China: The tech crackdown persists
China's recent regulatory onslaught has fundamentally shifted the way Chinese markets are viewed — this is its impact on tech giants and the economy as a whole.
After 40 years of allowing the invisible hand to expand China’s economy in driving prosperity, China’s leaders are starting to return to a centralized one — staying true to their communist roots. Recognising the growing pressure on students and their parents to spend time and money on private tutoring, President Xi Jinping pledged to relieve their burden. While his comments went unnoticed at the time, private education was recently said to be “hijacked by capital” — as tutoring companies were strictly ordered by Chinese authorities to become non-profits, which triggered a massive sell-off that erased $1.5 trillion from Chinese stocks and severely eroding portfolios of some of the biggest names in global finance. According to JP Morgan Asset Management’s 2020 annual report, it has weighted approximately 51% of its portfolio to investments in China and Hong Kong, with Tencent and Alibaba being in the ten largest equity investments.
9 years ago, Cheng Wei left his comfortable role as an executive in Alibaba with a revolutionary idea to start a ride-hailing company, now known as Didi Dache. Presently, Cheng Wei has successfully captured 90% of market share in China’s lucrative ride-hailing market, with nearly 600 million riders using the app daily. It recently had its app removed from the app store by the Cyberspace Administration of China, after suspicions that the firm had violated data privacy and security laws. Company shares have been on a downward spiral ever since. However, the ride-hailing app isn’t the only one facing a crackdown at home. The recent regulatory assault has equally damaged stock prices of Tencent and Pinduoduo. It has wiped off a staggering $87 billion of the net worth of these wealthy tycoons since the start of July, hitting the fortunes of Tencent’s Pony Ma and Pinduoduo’s Colin Huang.
For decades, despite keeping strict control over strategic sectors like banking, China’s leaders allowed investors and entrepreneurs to embrace new technologies and fresh opportunities for growth. However, their new development plans show no sign of slowing down either. Their long-term development plan introduced this year promises to deliver “common prosperity”, national security, and stability, with the latter aimed at mitigating discontent among China’s middle class. China’s tech tycoons in particular have been deemed in recent years to be “too wealthy, arrogant and powerful”, leading locals to grow increasingly resentful of tech giants and the chokehold they have on China’s economy.
A clear message has been conveyed. In a speech last month to entrepreneurs, Xi mentioned that their “thoughts and actions must be aligned with the analysis, judgement, decision-making and planning” of the CCP. In other words, it’s “put the nation’s interest first” or else.
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