Chinese technology giants have lost more than $1 trillion in value – equivalent to the entire Dutch economy – since Beijing began its crackdown on private firms almost three years ago.
The tech crackdown began in November 2020 after Chinese regulators railroaded Alibaba affiliate Ant Group’s $37 billion initial public offering (IPO) — set to be the biggest in the world — two days before its debut.
The regulatory action followed comments from Ant founder Jack Ma criticising Beijing for stifling innovation and operating with a “pawnshop” mentality.
The billionaire’s speech, seen by senior financial regulatory officials as a “punch in their faces” led to the start of a sweeping crackdown on mainland China’s tech firms, which had grown rapidly in size and influence.
Since then, Hong Kong-listed stocks of Alibaba Group, Tencent, Chinese food delivery giant Meituan, search engine provider Baidu and e-commerce site JD.com have collectively lost roughly $1.1 trillion in market cap, according to Refinitiv data.
Share prices for the five companies have plunged between 40% and 71% during that time.
Investors are now hoping the strict rules that have stymied growth since late 2020 will start to ease, after the People’s Bank of China (PBOC) slapped a nearly $1 billion fine on Ant Group and indicated a change in direction could be under way.
Relief and caution
Announcing the penalty on Friday, the central bank said most of the main problems for platform companies’ financial businesses had been rectified, and regulators would shift their focus to the industry as a whole rather than specific companies.
Technology stocks in Hong Kong have rallied 4.1% since Monday as investors bank on an easing regulatory environment to boost earnings, but some analysts have sounded a note of caution.
“Mega-cap tech companies will allocate increasingly large amounts of capital expenditure towards developing generative AI technologies and products in a hostile external environment, potentially impacting profitability,” Redmond Wong, Saxo Markets strategist in Hong Kong, said.
Steven Leung, UOB Kay Hian sales director, said current valuations would last “until we see more supporting policies from authorities”.
China’s changing priorities
Washington’s moves to cut China off of the global supply of advanced chips and chipmaking equipment has led President Xi Jinping to urge the country to reduce its reliance on Western technology.
Xi has repeatedly called on regulators and the industry to focus more on making breakthroughs in “hard” technologies such as semiconductors and artificial intelligence.
In the latest sign of authorities warming back up to the technology sector, China’s state planner on Wednesday praised Tencent and Alibaba in a statement detailing a study it had done on platform firms.
The National Development and Reform Commission (NDRC) said platform companies had become key contributors to areas of tech innovation China was prioritising, such as semiconductors and autonomous driving.
The NDRC highlighted a number of examples, such as Tencent and Meituan’s investments in cloud computing and semiconductors respectively, as well as Alibaba’s efforts in digitising agriculture.
The state planner’s comments mark a turnaround for both companies which, during the tech crackdown, were repeatedly criticised and punished for violations ranging from failing to protect customer privacy to monopolistic behaviour.
On Wednesday morning, Tencent’s shares gained 1.8% and Alibaba’s shares jumped 1.86% in the Hong Kong market, outperforming a 1.15% gain in the benchmark Hang Seng Index.
- Reuters, with additional editing by Vishakha Saxena