Investors Sweat As China Cracks Down On Private Businesses

    As Beijing launches new attacks against private businesses, US-listed Chinese tech stocks are seeing their biggest slump since the 2008 financial crisis.
    As Beijing launches new attacks against private businesses, US-listed Chinese tech stocks are seeing their biggest slump since the 2008 financial crisis. Photo: Shutterstock
      Published   in Macro

    What happened

    China’s big tech companies cannot seem to catch a break. In July, the Nasdaq Golden Dragon China Index, which follows the 98 biggest US-listed Chinese stocks, tumbled a whopping 22 percent, marking its largest drop since the 2008 financial crisis. Among the companies hit hardest was Meituan, which saw its worst two days on record — down 14 percent on July 26 and 17.7 percent the following day in Hong Kong. Meanwhile, Tencent and Alibaba stocks similarly slid by double digits, erasing more than 237 billion across the three giants in total.

    The Jing Take

    These plummets come as Chinese authorities launch new attacks against private companies and those listed abroad. Earlier this month, China's Cyberspace Administration suspended the registrations of new users to Didi just days after its blockbuster New York Stock Exchange debut, with regulators launching probes into the ride-sharing company and delisting its app over “national security” concerns.

    A few weeks later, the State Council announced a new set of policies outlawing private tutoring companies from turning a profit and raising funds on stock markets, threatening to wipe out billions of dollars from the sector. And now, after unveiling restrictions on the corporate use of facial recognition technology this week, China is set to introduce new data security and personal information protection laws that could have far-reaching implications on its digital economy and cross-border businesses.

    If these domestic pressures weren’t enough, Chinese companies also face several hurdles abroad. On top of President Biden’s growing blacklist of Chinese companies barred from American investment due to alleged military ties, the US Securities and Exchange Commission (SEC) has also stopped processing registrations of US IPOs by Chinese companies while it crafts new guidance to help investors understand Beijing’s regulatory landscape.

    But even with these additional disclosures, the ongoing turbulence within corporate China makes it difficult for foreign investors to truly prepare for the risks ahead. While Beijing has affirmed its support for domestic companies seeking to list overseas, some players like Little Red Book and Hello Inc have chosen to proactively halt their US IPOs. Moreover, there’s no telling which sectors the Chinese government will tackle next, considering how its attack on private education firms came as a surprise. So, with the Chinese government's crackdown showing no signs of slowing, investors should buckle up for a bumpy ride.

    The Jing Take reports on a piece of the leading news and presents our editorial team’s analysis of the key implications for the luxury industry. In the recurring column, we analyze everything from product drops and mergers to heated debate sprouting on Chinese social media.

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