Beijing's regulatory crackdown wipes $1.1 trln off Chinese Big Tech | Mint
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Business News/ Markets / Beijing's regulatory crackdown wipes $1.1 trln off Chinese Big Tech
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Beijing's regulatory crackdown wipes $1.1 trln off Chinese Big Tech

China's major tech companies have lost over $1 trillion in value since the government's regulatory crackdown began. However, there is hope among investors that the strict rules may begin to ease.

In a recent announcement, the central bank stated that most of the financial issues faced by platform companies had been addressed, signaling a potential shift in regulatory approach. (Reuters)Premium
In a recent announcement, the central bank stated that most of the financial issues faced by platform companies had been addressed, signaling a potential shift in regulatory approach. (Reuters)

According to data from Refinitiv, China's major tech companies have lost over $1 trillion in value since the government began its regulatory crackdown on the sector more than two years ago. This staggering figure is equivalent to the entire economy of the Netherlands.

However, there is now hope among investors that the strict rules that have hindered the industry's growth since late 2020 may begin to ease. The People's Bank of China (PBOC) has hinted at a potential change in direction, indicating a possible shift in focus from specific companies to the technology industry as a whole.

In a recent announcement, the central bank stated that most of the financial issues faced by platform companies had been addressed, signaling a potential shift in regulatory approach. Moreover, the state planner has acknowledged the contributions of tech giants like Tencent Holdings and Alibaba Group to China's tech innovation. This recognition is seen as a positive indication that the authorities are becoming more receptive to the technology sector once again.

The regulatory crackdown on China's tech firms gained momentum after the shelving of Alibaba affiliate Ant Group's $37 billion initial public offering (IPO) in November 2020. This event marked the beginning of a broader crackdown on mainland China's rapidly expanding and influential tech companies.

Since then, the market capitalization of Alibaba Group, Tencent, Meituan (Chinese food delivery giant), Baidu Inc (search engine provider), and JD.com (e-commerce site) has collectively plummeted by approximately $1.1 trillion on the Hong Kong stock market. Share prices for these companies have experienced significant declines ranging from 40.4% to 71% during this period.

Although technology stocks in Hong Kong have seen a 4.1% rally since Monday, driven by optimism about a more lenient regulatory environment, some analysts urge caution. They suggest that mega-cap tech companies may allocate substantial amounts of capital expenditure towards developing generative AI technologies and products, anticipating potential impacts on profitability.

Redmond Wong, a strategist at Saxo Markets in Hong Kong, highlights the hostile external environment these companies face. Similarly, Steven Leung, the sales director at UOB Kay Hian, believes that current valuations will persist until authorities introduce more supportive policies for the sector.

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Published: 12 Jul 2023, 03:45 PM IST
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