Chinese stocks tumble as Beijing shows who’s boss

Who dares to invest in Chinese companies? This has suddenly become a lot more exciting in recent days, after a lot of shares have suddenly plummeted in value. And especially those of valuable Chinese tech companies.

To start with one of the biggest: technology company Tencent, owner of the immensely popular chat app WeChat. While a share was still worth 545 Hong Kong dollars (59 euros) at the start of the trading day on Friday, it was 423 dollars on Wednesday at the low point. Also hit hard: Meituan, the largest meal delivery company in China. From 280 Hong Kong dollars on Friday, the stock tumbled to a low of 193 dollars on Wednesday.

These giants are not alone. The large stock indices that contain many Chinese companies, such as the Hong Kong Hang Seng and the Chinese CSI 300, lost significantly. It wasn’t until Wednesday that there was any sign of recovery.

Tech companies in China in particular are suffering

The unrest stems from all kinds of actions by the Chinese government to impose stricter rules on companies, especially tech companies.

It all started a few weeks ago, after the IPO of taxi app Didi in New York – the largest IPO of a Chinese company in the United States since that of online store Alibaba in 2014. The IPO of this ‘Chinese Uber’ at the end of June was Initially a success, the price moved up nicely, but a few days later it went completely wrong.

Didi’s headquarters in Beijing was invaded by Chinese government agencies for a “cybersecurity inspection” related to Didi’s data collection. A few days later, Didi was banned from the Chinese app stores and was therefore unable to acquire new customers in China. Didi’s price has been cut in half since then.

Also read: China closes the net on its own big tech companies in the hunt for data

Target of the Chinese government

Last week, more companies and sectors were targeted by the Chinese government’s new regulatory push. On Friday it was announced that private tutoring companies – a major industry in China – are no longer allowed to make a profit, the entire sector must become non-profit. The idea is that tutoring will become accessible to more children, but investors didn’t know how quickly they had to get out of these companies.

On Monday, new rules came out for delivery services, which should improve the treatment of deliverers. For example, they must be paid at least minimum wage, and the ‘intensity’ of the workload must be reduced. Nice for the meal delivery companies, but for investors reason to dump their shares in companies like Meituan.

Finally, on Tuesday, Tencent issued the ominous announcement that new customers could no longer register for WeChat, at least until August. That has to do, the company says, with an improvement of the safety systems, in line with the “relevant laws and regulations”.

It’s a lot of different new rules, but it’s all about one message: Beijing is the boss. „It is again clear where the power lies in China – and it does not lie in the boardrooms of companies,” says Wim-Hein Pals, head of emerging markets at asset manager Robeco. “That’s why the stock markets are going down so much right now. The entire tech sector has been able to grow more or less unregulated for a long time. Now that growth is suddenly curtailed.”

The Chinese leaders saw the national tech companies get bigger and bigger, and collect more and more data. Successful Chinese companies are wonderful, but they should also not become too powerful, as it turns out. So much data concentrated within a handful of companies is apparently seen as too threatening.

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