A Bleak Future Ahead For Chinese Tech Companies?

What happened Following the news that President Xi Jinping secured an unprecedented third term in office and finalized his picks for the Politburo standing committee, Chinese tech stocks have crashed. The Nasdaq Golden Dragon Index of 65 Chinese stocks tumbled as much as 21 percent on Monday, erasing 130 billion in market value and hitting its lowest level since December 2012. In particular, Alibaba dropped 14 percent in Wall Street trading, falling below its initial public offering of 68 per share, and Baidu and JD.com tanked at least 19 percent. Meanwhile, Hong Kong’s Hang Seng Tech index was down almost 10 percent. The Jing Take The panic selling comes as investors fear that the political reshuffle will mean a renewal of crackdowns on the sector. Since the end of 2020, the country’s biggest private firms have been hit with a wave of regulations after top leaders vowed to prevent the “disorderly expansion of capital.” This has led to the suspension of Ant Group’s 37 billion IPO, a 2.8 billion fine on Alibaba for failing to comply with anti-monopoly laws, and a cybersecurity probe into ride-hailing giant Didi, which delisted from the New York Stock Exchange just months after going public. And these tech giants are continuing to feel the heat. In August, Tencent posted its first ever quarterly revenue decline of 3 percent due in part to stricter gaming regulations, including a time limit on minors and a suspension of new game approvals. Similarly, Alibaba’s revenue growth flatlined in the three months ended June 30 while JD.com announced its slowest growth on record. That said, JD.com’s CEO told CNBC that although tech regulations are not loosening, they are becoming more “stable” and “rational.” But judging by Monday’s drop in stock prices, this is not enough to rally investor confidence. It doesn’t help that Beijing has also defended its zero-COVID stance, which has negatively impacted all sectors. Furthermore, the country’s common prosperity policy aims to achieve a more even redistribution of wealth. Even the upcoming Singles’ Day festivities may not be enough to foster optimism as analysts expect another year of slowing sales; in 2021, Alibaba and JD.com both posted their slowest sales growth as they toned down marketing hype. With all these uncertainties at play, investors should brace for volatility. 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.

A Bleak Future Ahead For Chinese Tech Companies?

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Published October 25, 2022

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A Bleak Future Ahead For Chinese Tech Companies?