, American and allied politicians are finally starting to wake up. They are realizing that China is manipulating Western corporations, which seek to maximize shareholder value, rather than patriotic values. Apple, for example, is still offshoring production from democratic countries and producers, including from Taiwanese companies most recently, to China and its companies. This “American” company apparently thinks it can use its political influence in Washington to lobby for its special interests, over the national interest of America, and the democratic values for which Americans stand.

China tries to exploit free-market language to insert its predatory exports into unwary economies globally. But China is anything but free, as should be clear from its enslavement of Uyghur labor and theft of up to $600 billion of U.S. intellectual property annually.

Rational actors should no longer allow China to use these unnatural advantages to wipe out their indigenous corporations’ market share, revenues, research, and development. Down that path lies yet more Chinese economic power, with which comes political power. Power tends to concentrate, which should have all of us around the world particularly concerned if that power is concentrating in such an illiberal capital as Beijing.

The rational response is to economically decouple from this madman Xi, and his Chinese Communist Party (CCP). For the time being, that means decoupling from China, until the country can get its act together and cease its predatory behavior against neighbors and trading partners. The country is so powerful already, however, that doing so will require unified and focused action by a coalition of the world’s most powerful democracies, along with friends and allies such as Vietnam and Saudi Arabia, that want to retain their independence and sovereignty from Beijing in the long run.

The CCP’s assault on rival power bases in and around China includes not only billionaires, but religions and ethnicities such as the Uyghurs and other Turkic Muslims, Tibetans, Falun Gong, and Christians, regions such as Hong Kong, and countries such as Taiwan, Japan, the Philippines, and Australia. This aggression against others should be a warning to those large corporations around the world that are still independent.

Even if they can continue to make money in China in the short run, perhaps because the country is a massive Ponzi scheme with poor Securities and Exchange Commission reporting requirements and shell companies into which international investors pour their billions, they are funding a totalitarian government that’s threatening world peace, and ultimately, corporate market value.

In the AI-enabled nuclear era, in which countries have the capability to down each others’ electric grids through electromagnetic pulses (EMP), send drone swarms against each others’ population centers, and bypass missile defenses with hypersonic technologies, achieving investment gains in China should pale in comparison to the systemic risk of enabling China’s continued rise.

Corporations with a long-term vision of shareholder value should be working overtime to maintain the ascendancy of peaceful and democratic states in the international system that enables free trade, markets, and institutions to operate and mediate among allied democratic countries. Peace, democracy, institutions, and trade thrive together, because historically, democracies support markets and the rule of law, and almost never attack each other.

The rise of China threatens this benign triad, and means that ethics and business survival not only can, but must, coincide. The international system of free trade and free markets between democracies, as we have known it since 1945, is under an existential and totalitarian threat. The assured defense of our values and long-term prosperity is now, or never.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.