Is China’s policy an unpredictable sword?

Is China's policy an unpredictable sword?

After the new education and training policy was announced in the form of two offices, the Chinese concept stocks in the education and training category continued to fall, and investors were worried about all Chinese concept stocks. There is a view in the market that this worry stems from the fear of “policy uncertainty.” Gelong’s point of view is representative. He believes: “In theory, as long as there is no explicit stipulation in laws and regulations, any business should enjoy the right to develop safely and freely as long as laws and regulations are not expressly stipulated. There is a sword that can be cut down at any time. Don’t you worry that one day the hand holding the sword will slip on your head?”

In the past few days, many public and private investment researchers have begun to read my articles published since 2017, and contact me through the background, hoping that I can provide more information and interpretation.

For several years, “professional” investors in China have been very willing to accept the phrase “whatever is not expressly prohibited by the law”, but I am very sure that, without professional legal training and experienced sufficient legal practice, It is impossible for most people to understand the true meaning of this sentence.

The rule of law is the guarantee of the market economy. Only with a stable environment for the rule of law can entrepreneurs and investors have stable expectations. But this does not mean that the law is rigid and rigid. The law is “living” because the law is made by people, and the makers always make different choices in a certain time and space through legislation. Even the enacted laws, the legislative principles or authorization clauses expressed in the articles, have given the legislature and the executive authority the corresponding interpretation authority. The law is not rigid. The legislature can make laws, and the competent authorities can interpret the laws. This is what Chinese law students know and it is followed by all countries.

Taking education policy as an example, it has been more than three and a half years since I wrote ” Why Should the Non-profitability of National Basic Education ” in 2017 ; it has been nearly three years since the “Private Education Promotion Law” was revised in 2018; and since The Regulation on the Implementation of the Private Education Promotion Law was revised in 2021, and it has been more than 3 months. The so-called “policies” are actually part of the broad legislation, rather than being formed outside the law. Whether it is the “Private Education Promotion Law”, the “Implementation Regulations” or the two offices, they are all in the broad legislative category. So when someone talks about the arbitrariness of China’s policies from the perspective of Wall Street investors, even ordinary people on Weibo know the retort: ​​Isn’t the US’s suppression of Chinese-funded enterprises’ legislation and enforcement in the past two years “policy uncertainty” What about fear? What’s more, the policy on education and training enterprises is not sudden, but has a buffer period of more than three years.

The early revision of the law did not directly target off-campus education and training companies, but clarified the positioning of private education. Therefore, no strict measures were taken against off-campus education and training companies. When communicating with me, a number of investment institutions stated that the education reform in 2018 was recognized by the market as “it does not seem to be determined”. Therefore, after the policy shock in 2018 caused the stock price of education and training companies to fall, the capital market strengthened the belief that off-campus education and training is impossible. Indispensable, capital inflow accelerated, and institutions from kindergarten to high school subject training expanded again at a high speed.

This is actually a gamble. This kind of gambling stems from the strong expectations brought about by the insufficient capitalization of education in the past, and the wishful thinking of superimposing capital to chase profits.

But in fact, from the perspective of supporting reform, since the goal of the reform is to reposition the entire public education, private education, and off-campus teaching and training, the entire revision of the law is coherent. As I said in my previous article in 2017, national basic education involves tens of millions of children and is related to the future of the entire country and nation. However, the short-term profit-seeking nature of capital, the impulse to cash in on the market, and the performance evaluation requirements are related to national basic education that is inherently people-oriented and kind. The original intention of the postponement is in conflict. This concept is accepted by policy makers, that is, legislators, and is the starting point for this round of education reform.

If you can understand this starting point, then after the revision of the Private Education Promotion Law, you can fully realize that setting up an off-campus teaching and training system in addition to the public education system is in fact completely in conflict with the goals of education reform. In other words, standing at the time, the biggest risk in the education and training industry is not an “unknowable policy trend”, but a completely knowable policy trend. Any real professional investor, at that time, should begin to be prepared.

In fact, many investors have made adequate preparations. Among the readers I have communicated with recently, there are education companies that were transforming in time, and there are also software companies that have decided to focus their services on public education rather than education and training companies. Institutions like Hillhouse almost liquidated the stocks in the education and training category long before the storm came. There is more than one person who does not stand under the dangerous wall. In the past three years, have the education and training companies calmly thought about their own positioning? The reason why it is difficult for them to calm down, in fact, as the senior executives in the education and training industry are very clear, under the fierce competition supported by capital, who can have time to breathe and think about the long-term?

The New Deal in the education and training industry was so decisive that it finally awakened everyone in the market. They seem to realize today that it turns out that changes are really happening.

But from my perspective, this change started three years ago. Three years ago, I wrote in “It ’s Time to Thoroughly Rethink China’s Internet Economy “: ” How to deeply integrate labor protection, consumer protection, intellectual property protection, product quality assurance, anti-monopoly and anti-unfair competition systems? Embedding into the Internet economy is a realistic topic for all legal persons and legislators today. “It is clear that in the past three years, legislators in our country are responding to these topics one by one.

People who think that China’s policies are unpredictable are actually just blind people. They think that the anti-monopoly of the United States and the European Union is predictable, while the anti-monopoly of China is unpredictable; they think that the protection of labor rights in the United States and the European Union is justified. Yes, and the protection of labor rights in China is anti-market.

After being awakened, some professionals who were at a loss for what to do have thrown out some grotesque theories. For example, an investment researcher from Soochow Securities said that China has abandoned the “American road” and turned to the “German road”, and its national policy has changed to “emphasize manufacturing and neglect service.” Recently, articles about China’s “Germanization” are gaining popularity. I doubt very few people who wrote these articles can read German.

As readers of this official account have always known, we still don’t know much about the United States, Germany or Japan. In the past two decades, only one monograph on the study of German financial system has been published in our country. How can a big country like China only learn from a country that it doesn’t know much about?

Why do capital markets always think that China’s policies are unpredictable? After all, the funds in our market are too abundant, and because we have never experienced a real financial crisis, long-term protection of the financial industry has led to a serious surplus and unevenness of financial practitioners. Their judgment has been thoroughly exposed in the past few years, and they can’t even see the trend of their own country’s policies.

Why do overseas investors think that China’s policies are unpredictable? Isn’t it because overseas investors are buying analysis from my country’s investment research institutions? Would they still directly read the deeper analysis behind the collected information? Will they study the antitrust history of another country like us? Isn’t it because Wall Street believes that China should always maintain a very low labor cost advantage (rather than pay more attention to the rights of Chinese workers) in order to earn more profits for shareholders? Isn’t it because Wall Street believes that by forming an education and training system outside of the public education system in China and sweeping all Chinese families in it, it can earn more income and be more beneficial to shareholders?

What is the value of Chinese concept stocks to US investors? From the perspective of the American system design, isn’t it ultimately for the American pension fund to have more choices to benefit the American pension industry? Then why doesn’t Wall Street question and oppose those EU-listed companies in the United States whose labor and social costs are much higher than those of China? Is it because Chinese workers and consumers do not deserve more rights? Didn’t the “crisis” of the concept stocks in this round of China ultimately arise because of the “Foreign Company Accountability Law”?

This is an era that requires long-term thinking. If your thinking is long-term enough, then everything is not unpredictable.

This article is from the WeChat public account : The sun also rises (ID: The_sun_also_rise) , author: Mu Feng

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