Is Xi Prepping A New Crackdown On Chinese Mega-Tech?

The regulatory headwinds are picking up again in China. Not that they ever dissipated.

In the 15 months since the onset of Beijing’s sweeping anti-monopoly crackdown, analysts have sounded the “all clear” on too many occasions to count. They’ve been wrong each time. Market participants accustomed to the deification of capital and Western notions about the many virtues of wealth accumulation simply can’t wrap their minds around Xi’s “common prosperity” push — or at least not when it manifests in measures specifically designed to rein in “unruly” capital.

So, every escalation or incremental nod to new regulations is greeted as an affront to the purportedly natural way of things. Never mind the fact that economic man is a relatively new concept. I’ll recycle some language from one of my favorite articles. Economic man came onto the scene a mere ~300 years ago. Prior to that, the notion that everyday people should seek gain for its own sake was considered blasphemous. “Markets” as a unifying global concept (as a frame of reference within which to contextualize human activity) and “economics” as a practical branch of philosophical inquiry, are very new ideas.

I say all of that not to defend Beijing’s policy stance, but rather to underline the recency bias inherent in almost everything we write and say in the course of documenting China’s rocky road to becoming an economic superpower. I’ll add the obligatory caveat: Capitalism is the best humanist religion we’ve come up with as a species. But “best” isn’t synonymous with perfect. Capitalism is deeply flawed — internally inconsistent, even. Capitalism run totally amok can be ruinous.

It’s with all of that in mind that I wanted to highlight new reports suggesting Chinese officials instructed state-owned banks to reassess their exposure to Jack Ma’s Ant Group. “Multiple regulators, including the banking watchdog, recently told institutions under their oversight to closely examine all exposure they had to Ant, its subsidiaries and even its shareholders up to January,” Bloomberg reported Monday, citing sources who requested anonymity for obvious reasons. In their discussions with Bloomberg, those sources apparently described “by far the most thorough and wide-ranging look into deals with Ant.”

Recall that it all started with Ma, whose critique of global regulators in October of 2020 led directly to Beijing’s decision to ice Ant’s IPO. The dual listing would’ve been the largest in history (figure on the right, below).

Shares of Alibaba, and Chinese mega-cap tech more generally, have been a one-way ticket since (figure on the left, above).

Monday’s Ant news came on the heels of a surprise decree that compelled Meituan to slash fees. Beijing’s new policies are aimed at reducing delivery charges, bolstering local restaurants and supporting domestic demand at a time when consumption is slowing.

Analysts were quick to suggest the impact on Meituan would be limited, but the new broadside injected additional uncertainty into the market and underscored the contention that the Party is simply too mercurial to make dip-buying a viable strategy in beleaguered Chinese tech. Meituan’s shares plunged last week (figure on the left, below).

The drop illustrated in the visual (red bar) represented a $25 billion one-day value destruction event. Note that egregious single-session routs aren’t uncommon in Chinese tech. In fact, they’ve occurred at fairly regular intervals since Ma’s fateful mistake.

On Monday, Tencent shares dove on “rumors” of an imminent escalation in Xi’s campaign. The company’s PR department pushed back. The WeChat post flagging the purported crackdown was removed and the poster suspended.

The Hang Seng Tech Index suffered its worst two-session drawdown since last July (figure on the right, above). The gauge has lost some $1.5 trillion in value over the last year.

In the same linked article documenting the latest official inquiry into firms’ relationships with Ant, Bloomberg noted that institutions with exposure to the group were asked to “report findings back as soon as possible.” “It was unclear,” the people said, “what triggered the new scrutiny.”