Our Take on China and India

Recent clampdowns by Chinese regulators in areas such as technology and private education have caused some investors to rethink their China allocations. These government actions came in the wake of a broader push aimed at curbing monopolistic behavior in the so-called platform economy. Investors began to ponder the implications in November 2020 when regulators suspended the initial public offering (IPO) of Ant Group, a financial-technology (fintech) firm whose chairman and majority shareholder is renowned tech titan Jack Ma. This year, a flurry of additional restrictions announced during the summer rattled financial markets. Pundits in the press and elsewhere have even begun to question the Chinese government’s commitment to capitalism.


In assessing these concerns, it must first be recognized that Chinese capitalism isn’t the same as the capitalism practiced in the West. Western capitalism in its modern form rests largely on the free-market principles laid out by eighteenth-century philosopher and economist Adam Smith. In The Theory of Moral Sentiments, Smith introduced the concept of the “Invisible Hand” to describe the unintended social good brought about by individuals acting in their own self-interest. With an almost religious zeal, Smith viewed the workings of the free market as manifestations of something akin to divine providence.

The Chinese reject Smith’s formulation. They believe capital allocation driven by self-interest and greed inevitably leads to inequality, exploitation and the dangerous accumulation of power by large corporations. Because all of these things undermine the Chinese Communist Party’s (CCP’s) objectives of common prosperity and social cohesion, capitalism in the Chinese model must be kept on a tight leash. In what one might characterize as “guided capitalism” or “directed capitalism,” Adam Smith’s Invisible Hand is replaced by the not-so-invisible and sometimes-heavy hand of the Chinese government.