People’s Daily’s IPO Farce: Washing People’s Brain with People’s Money

The website of People’s Daily, the mouthpiece of the CCP, is now a listed company in the Shanghai Stock Exchange. The company raised 1.4 billion yuan (US$222.2 million) in its IPO, nearly three times the amount it hoped for. On the first day of its trading, its stock price surged 76%. Before People’s Daily’s IPO, some pro-democracy activists said that no citizen would buy the stock of a propaganda machine whose profit comes solely from government subsidy. But they couldn’t be more wrong.

Hu Xijin (胡锡进), the Chief Editor of Global Times and a shareholder of People’s Daily, proclaimed victoriously, “The strong performance of People’s Daily on the stock market clearly showed that the majority of Chinese people support our political system. People have voted with their own money.” Meanwhile, pro-democracy blogger Wu Yue San Ke (五岳散客) sadly reflected: “In our society most people are still willing to exchange democracy for monetary gains.”

I do find the retail investors’ enthusiasm over People’s Daily unnerving, only because it confirms my pessimistic view that many people are not against a repressive system as long as they have a chance to join the repressor side. But from an investor’s perspective, People’s Daily’s success is no surprise. The single most important lesson Chinese investors learned in the past several years is that you have to “Follow the Government”. People are buying People’s Daily only because they believe the government will not let it fail even if it means showering taxpayer money on it.

A Webpage of People.com.cn

Here are some facts about the website of People’s Daily that have been discovered by netizens so far:

  • It has certain monopolistic advantages in the heavily controlled news industry. For example, a Chinese journalist can only be acknowledged as a “professional journalist” after they received a “journalist license” from the government. Any journalistic investigation might be considered illegal if the journalist does not have the “journalist license”. None of the other Internet news portal has any journalist licenses, while People’s Daily has more than 120 ones.
  • The other Internet news portals, from Sina, Sohu to Tencent, are required to buy and publish news from People’s Daily. How many companies have such power over their competitors?
  • The biggest clients of People’s Daily are all government institutions who are not price sensitive at all.
  • It can generate profit even without income. For example, the People’s Search Engine, which is set up to compete with Google, has not been monetized at all, but already has more than 30 million yuan profit magically showing up in its book.
  • It plans to spend part of the money it raised on office equipment, namely iPhones and iPads, at the price of 10000 yuan each, several times the market price.

The successful IPO of the website of People’s Daily is a testament to the success of state capitalism in China. The bureaucrats working for People’s Daily must be celebrating: Who said the Internet or the market will undermine state authority? Now we have more money to buy luxury goods such as iPhones and LV or to fly first class to the US for business tour. And if we have some money left, we can spend it on educating people that democratic values are just Western imperialist ideology.

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What’s next for state capitalism? Still more investment than consumption.

The Economist just hosted a timely debate on state capitalism. I notice that even those who believe state capitalism is a legitimate alternative of liberal capitalism mostly agree that countries of state capitalism tend to have worse problems of cronyism and injustice. The Chinese government has been relying on economic growth to sustain its legitimacy after the Mao era, but now many people are starting to ask why their living standard does not seem to rise with our miraculous GDP numbers. So I believe the government will have to invest more in social programs that help to manufacture public consent. But the innate mechanism of state capitalism determines that these social programs will still end up boosting government-run investment rather than domestic consumption.

China’s Ministry of Finance has just released some data of 2011. In 2011, the total tax income of the Chinese government reached a new record of RMB 10.37 trillion, that’s RMB 9000 tax burden on every Chinese citizen; meanwhile, the average income of Chinese people in 2011 is only RMB 24000 (around USD 4,000).

People on the Bund

The government spent most of its money on fixed asset investment rather than social welfare. This is what has been driving the GDP miracle of Chinese economy. A lot of these fixed asset projects became a way that public money is privatized.  The corruption cases happened in the construction of high-speed railway are prime examples. The wife of the former head of the Ministry of Railway became a billionaire simply by supplying all the toilets for all the bullet trains.  No wonder some people say that, in state capitalism, public property is just the private property of power-holders.

It’s hard to imagine that the ruling elites are willing to give back the power and wealth concentrated in their hands, but they do have to protect its legitimacy and appease public discontent. One example of what they plan to do next is the ambitious Welfare Housing Project. The central government announced that from 2011 to 2015  it will build a total of 36 million welfare apartment for low income families. Continue reading