Chinese tech shares are in trouble.
Beijing’s abrupt blitz to rein in Alibaba, Tencent, and others, came as something of a shock this week, but the underlying rationale, to the extent you can ever truly discern such a thing in Party decrees, echoes concerns voiced by officials and regulators around the world. Essentially, China is worried that its tech titans wield too much power and may be prone to abusing it without sufficient oversight and guardrails.
A hodgepodge of new regulations pitched as an effort to expand on the country’s anti-monopoly law came just a week after Beijing’s dramatic, eleventh hour intervention in Ant’s planned IPO. Additional regulatory measures are apparently in the cards. Through Wednesday, the reinvigorated crackdown had precipitated a truly egregious slide in the Hang Seng Tech Index.
So, that’s more than 11% in just two sessions.
This is something of a tightrope walk for Beijing, which has made nurturing “homegrown” tech a priority in a world where the international community is increasingly hostile to China’s rise, both economically and otherwise. Kneecapping these giants, while consistent with the international backlash against big tech’s almost omnipotent aura, could chance undermining efforts to assert Chinese tech dominance. At the same time, allowing just a handful of companies to corner the market could stifle competition, something that would ostensibly undermine Xi’s avowed plans to encourage innovation.
“I literally gasped when I first read these guidelines,” Bloomberg quotes a Shanghai-based securities attorney as saying. “The timing — on the eve of Singles’ Day — the forcefulness and the resolve to remake the tech giants is startling.”
When it comes to Beijing’s penchant for stepping in to curtail what it deems to be deleterious trends or behaviors that might end up producing undesirable results, I’m not sure anyone should ever be “startled.” This is, after all, an authoritarian regime that prizes stability over all else. With some Chinese tech companies getting their tentacles into businesses that weren’t originally their purview, it’s hardly a surprise that the Party is nervous.
Insult was added to injury on Wednesday when Liang Tao, a vice chairman of the China Banking and Insurance Regulatory Commission, effectively put the fintech space on notice during remarks at a conference in Beijing. Those companies, Liang said, don’t alter the character of the financial industry and should expect that regulators will be watching for risks associated with the digitization of finance. Companies should operate under the same supervisory regime as banks, he added.
“We need to strike a balance between financial development, stability, and security,” Liang remarked. “We need to pay close attention to the risks from internet security, data protection and market monopoly.”
Between them, Alibaba and Tencent have seen almost $300 billion in market value evaporate in just two sessions.
Obviously, this is far from over, and you can absolutely expect to hear more from Beijing over the next six or so months.
The near-term issue is that the steep declines in big Asian tech come as markets are already predisposed to rotating out of technology winners and into sectors and names that are seen as beneficiaries in a reopening trade tied to vaccines and therapeutics produced by pharma giants in western nations.
These are falling knives, but if you can catch them by the handle and not the blade…