Beijing plans to eradicate monopoly practices in the tech industry shortly after blocking Ant Group’s giant IPO.
Chinese tech giants from Alibaba Group Holding Ltd. through Tencent Holdings Ltd lost nearly $ 260 billion in market value in two days of frantic sales as investors scrambled to assess the aftermath of Beijing’s broadest attempt to contain its most powerful private sector companies.
Tech stocks fell for a second day after Beijing enacted regulations aimed at curbing the growing influence of internet leaders including JD.com Inc., Meituan and Xiaomi Corp. The Hang Seng Tech Index fell 5.6% two-day loss to 10% as of noon on Wednesday in Hong Kong. The shares in the quintet of companies fell by at least 8% in two meetings.
Beijing on Tuesday unveiled regulations to eradicate monopoly practices in the internet industry that are turning away from a largely straightforward approach and dealing a blow to businesses at the heart of the world’s second largest economy. The vaguely worded edict landed a week after new funding restrictions shocked Ant Group Co.’s $ 35 billion initial public offering, undoing founder Jack Ma’s ambitions to dominate online funding. They also showed up on the eve of Singles’ Day, the event Ma invented a decade ago and which has grown to be the country’s biggest annual shopping spree.
“China’s big tech needs to rethink its business models,” said Zhan Hao, managing partner of Beijing-based law firm Anjie. “The philosophy of Internet companies is an all-rounder. For platform operators in particular, they ensure user traffic and build ecosystems that are similar to one another.”
[Bloomberg]Xi Jinping’s government is increasingly diminishing the influence of private companies, which have become the main growth driver in the country. Despite sporadic raids on narrow areas, from mobile games to online counterfeiting, Alibaba and Tencent were largely free to acquire and invest in new businesses. They became major supporters of prominent startups, building sprawling empires that now span e-commerce and digital finance, social media, and entertainment.
“I literally gasped when I first read these guidelines,” said John Dong, securities attorney at Joint-Win Partners in Shanghai. “The timing – on the eve of Singles’ Day – the strength and determination to reshape the tech giants is terrifying.”
China’s antitrust watchdog is asking for feedback on rules that provide a framework for containing anti-competitive behavior, such as: B. Agreements on the exchange of sensitive consumer data, alliances that displace smaller competitors, and the subsidization of services at lower costs in order to eliminate competitors. They can also require companies that operate a Variable Interest Entity – a tool that virtually every major Chinese Internet company uses to attract foreign investment and list it overseas – to apply for a specific operating license.
“Internet giants have expanded their reach to various sectors such as finance and healthcare that are vital to the economy and really affect regulators,” said Shen Meng, director of Beijing-based boutique investment bank Chanson & Co. “The move could make business discourage.” in the tech sector, to be listed as affected in the short term will take time to adjust their businesses accordingly. “
On November 3rd, policy makers shocked the investment world by suspending an IPO of Ant Group, a fintech company controlled by billionaire Ma. The decision was made just two days before the shares were due to trade on an exchange where individual investors received at least $ 3 trillion in business. China’s top bank watchdog then doubled down to contain financial technology companies, promising on Wednesday to eliminate monopoly practices and tighten risk controls.
This came on top of a series of regulatory pronouncements targeting the tech industry this week. The new rules for the Internet sector signal “further streamlining” of the online economy, although the real impact will depend on how the rules are enforced, analysts at JPMorgan Chase & Co., headed by Alex Yao, wrote in a note.
The proposed regulations come at a bad time for tech stocks already under pressure from a global rotation that slashed the Nasdaq Composite Index by nearly 3% this week.
“Beijing’s tightening of regulations, including antitrust laws, is a severe blow to tech giants,” said Daniel So, Hong Kong-based strategist at CMB International Securities Ltd. “It’s an additional blow to stocks when investors exit the market.” The sector is being converted into stocks of the old economy due to the vaccine surge, ”he said, adding that companies like Tencent and Alibaba will continue to face downward pressure.