In the wake of Beijing’s regulatory crackdown, Chinese Big Tech companies have suffered a massive loss of $1.1 trillion in market value, equivalent to the entire Dutch economy, according to data from Refinitiv. This regulatory crackdown, which began over two years ago, has had a significant impact on the valuation of major tech companies in China.
Analysts believe that the cancellation of Ant Group, an offshoot of Alibaba,’s $37 billion initial public offering (IPO) in November 2020 is what sparked the regulatory crackdown. Since then, the market valuation of companies like Alibaba Group, Tencent Holdings, Meituan, Baidu Inc., and JD.com has significantly decreased. Between 40.4 per cent and 71 per cent of these companies’ share prices have fallen over this time.
Regulatory restrictions that have restricted growth since late 2020 may start to loosen, according to investors. Recently, the People’s Bank of China (PBOC) hinted at a potential shift in strategy by declaring that the majority of the key problems pertaining to platform companies’ financial enterprises have been resolved. The PBOC also stated that regulators’ attention would turn from particular businesses to the industry at large.
The positive sentiment towards the technology sector was further highlighted by the state planner’s acknowledgment of Tencent Holdings and Alibaba Group for their contributions to China’s tech innovation. This indicates a potential warming of authorities towards the technology sector.
Analysts warn that mega-cap tech companies may encounter difficulties allocating capital expenditure towards developing generative AI technologies and products in a potentially hostile external environment, which could impact profitability, despite the fact that technology stocks in Hong Kong have risen since Monday with a 4.1 per cent increase. They also stress the requirement for stronger government actions to support the existing valuations.
While the regulatory crackdown has resulted in significant losses for Chinese Big Tech, the long-term implications and the direction of the regulatory landscape remain uncertain.