China’s crackdown on its tech giants isn’t a move to ‘take the wings off’ its entrepreneurs, says strategist – CNBC

China’s recent moves to regulate its technology companies are not necessarily intended to “take the wings off” of its entrepreneurs, a strategist told CNBC on Thursday.

When asked if there could be policy missteps in China’s crackdown on its tech companies, Andy Rothman, an investment strategist with Matthews Asia, explained that it reflects a different approach to regulation as compared with the West.

“They are dealing with regulatory issues in a different way than Western governments deal. So normally, a Western government would lay out a regulatory structure in the early days of a new industry, like fintech being developed,” he told CNBC’s “Street Signs Asia.”

“The Chinese experience has been instead, to say to entrepreneurs, go ahead and give this a try. And then we’ll step in there after we see how it works and decide how to regulate it,” said Rothman. “And I think that’s what they’re doing now.”

China’s technology companies have been largely unencumbered by regulation as they grew into some of the world’s largest corporations. That’s changed in the past year as regulators have cracked down, especially those which operate in the financial sector.

“I don’t see this as an attempt to take the wings off of the private sector, which has been driving all the job and wealth creation in the country,” said Rothman, who was previously head of the macroeconomics and domestic policy office of the U.S. Embassy in Beijing. 

Beijing’s tightening regulations have hit a number of sectors, including micro lending and what it viewed as monopolistic practices on internet platforms.

Much of the scrutiny has been around Alibaba and and its financial technology offshoot Ant Group, whose massive initial public offering was pulled by regulators. Authorities, however, recently approved Ant Group to operate a consumer finance company, a move which experts said was a positive sign for Ant.

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But it does mean that investors need to be “really cautious about valuations,” Rothman said. He explained that it has driven him to take a more active approach to investing in China, rather than a passive exchange traded fund-based approach.

An active approach means picking individual stocks, as compared with passive investing as a strategy where investors buy an index that broadly tracks the market, such as exchange-traded funds.