ByteDance, the Chinese tech giant behind TikTok, is reportedly planning a 2022 Hong Kong initial public offering (IPO) just months after shelving a potential offshore listing in fear of punishment from Chinese regulators. The move is in some ways surprising: Chinese regulators have recently blocked high-profile IPOs and punished companies that have forged ahead with them. Xi Jinping personally blocked Ant Group’s IPO in November 2020 and officials from the Cyberspace Administration of China (CAC), the Ministry of Public Security, the Ministry of State Security, the Ministry of Natural Resources, and others began an on-site investigation into Didi Chuxing, China’s largest ride-hailing company, after it launched an IPO against the wishes of the CAC. At The Financial Times, Mercedes Ruehl, Tabby Kinder, and Miles Kruppa reported that ByteDance’s decision not to pursue a New York IPO bought it regulators’ goodwill, allowing for a future Hong Kong offering:

ByteDance was “in similar meetings as Didi and Full Truck Alliance” with cyber security regulators in China, according to one person close to the company. A truck hailing company, Full Truck Alliance is also under investigation after holding a US listing in June.

Following the meetings, ByteDance “decided not to continue with a New York listing”, the person said.

[…] That plan was vindicated this year after China cracked down on overseas listings. “We’re telling clients, if you’re a Chinese company of any size, focus on a Hong Kong IPO, forget about the US for now,” said a senior partner at a corporate law firm. [Source]

ByteDance’s efforts to conform to the newly stringent demands emanating from Beijing regulators have come at a steep cost. Zhang Yiming, the company’s founder, stepped down from the company in May, one of several tech company founders to resign in the wake of Jack Ma’s downfall. After a summer crackdown on extracurricular education services, ByteDance has moved to shut down its portfolio companies in the education sector, which had once been Zhang Yiming’s pride and joy. At The Financial Times, Ryan McMorrow and Sun Yu wrote about ByteDance’s decision to move away from the education industry in which it had invested a great deal of talent and capital:

The Beijing-based company had invested heavily in its plans for online education, acquiring half a dozen businesses in recent years and announcing plans this February to recruit 10,000 more employees for the division.

But those efforts have been undone by new government regulations last month making some of its education businesses illegal. Now the company has started to trim its workforce, according to three people close to the situation, with one person saying several thousand employees would be let go.

[…] One of ByteDance’s education apps, Gogokid, which allowed foreign English teachers to tutor Chinese children, was taken down. The new Chinese regulations specifically ban the use of teachers outside of China from teaching online courses. Chinese media Latepost first reported the news. [Source]

At The South China Morning Post, Coco Feng and Zhou Xin detailed just how drastic an about face this was for ByteDance, which was once bullish about education:

One source close to ByteDance told the South China Morning Post that Beijing’s policy change on private tutoring had killed Zhang’s dream of building up an extensive, sustainable private education empire. “Zhang had treated education as the new strategic direction,” the source said. “As Douyin is a tool for people to kill time, he believes education can create more social value.”

[…] In a letter to employees in March 2020, Zhang said he had made up his mind to venture into education and had the “patience” to wait for the new business to bear fruit. He wrote that he had visited Minerva University in San Francisco and realised how education could empower people. Zhang remains a board member at Minerva, according to the school’s website.

Chen Lin, the head of ByteDance’s education business, said in a speech in July 2020 that it would invest heavily in education and was prepared to bear losses for at least three years. [Source]

Zhang’s last public appearance was a photo op at his hometown middle school to celebrate his $77 million donation to education efforts in the city. Jack Ma’s only public appearance of 2021 also took place at a rural school. Some analysts say the Chinese billionaire class’ recent largesse is the result of government pressure. “It doesn’t get more politically correct than rural education,” Duncan Clark, a Beijing-based author of a book about Jack Ma, told the Financial Times.

Does ByteDance’s rumored IPO mean that China’s tech crackdown is over? The Economist wrote that it will be a pivotal test case for whether Xi Jinping’s vision for China’s tech companies is compatible with the demands of global capital:

The ranks of potential winners are less well-defined. As a guiding principle, the vice-premier, Liu He, recently stated that China is moving into a new phase of development that prioritises social fairness and national security, not the growth-at-all-costs mentality of the past 30 years. He noted how the government will guide the “orderly development of capital”, the better to suit the “construction of a new development pattern”. Barry Naughton of the University of California, San Diego, calls this the “grand steerage”. Dexter Roberts of the Atlantic Council, a think-tank in Washington, DC, discerns an echo of Mao Zedong’s “politics-in-command” economy. Either way, it is a break with the old pro-growth model and the beginning of “real state capitalism”, as one investment banker puts it.

[…] Some run-ins have already happened. A recent policy from the central bank aimed at breaking up powerful fintech groups spilled into antitrust territory covered by SAMR, notes Angela Zhang of the University of Hong Kong. Following Didi’s post-IPO app ban and online tutors’ profit-prohibition, in both of which the CAC played a part, the China Securities Regulatory Commission (CSRC), which has spent years trying to convince global investors that Chinese markets are stable, had to contact bankers and investment funds to assure them that other industries would not be treated so harshly. The CSRC’s move was interpreted by some as a sign that regulators were rethinking their scorched-earth tactic. Instead, the situation highlights how poorly co-ordinated the campaign has been at times. [Source]