Skip navigation Scroll to top
Scroll to top

Ahead of the curve: Cultural Revolution

September 14, 2021

A commentary by Jürgen Lukasser, Chief Investment Officer of LGT Bank Österreich, on the harsh changes in the economic environment, some call it a cultural revolution, that the central government in Beijing has been undertaking since November 2020.

Ahead of the curve: Cultural Revolution

According to Deng Xiaoping, becoming rich is not a disgrace, but an honor. Becoming as rich as Jack Ma is not so honorable after all. This impression can be gained by observing the activities of the central government in Beijing since November 2020.

The starting point was the fintech sector, when the USD 37 billion IPO of Jack Ma's Ant Group was cancelled overnight and the "modus operandi" of a bank was imposed on Ant Group. In the next round, tech giants Alibaba and Tencent were targeted and accused of distorting competition. The highlight so far has been the dismantling of the online education sector on the grounds that education should be available free of charge and therefore may now only be provided by non-profit organizations. TAL Education, New Oriental and Gaotu are among the largest online tutors that also have Wall Street listings as members of the Nasdaq Golden Dragon Index. Just a few weeks ago, these companies were collectively valued at around USD 2,000 billion, but they have since lost more than two-thirds of their value.

International investors reacted as truly shocked to these relatively harsh changes in economic conditions from a Western perspective. In many cases, therefore, the question is being asked whether the current events represent a new cultural revolution.

In this context, it is irritating that Chinese President Xi Jinping increasingly refers to "common prosperity" in his speeches. This is a clear replica of Mao, who pursued this objective in the context of his - ultimately failed - economic reform steps. Deng Xiaoping's economic reforms and "quasi-capitalist" economic order were truly successful. As a result of China's economic miracle, some 1,058 billionaires emerged in China last year alone - a truly impressive number compared with 696 in the United States or 171 in India. At the same time, Chinese Premier Li Keqianq noted in June 2020 that around 600 million Chinese have to live on around USD 160 per month. The country is currently struggling with a massive social imbalance - just like the U.S. by the way. This imbalance represents a considerable social explosive. The central government in Beijing, on the other hand, is primarily interested in stability in this regard. In this respect, the current moves are primarily aimed at balancing short-term against long-term macroeconomic benefits. In this sense, it is not really a cultural revolution.

Risk information/disclaimer: This publication is an advertising document. It is for your information only and does not constitute an offer, quotation or invitation to make an offer, a public advertisement or a recommendation to buy or sell investments or other specific products. The content is written by our employees and is based on sources of information that we consider to be reliable. However, we cannot provide any assurance or guarantee that it is correct, complete or up-to-date. The circumstances and principles underlying the information contained in this publication are subject to change at any time. Information once published should therefore not be understood to mean that circumstances have not changed since publication or that the information is still up to date. The information contained in this publication does not constitute a decision-making aid for economic, legal, tax or other consulting questions, nor may investment or other decisions be made solely on the basis of this information. Advice from a qualified professional is recommended. Investors should be aware that the value of investments can fall as well as rise. A positive performance in the past is therefore no guarantee for a positive performance in the future. The risk of price losses as well as foreign currency losses and yield fluctuations due to an unfavorable development of exchange rates for the investor cannot be excluded. It is possible that investors may not get back the full amount they have invested. We exclude without limitation any liability for losses or damages of any kind, whether direct, indirect or consequential, which may arise from the use of this publication. This publication is not intended for persons who are subject to a jurisdiction that prohibits the distribution of this publication or makes the distribution of this publication dependent on an authorization. Persons into whose possession this publication comes must therefore inform themselves about any restrictions and comply with them.