DBS Flash: The “Beijing Consensus” on investment


Beijing has been gradually steering away from the Washington consensus (free market emphasising on efficiency) in developing the country for the long haul.
Chris Leung28 Jul 2021
  • Socioeconomic factors increasingly matter in the administration of policy
  • A comprehension of the authorities’ long term strategic reasoning is key to gauging what comes next
  • There will be short-term selling pressure on equities amid the ongoing regulatory changes
  • Credit risks will rise as earning growth of various sectors could be disrupted
  • We have revised down our 2021 GDP forecast from 10.5% to 9.5%
Photo credit: AFP Photo


Beijing has been gradually steering away from the Washington consensus (free market emphasising on efficiency) in developing the country for the long haul. Socioeconomic factors are now being heavily taken into account in policy formulation. Tense US-China relations have also played a key role in placing limits on foreign participation in key sectors.

Last week’s decision to overhaul the private tutoring sector (banning core subjects such as math, science, and history alongside tutoring on weekends and public holidays for all children younger than 6) caught the market off-guard and wiped out USD15bn of market cap of education related listed companies in a matter of hours. Beijing’s view that high education costs was a prime obstacle to improve fertility rate resolving ageing problem is extraordinarily narrow and assetive. China’s fertility rate was 1.3 children per woman in 2020, compared with 1.6 in the US, and well below the global average of 2.1. In general, Chinese households viewed high property prices as a lesser evil to high education cost. Households have the option to rent an apartment instead of purchasing one. But they cannot avoid additional education costs for their kids due to severe academic competition. According to Bloomberg, at least 75% of students were tutored outside of the public school system in 2016. It could well be in the vicinity of 90% now, but that won’t be out of line with regional trend.

Average monthly spending on private tutoring could be as high as a few thousand US dollars per month at top tier schools, according to the Wall Street Journal. If these are banned completely, it will probably help to reduce the inequality between poor and rich parents.

Another key concern is the increasing influence of western ideologies on China’s youth. That explains why private tutor schools are not allowed to raise funds and accept investments from foreign companies. Foreign tutors and foreign curriculum will also be banned. This was clearly a direct result of tense US/China relations even after Joe Biden took over the Oval Office. It turned out that many observers were overly optimistic that President Biden would be more friendly to China compared to the Trump Administration.

Regardless of the effectiveness of such policies on meeting the goals, we should pay attention to the long term strategic reasoning in Beijing: (1) The determination to rectify socioeconomic problems is assertive. (2) The element of intensifying competition between US and China is present in all policies now. For example, the recent case of DiDi overseas listing and the subsequent domestic probes that happened thereafter. (3) The power of the tech sector is the reason why they need to be better disciplined and controlled. Likewise, the suspension of new registrations on Tencent’s biggest app, WeChat, until at least August for the purpose of installing new security measures is a manifest for state control while they still can. (4) Unlike the West, China does not prioritise stock market over other attributes. Going forward, this implies more executive orders in various sectors. Overall, the aim is to restore balance in various domains via political means.

From this angle, the new Beijing Consensus is a game changer for investors. They understand well the stock market routs will not collapse the economy as these are policy-induced in the first place. The negative impact on the currency and bond yields are short-term because the Chinese economy is relatively stronger than the rest of the world. And China is willing to bite the bullet for the sake of long term betterment. The path of reforms is seldom smooth and often thorny. In the short term, the market will amplify all the negatives concerning China as usual. That is the easy part. The hard part is identifying the next sector that Beijing will target and why.


To read the full report, click here to Download the PDF.

Chris Leung

Economist - China & Hong Kong
[email protected]


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