Chinese Regulatory Crackdown Wipes Billions in Stock Value
For the past few months, Chinese regulators have been cracking down on various sectors of the economy. While new regulations and investigations have targeted businesses from practically all spheres - from education and property management to cryptocurrencies and gaming - the tech sector seems to have been hit the hardest.
The regulatory crackdown seems to focus on a few key things: anti-monopoly legislation, data security and protection, content regulation, and competitive practices.
The first signs of the crackdown came in November 2020, when the government blocked billionaire Jack Ma’s IPO. Jack Ma is the richest man in China (his Ant Group is one of the largest fintech companies in the world) and owner of Alibaba, the “Chinese Amazon.” Ma mysteriously disappeared for three months after giving a speech critical of the Chinese financial industry, perhaps foreshadowing the crackdown that will impact most of China’s financial elite.
This kicked off a series of investigations and harsh fines for the biggest Chinese tech companies. Alibaba was fined $2.8 billion as a result of an anti-monopoly investigation, while the Chinese car-hailing company Didi was prevented from allowing new users to register while its cybersecurity was investigated. In June this year, the CCP also blocked Tencent’s $5.3-billion-worth video games merger on antitrust grounds.
As a result of hardened regulations, half a trillion dollars were wiped from the Chinese markets within a week, shattering investor confidence. The situation marks a stark contrast to the previous decade, during which China’s economy experienced a huge and continuous boom.
Now, investors are reluctant to put money into Chinese companies, as both new regulations and possible geopolitical impacts stemming from the US-China trade war might further bring the market down.
However, Chinese tech giants have proved to be resilient and capable of quickly adapting to new regulatory policies and even anticipating them. Chances are that their growth is bound to continue after this short but significant dip. Hence, investing in stocks of Chinese companies might become profitable again in the near future.
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