[Epoch Times, August 28, 2021]Since the suspension of Ant Financial’s listing in November last year, until the beginning of August, the Chinese Communist regime has used supervision and a series of policy measures, or used articles to guide public opinion to crack down on the Internet and real estate in turn , Food delivery, electronic games, e-cigarettes, and pharmaceuticals have caused fierce turbulence in the listed Chinese concept stocks and the Chinese Communist Party’s A-share market. The stock prices have continued to fall sharply, which surprised everyone and asked: What is Xi Jinping doing? What?
By carefully observing the headwinds encountered by each industry, we can see that there are different incentives for each wave of blows. In a nutshell, the cancellation of the off-campus training industry and the regulation of the centralized procurement of real estate and medicines, apart from strengthening the control of students’ thinking, other actions seem to be responses to the growing gap in medical insurance funds and frequent financial explosions; crackdowns The Internet is a combination of political and security factors; the bombardment of online games and electronic cigarettes is to strengthen the control of the industry.
Most of the issues involved in each storm are very complex, and many people must be removed from their cheese. The reason why Xi Jinping chewed on these “hard bones” is fundamentally to preserve political power.
Starting from the recent turmoil, let’s look at one industry by industry.
The expanded scope of centralized procurement hits the price of pharmaceutical stocks
On August 19, the Anhui Provincial Pharmaceutical Centralized Procurement Service Center of the Communist Party of China issued an announcement to include some clinical test reagents, mainly chemiluminescence test reagents, into the scope of centralized procurement. This move caused the A-share pharmaceutical companies and medical equipment stocks to fall. The share price of Hengrui Pharmaceuticals, a leading pharmaceutical company, fell 9.99%, then fell the next day, and has not recovered so far. The share price of Mindray Medical, a leading medical device stock, fell by more than 17%. After rebounding in the next two days, it still maintains a 9% drop.
Centralized procurement of medicines (centralized procurement) is not new. The CCP has completed six batches of centralized procurement from the pilot drug procurement in 2018, with an average of two batches per year. It is reported that the average drug price has fallen by more than 50%. The most typical and exaggerated is the price of the heart stent. Through centralized procurement, the price dropped from 13,000 yuan to 700 yuan, proving that centralized procurement is a symptomatic solution to the problem of inflated drug prices. According to the data released by the Medical Insurance Bureau, the purchase cost saved in the first three batches exceeded 100 billion yuan.
But solving the falsely high drug prices and saving medical insurance expenses is only one aspect of the problem.
Before the start of each batch of centralized procurement, the stock prices of listed companies in the pharmaceutical and medical equipment sectors suffered a sharp drop. This time the stock price fluctuated because the market was surprised by the inclusion of chemiluminescence detection reagents that were originally thought to be non-collective, which led to a bad news for listed pharmaceutical companies.
However, the structural reform itself must be painful. Central procurement brings about two practical problems:
First, the CCP’s ongoing centralized medical procurement has not only eliminated intermediate profits and gray income zones, but also greatly reduced the profits of most pharmaceutical manufacturers. Most drugs cannot make up for the decrease in profits even if the sales volume increases. But if the company does not win the bid, the loss will be even greater, because this piece of sales will be completely lost. This is reflected in the fact that the stock prices of listed companies have fallen sharply when they win the bids, but they fall sharply if they fail to win the bids.
The performance of pharmaceutical manufacturing companies in centralized procurement is different. The leading large companies are more capable of increasing R&D investment in accordance with the new situation, and producing original research drugs to reduce price competition; some companies that produce generic drugs have limited sales areas, but winning the bid helps It expands the market; most companies show a decline in operating income and profits or even a sharp decline. The companies most affected are those companies that rely on generic drugs to generate profits to support R&D. The centralized procurement of their products is forced to sell at “floor prices,” making it almost unsustainable for such companies.
As a result, the first problem is that a considerable number of pharmaceutical manufacturing companies will be eliminated, resulting in a reduction in taxes and an increase in unemployment. Another change will also result in an increase in the number of unemployed people, that is, the medical representative group faces a large number of unemployment. Pharmaceutical representative is a profession brought into China by foreign pharmaceutical companies. Its essence is to represent the characteristics of pharmaceutical companies to communicate new drugs in order to better serve patients and doctors.
However, in China, becoming a salesperson who liaises between pharmaceutical companies and pharmaceutical companies is also a key link in realizing doctors’ rebates. Nowadays, a large number of generic drugs are collected. In addition to the sales of innovative drugs and equipment, medical representatives are no longer needed. It is estimated that there are 3 to 4 million sales representatives nationwide. Therefore, centralized procurement will bring about a large number of newly unemployed people;
Second, centralized procurement will definitely reduce the quality of pharmaceutical products. The pricing method of centralized procurement is that the government sets a maximum price, requiring that pharmaceutical companies bidding not to offer a price lower than the cost price. However, because the collected products are generic drugs with a serious oversupply, in order for companies to survive, the quotations are “floor prices”, and it is possible to grab the market at a cost or even lower than the cost. But companies must make money in order to survive, so after winning the bid, they will take various measures to save costs in order to obtain profits. This is also a common concern in society.
Another potential problem is not the current concern of the Chinese Communist government, but the impact will be far-reaching. On the surface, centralized procurement will force pharmaceutical companies to invest in research and development of new drugs, but only a few leading companies have this part of the resources. Most pharmaceutical companies will either be eliminated or on the verge of struggling for survival after their profits have reduced, and the industry’s R&D resources will inevitably be greatly reduced. Even leading companies face the same R&D funding constraints brought about by reduced profits.
Therefore, the stock price fluctuations of listed pharmaceutical companies were not caused by a new policy, but by the new development of measures to solve the shortage of medical insurance funds and high drug prices that were started three years ago. The new volatility reminds people of the existence of this important problem.
Online games are classified as “spiritual opium”
On the morning of August 2, an article in the Xinhua News Agency’s “Economic Information Daily” “‘spiritual opium’ grows into a hundreds of billions industry”, knocked down the price of online game stocks. Among them, the price of Tencent Holdings plummeted 10%, NetEase fell more than 15%, and Xindong Company fell 20%. From the decline, we can see the size of the share of the stock’s game revenue. The greater the decline, the greater the proportion of game revenue.
In the afternoon, people discovered that the “Economic Information Daily” had withdrawn the article. By the time it was published again in the evening, the title had changed to “Online games have grown into hundreds of billions of industries”, and the articles “spiritual opium” were also removed from the article. Character.
According to an article in the “Economic Information Daily”, a survey conducted in a middle school in Luzhou, Sichuan, found that 26% of people played games once in two or three days, and 12% played games every day. However, the head teacher who participated in the survey believed that the actual number was much higher than this number, and that almost all the class played games.
Some students are addicted to playing games. According to an article in “Economic Information Daily” and a report on Sina.com, a high school student in the High School Affiliated to Beijing People’s University became addicted to playing games. He spent more than 50,000 yuan on games before and after dropping out of school, beating his parents at home and setting fire to his grandparent’s house. He was finally identified as a second-level mental disability. The student’s mother, Ms. Liu, took Tencent to court for this. Not only teenagers are prone to addiction, but some adults can’t avoid it. Some people even break up their marriages because they are addicted to online games.
The criticism of online games has been around for a long time, but the online game industry is still growing rapidly year by year. Why is the issue of online games suddenly raised when Chinese concept stocks and A-share listed companies are frequently subject to administrative attacks? It is inevitable to speculate on the deep meaning behind Xi Jinping’s move.
Two days before this, the Central Committee and the State Council of the Communist Party of China issued the “Opinions on Further Reducing the Burden of Student Homework Guidance and Off-campus Training in Compulsory Education”, which required students to be guided to use electronic products reasonably to prevent Internet addiction. Many people think these measures They are all doing one thing: this is to ask the people to have a baby.
Indeed, at least on the surface, the impact of online games on young people makes it more difficult for people to educate their children.
However, it is a dilemma to really solve the problem. The “Economic Information Daily” article stated that for the healthy development of the online game industry, it is not about cutting off the industry, but for online game companies to take responsibility. In fact, if the stickiness of games cannot be increased (the stickiness of online games is a key factor in making young people addicted to online games), the industry will not only fail to grow, but will also shrink sharply. In 2020, the sales revenue of online games has reached 230 billion yuan, and the blow to this industry will definitely affect all aspects of revenue.
The most important thing is that online games are not the root cause of difficulties in education for young people. In the Chinese Communist society that worships money, people are not allowed to believe in gods, leading to a general spiritual emptiness of the people, and all kinds of harmful things will take advantage of the emptiness. The further raging of party culture has resulted in young people not having a correct outlook on life and the world. If generation after generation grows up with the thought of wanting to be an official to make money, the influence of online games will appear to be of secondary importance.
Deleting an uproar in the off-campus training industry
On July 23, an opinion circulated on the Internet about reducing the burden of students’ homework and extracurricular training (hereinafter referred to as “double reduction”), which caused the education stocks listed in Hong Kong to plummet. The stocks plummeted collectively, New Oriental fell 54%, and the future fell 70%. All other education stocks were not immune.
On the second day, the opinion was formally issued. The new policy stipulates that all subjects in primary and secondary schools will be prohibited from off-campus training, and the off-campus training industry for primary and secondary school students that has grown gradually after 1999 is almost “one-click deleted”.
The share price of education stocks reached a high point in February of this year. From then until the beginning of August, the market value of the big three education stocks “New Oriental”, “Good Future” and “Gaotu” has evaporated by 112.5 billion US dollars, or about 730 billion yuan.
As for why Xi Jinping wants to delete off-campus training companies, people’s interpretations are nothing more than two aspects: First, it seems to be to deal with the increasingly acute social contradictions since the industrialization of education, at least to reduce the burden on people to bear and raise children from the perspective of perception. In order to achieve the purpose of stimulating fertility, the other is to control the influence of Western thoughts on young people.
Since 1999, children’s education funding has long been a mountain that has been pressured by ordinary people under the CCP’s rule. In addition to tuition and miscellaneous fees, extracurricular training fees are the main part of these funds. On the other side of the people above the middle class chanting “Don’t let children lose at the starting line”, a large number of children from low-income families have completely lost at the starting line. Even middle-class families suffer from various expenses for raising children. The chaos of education expenditure and all kinds of corruption in the field of education have become a major focus of public grievances.
But deleting the industry of off-campus training can only reduce the huge gap between rich and poor in this field on the surface, and cannot change the disadvantages of poor families, and society does not become fair because of this. Because education and the college entrance examination are just needed, relying on administrative measures will not eradicate out-of-school training, and will only greatly increase the black market price. Children from high-income families and high-educated families still enjoy better educational conditions, and will also have an advantage in the college entrance examination stage.
The problem of education burden cannot be solved from the perspective of education funding alone. The fundamental approach must be from two perspectives: First, implement a fair and reasonable social system, so that all classes and industries have relatively fair opportunities to earn a living and improve living conditions ; Second, to improve the professional ethics of the teaching staff, so that most teachers truly become students’ “soul engineers”, instead of treating students as the object of making a living and making money. There are very few good teachers who meet this standard. However, under the CCP system, teachers with better incomes have the same internal motivation to accumulate wealth as others, so as to cope with any kind of extinction that may be encountered in the future.
In the dead education and training industry, there were about 10 million employees, and these people have joined the unemployed army. While seeming to “solve” the regime crisis, Xi Jinping is constantly reducing fiscal revenue and income from related industries, and expanding the ranks of the unemployed.
Antitrust and cybersecurity regulation cracks down on cyber unicorns
On July 2, Didi Chuxing, which had just been listed on the New York Stock Exchange, was announced to be under investigation for cybersecurity. Its 24 apps were subsequently taken offline. The price of Didi’s depositary receipts has fallen sharply. It has already fallen below the issue price, and it is not clear when it will take off again.
It is generally believed that Didi and Alibaba have been attacked for similar reasons, that is, they violated the dignity of the Chinese Communist Party leader Xi Jinping. According to the new regulations of the US Securities and Exchange Commission, companies listed by the Chinese Communist Party in the US must submit accounting papers. For a unicorn in a monopoly industry like Didi Chuxing, its accounting papers must include a large amount of sensitive data, and there are hidden security risks. However, the OIOS failed to raise this issue in time and made it clear that it must wait for relevant issues to be resolved before it can be listed. This issue was clearly raised after Didi ran away and angered the authorities.
Similarly, Ali’s monopoly problem has been around for a long time, and it is not new to require merchants to “choose one of two” between Ali and JD. However, it was only after Jack Ma’s annoyed supervision that it carried out anti-monopoly in a retaliatory manner. It is the Chinese Communist Party’s authorities Management failures.
The courage of large unicorn companies to scratch their beards and even break ground on their heads is of course an event that jeopardizes the ruling position and disturbs Xi Jinping. The crackdown on unicorn companies not only hurts the CCP’s own pocketbook, but also dampens the confidence of international capital in the CCP, and ultimately has the effect of blocking foreign capital from entering China.
In April, the anti-monopoly storm hit Meituan, the largest food delivery platform, and Meituan has always been accused of requiring catering merchants to choose between “Are you hungry” and their competitors. Meituan’s price in the Hong Kong stock market suffered a tenth consecutive decline, almost cut in half.
Accidental events have also come together to dampen the confidence of international capital in China’s concept stocks.
On March 22, the Ministry of Industry and Information Technology publicly solicited opinions on the revision of the “Implementation Regulations of the Tobacco Monopoly Law”, and planned to add an article to the supplementary clause: “E-cigarettes and other new tobacco products shall be implemented in accordance with the relevant regulations on cigarettes in this Regulation.” The appearance of only one sentence is not surprising. If so, the stock price of Wuxin Technology, the largest listed e-cigarette company listed in the United States, has fallen all the way, from the highest value of more than 33 US dollars to the recent 5 US dollars.
The proposed regulation comes from the society’s increasing awareness of e-cigarettes. According to CCP media reports, its management of e-cigarettes is based on the harm of e-cigarettes described in the “Global Tobacco Epidemic Report 2019” issued by the World Health Organization. However, this move will bring the e-cigarette industry, which has so far been free, into the category of tobacco monopoly. This is why the concept stocks in e-cigarettes have been hit.
This management incident in the tobacco industry inadvertently caused the Chinese Communist Party to concentrate its crackdown on Chinese concept stocks.
Regulate property prices to control the expansion of real estate
In order to prevent the continuous explosion of large enterprises and platforms, curb real estate overheating, and at the same time control the further increase in real estate prices, the CCP has twice controlled the development of the real estate industry and housing prices in the past decade.
Judging from the data released by the Statistics Bureau of the Communist Party of China on August 17, the property price index fell slightly for the third consecutive month in July.
The CCP faces a dilemma in the control of property prices. Neither can it be allowed to rise arbitrarily and arouse stronger public grievances, nor can it be allowed to fall, otherwise the value of the bank’s assets will be discounted and the regime will be even more endangered.
In order to limit the rise in housing prices and also control the entry of funds from outside the industry into the real estate industry, the CCP has implemented stringent controls at both the central and local levels. If a developer wants to cut prices for sales, it will mobilize grassroots administrative forces to stop it.
As a result of such regulation, on the one hand, housing prices will not rise any more, and on the other hand, many developers are in trouble. The most famous is the leading enterprise Evergrande Real Estate, which has repeatedly reported that it is on the verge of thunder. Had it not been for the slowdown in real estate sales, Evergrande’s debt burden would not have come to the fore so quickly, and it would not be ruled out that Xu Jiayin would be able to tide over the turnaround difficulties.
However, under strict control, companies that are too large and debt-heavy will encounter blows in all aspects. Under real estate regulation, stocks fell one after another. In July 2020, Evergrande’s stock rose to 28 Hong Kong dollars in the Hong Kong market, and has recently fallen to more than 4 Hong Kong dollars. The lower the stock, the worse the financing ability. Coupled with the regulation, bank loans closed the door to Evergrande, which had excessive debts, and real estate sales were not smooth. It can be said that many difficulties and losses have been encountered.
Not only Evergrande, but most real estate companies are in difficulty.
The housing burden caused by high housing prices on the people is one of the important indicators of the increasing polarization between the rich and the poor. The CCP just wants to curb its rising pace, which has caused serious difficulties for a group of enterprises. And the difficulties of large real estate companies are not borne by themselves, and they will be put on a lot of backing when they die.
The CCP is increasingly in a situation where it is not doing what it wants
Based on the above analysis, Xi Jinping’s “repeated attacks” on listed companies do not have a specific purpose, but are reactive, and must be adopted to solve the problems accumulated by the “crossing the river by feeling the stones” over the past 40 years. measure.
Some of these moves are listed companies’ first move, and as a company they have to fight back, such as Didi and the anti-monopoly action against Ali; some are the further advancement of established policies in the past, such as prohibiting off-campus training and real estate and medical collection; some are. It was the industry’s management measures that unexpectedly hit China’s concept stocks. For example, the proposed regulation on e-cigarettes.
These turbulences gathered in this short half of a year, creating a panic situation that is very unfavorable to the CCP’s attracting foreign investment, and also caused the U.S. regulatory authorities’ measures to protect domestic investors, which almost blocked Chinese companies’ listing in the U.S. I believe that these are not the original intention of the Chinese Communist Party, because foreign capital has always been the blood transfusion bank of the Chinese Communist Party.
The CCP regime is increasingly in a situation where it is unwilling to do so, and the measures it adopts always bring more and bigger problems at the same time, indicating that the system is dying, and the time for scraping bones and drugs has long passed.
Editor in charge: Sun Yun#
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